PROVIDENCE, R.I. (WPRI) – The Raimondo administration has thrown its full support behind a controversial business incentive program, the same one the governor once warned could result in a repeat of the failed 38 Studios dead.
The R.I. Commerce Corp. on Thursday unanimously approved a $20 million agreement between the state and Enhance Capital, paving the way for the New York City-based investment firm to start making $15 million in loans with small businesses negatively affected by the public health crisis.
The sudden support is a sharp contrast from just February when the same quasi-public board – led by Gov. Gina Raimondo and Commerce Secretary Stefan Pryor – described the program as posing “imminent peril to the prudent investment of the state’s funds and taxpayers’ dollars.”
Since then, however, the pandemic struck, forcing hundreds of businesses to shut down and casting tens of thousands of workers into unemployment. And the state has found itself at a sudden loss of revenue — largely tied to gambling — and grappling with a nearly $900 million deficit in the past and current budget years.
The change of circumstances spurred Raimondo on Wednesday to announce her newfound support for the program, claiming the deal also looks better now because of new terms negotiated between Commerce president Jesse Saglio and Enhance.
“I was originally pretty critical of this program and the way it was structured – I was not a fan,” Raimondo said during Thursday’s meeting. “Having said that, I appreciate the way Enhance has come to the table and stepped up to help us out.”
Less than a year ago, Raimondo repeatedly criticized the program, saying it would only benefit out-of-state companies and might result in another deal like 38 Studios, the video game company that went bust after receiving a $75 million taxpayer-backed loan.
And she’s not the only one who has changed her mind, as the program now has the full backing of the Commerce board, including many who were likewise critical. Board member Michael McNally, who helped pen a letter opposing the program, once described it as a “giveaway.”
But he echoed the governor’s remarks Thursday, saying the newly created terms have made him more comfortable with the deal, and that his concerns should be considered “retracted.”
“It’s still expensive, but now is probably the right time for the state to write checks for businesses,” McNally said. “Times have changed.”
The program was championed by legislative leaders in the General Assembly, who defended its merits despite fierce pushback from the Raimondo administration. House Speaker Nicholas Mattiello and Senate President Dominick Ruggerio could not be immediately reached for comment Thursday afternoon, as the General Assembly was in session.
Under the newly negotiated deal, the loans made through Enhance with coronavirus-affected businesses – such as restaurants, hotels and brick-and-mortar retail – would come with a minimum five-year term and 0% interest rate for the first six months.
After the initial six months, the interest rate would be capped at 5% for two years and 8% until maturity, according to the deal. Pryor said the low interest rate, the extended time period of repayment and some other “accountability measures” were part of what went into the negotiations that made the deal more palpable.
Saglio said the deal includes claw-back measures and “a series of penalties” in the event the firm fails to meet certain thresholds, although he didn’t elaborate during the meeting. Target 12 has requested a copy of the deal.
According to the law that created the program, Enhance will profit off whatever returns the business generates, along with state tax credits on a portion of every dollar invested.
When asked Thursday how quickly the investment firm could start getting the money out to qualifying small businesses, Mark Slusar of Enhanced Capital said the goal is to start investing by the end of September. Within a year, Slusar said he expects the company could make loans — ranging from $10,000 to upward of $1 million — with 50 companies.
“That would be fantastic,” Raimondo said.
Two other companies, Advantage Capital and Stonehenge Capital, also applied to participate in the program after it passed into law last summer. But they were rebuffed after Commerce implemented emergency rules making it difficult to qualify to participate.
Saglio said Commerce continues to be in touch with other firms, which have expressed a continued interest to participate. Pryor said they might have additional announcements coming in the future related to the program, and other companies now have a template created with Enhance to follow.
The governor echoed the sentiment.
“You’re setting a good standard for [others] in the industry,” Raimondo said about Enhance. “I do hope they follow your lead.”