Inside McKee's 11th hour pitch to keep Citizens Bank - and its jobs - in RI. Here's the deal.

Gov. Dan McKee has quietly asked lawmakers to approve a tax relief-and-spending package for Citizens Bank that includes the proposed state purchase of a Citizens-owned building on Tripps Lane in East Providence for more than twice its current $16.9 million assessed value.

A second of two unannounced budget amendments has Democrat McKee asking lawmakers to allow a tweak in the state's " financial institutions tax " that could potentially cost the state millions in revenue.

How much exactly? A potential $7.6 million revenue loss in the fiscal year that begins on July 1, and $15,585,488 the following year.

How would it work? The proposed amendment, submitted on May 10, allows banks to take advantage of an "alternative net income apportionment methodology."

Within the State House, it is believed to be a targeted effort to assist Citizens for unstated reasons, though it does not specifically name the company.

Behind-the-scenes, budget negotiations between the House, Senate and governor's office have begun in earnest, and the state budget office sent lawmakers these two amendments to the nearly $13.7 billion tax-and-spending plan McKee proposed in January at a critical point in the legislative session.

On Monday, the House Finance Committee posted notice of a hearing on Thursday on the two bank related proposals.

Here's what we know about the Citizens Bank deal - and what we don't

Late Monday, t he McKee Administration defended his late-game proposals to the legislature.

That includes the state paying $33.7 million to buy and ready the 225,458 square foot, 1979-built Citizens building − that previously housed the Citizens One Home Loan Center − for an unspecified "state use." The purchase price is not spelled out, but state Director of Administration Jonathan Womer said Citizens' asking price when they put it on market was $27 million.

The City of East Providence has assessed the property at $16.9 million and if it moves to state ownership, East Providence could miss out on the property taxes Citizens now pays. East Providence Mayor Bob DaSilva's office did not have an immediate comment on the proposal Tuesday.

Including borrowing cost, architectural work, engineering, construction and "related costs to prepare the building for occupancy," the purchase would cost the state a projected $44.5 million over 10 years, according to the budget amendment.

The rationale in the budget amendment?

• The Department of Administration is negotiating to purchase the building to relocate back offices for several state agencies including the Department of Environmental Management, Department of Human Services and IT department
• DEM currently spends $2.5 million on leases and the state building at 50 Service Ave. in Warwick, where servers are located, needs $10 million worth of HVAC work, Womer said.
• "The [East Providence] property’s condition, size, and specifications, including a roughly 60,000 square foot state-of-the-art data center, make it uniquely appealing for a long-term investment for state use."
• "The investment required to acquire the building is significant," but it will be "offset over time by the ability to terminate costly leases ... and avert deferred maintenance of aging state properties."

The state is currently obligated to pay $10.7 million in total annual lease payments for 569,745 square feet of office space across multiple properties, and $684,586 per year on 73,770 square feet of warehouse space, according to a Senate Fiscal Office analysis.

McKee spokeswoman Christina O'Reilly said the administration is pursuing the purchase of this building "as part of its years-long strategy to move away from leasing and find space that best fits the present needs of our agencies"

Citizens spokesman Rory Sheehan Tuesday wrote that there are still some bank employees working in the East Providence office building, but the company has had the property on the market for two years as it looks to consolidate its brick-and-mortar footprint.

"A deal has not been reached on the property. Since the pandemic, workforce trends have accelerated and more Citizens colleagues are engaged in flexible work," he wrote in an email. "In the event that there is a sale, colleagues assigned to the building on Tripps Lane would be assigned to our Johnston campus and we would continue to have approximately 4,200 colleagues in Rhode Island."

Is Citizens reducing its Rhode Island footprint?

Sheehan said despite being proposed by the McKee Administration within days of each other, the budget amendments to buy Tripps Lane and change how bank tax bills are calculated are "not at all related."

The tax issue revolves around Rhode Island factoring banks' property and payroll when calculating banks' corporate tax bills, instead of only their sales.

In testimony before the House Finance Committee last month, Citizens Executive VP Mike Knipper delivered a warning, telling lawmakers that taxing banks more for having property and payroll could make them want to move employees across the border.

And as it happens, Massachusetts is set to move to a "single-factor" tax system based just on sales next year as part of Gov. Maura Healey's tax-cut package last year.

• "If this legislature fails to act, Rhode Island banks will soon be incentivized to create and/or move existing jobs just over the border to Massachusetts to dramatically reduce their state tax liability,'' Knipper said in written testimony in support of bill H7927 that would move the Rhode Island tax toward Massachusetts'.
• "Once Massachusetts' transition to a single sales factor takes effect Jan. 1, 2025, Citizens or any large bank would strongly consider expanding its corporate footprint and employee base outside of Rhode Island because of the differing tax treatment between the states," he said.

And there's another layer.

Just last month, Citizens confirmed to The Journal that it is no longer seeking millions of dollars annually in tax rate reductions from Rhode Island's Jobs Development Act program.

Dating back to 1994, the jobs-development tax credit can reduce the corporate tax rate of a qualifying company from 7% down to 3% . In 2022, only three companies were still eligible for the $ 39.7 million in tax credits, with Citizens getting $38.1 million of the benefit without any marked increase in employment.

Sheehan said 2022 was the last year Citizens claimed a Jobs Development Act tax cut.

More: Should lawmakers end tax breaks for some of RI biggest companies? Why two lawmakers say yes.

Peter Lucht, a Citizens spokesman, said: "Much of this has to do with workforce trends that were accelerated by the pandemic.  For example, our hybrid work model calls for our colleagues to be in the office for three days per week, which doesn’t meet the threshold under the JDA for qualifying positions."

"While we don’t speculate regarding plans around workforce levels, there is no link between our not participating in the JDA and any workforce actions we might consider going forward," he said.

According to Citizens' House Finance Committee testimony: The firm has over 100 branches and ATMs statewide, "which is over twice as many bank branches in the state as its closest banking competitor. Citizens is integral to Rhode Island's economy, serving over 200,000 residents and over 30,000 small businesses."

This article originally appeared on The Providence Journal: Inside McKee's 11th hour pitch to keep Citizens Bank - and its jobs - in RI. Here's the deal.