Smithfield banker Andrew Lyon, the Republican candidate for general treasurer, is giving qualified support to California's effort to punish companies that move their headquarters to Bermuda to avoid corporate income taxes. If elected, Lyon says, he would oppose new state contracts with companies that use offshore bases to avoid taxes.

Treasurer Paul Tavares, a Democrat, is reviewing the California move, but he expresses reservations. A third candidate, Westerly computer programmer Edward "Larry" Kern of the Green Party, wholeheartedly endorses punishing tax-avoiding companies, but Kern expects to withdraw from the treasurer's race to seek a seat on the Westerly Town Council.

In late July, California state treasurer Philip Angelides announced a ban on contracts with 19 companies, charging that their use of offshore mailboxes to avoid US taxes was unpatriotic. Three New England companies, toolmaker Stanley Works of New Britain, Connecticut; embattled cable manufacturer Tyco International of Exeter, New Hampshire; and White Mountain Insurance of White River Junction, Vermont, were included in the ban.

Stanley Works estimates the offshore mailbox will cut its corporate income taxes by 28 percent, or $30 million a year, according to the New York Times. But the "dummy headquarters" will cost the US Treasury $6.3 billion over the next decade, the Times predicts.

Angelides also plans to ask the huge California public employee pension system to sell all its stock in the banned companies. Lyon says he would recommend that the Rhode Island State Investment Commission, which the treasurer chairs, direct its financial consultants not to buy stock in companies using dummy headquarters if the pension fund did not already own any such stock. Lyon says he would also work with other states to pressure companies considering an offshore move.

Tavares is not willing to make similar commitments. "You have to be cautious in utilizing pension funds for social causes," he warns. During his first campaign for treasurer in 1998, Tavares refused to endorse incumbent treasurer Nancy Mayer's call for divestiture of state-owned tobacco stocks. He sponsored legislation as a state senator to ban state investments in companies doing business in Indonesia, but Tavares says this was merely meant to generate publicity about oppression in Portuguese-speaking East Timor.

"You can't lose sight of the fact that your primary responsibility is return on investment for members," Tavares says. Soon-to-depart Green candidate Kern, however, counters that while avoiding a Bermuda-based company might reduce retirement fund earnings, investing in Rhode Island companies might produce additional tax revenue that would more than offset the reduced stock earnings.

Issue Date: August 16 - 22, 2002