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Gary Sasse: Deep in Debt in the Ocean State

Wednesday, February 12, 2014

 

Governor Chafee is recommending that the General Assembly authorize new public debt in excess of $475 million. This includes $275 million in general obligation debt that will require voter approval. A total of $95 million would be for historic tax credits, state government information technology and facility renovations at the Pastore Government Center. The Governor is also proposing $60 million in revenue bonds for airport improvements and $45 million for a parking facility at the Garrahy Courthouse in Providence.

How much additional debt can Rhode Island’s taxpayers afford? A 2013 report prepared by Moody’s Investors Service found that the Ocean State’s per capita tax- supported debt was the tenth highest among the 50 states. In fact, it was 47 percent above the national mean. Moody’s also reported that Rhode Island’s tax- supported debt as a percentage of personal income was 13th highest in the nation.

This column focuses on the affordability and need of the four referenda questions with a cost of $275 million that the Governor proposed be placed on the November 2014 ballot.

Which Referenda Would Really Help RI?

A $125 million bond issue is being recommended for higher education. The proceeds would be used for the renovation of existing higher education facilities and the construction of additions to URI’s College of Engineering. This bond referendum is a “no brainer”. World class engineering and technology infrastructure is essential if Rhode Island is to be economically competitive.

A $75 million bond is proposed for a variety of clean water, open space and community enhancement projects. This bond referendum includes $20 million for loans to be issued by the Clean Water Finance Agency for municipal wastewater infrastructure projects. Another $15 million would fund grants to enhance water resource programs. In addition $5 million would be for brownfield remediation projects, and over $4 million for marine infrastructure and pier development.

The balance of this $75 million bond issue, or $30 million, would be allocated to eleven programs whose costs range from one-half to $4 million. These smaller projects should be funded on a “pay as you go” basis. Why should taxpayers pay interest on programs that cost as little as $500,000?

A third bond referendum would support improvements to the mass transit hub infrastructure. A legislative staff report noted: “The Public Transit Authority, Department of Transportation and the Division of Statewide Planning are conducting a comprehensive operational analysis to determine if the current transit hub system is the most efficient structure.”

The RIPTA transit center at Kennedy Plaza is an impediment to rebirth and renewal in the Capitol City. Before a $40 million request is put on the ballot the General Assembly should set forth the specifics of the improvement plan as well as how it will impact RIPTA riders, intermodal transportation and downtown redevelopment.

Finally, the Governor has proposed a $35 million general obligation bond to support art and cultural programs. Monies from this bond issue would be available for the preservation and renovation of public and non-profit performance centers, historic sites, and museums and cultural centers.

Using public monies for unidentified private purposes is a dangerous precedent. If the General Assembly decides to place this proposal on the ballot they should first identify the organizations that will receive the public largess and how much.

Key Questions

To monitor state debt the Rhode Island Public Finance Management Board has adopted affordability guidelines. These guidelines provide that tax- supported debt should not exceed 5.0 to 6.0 percent of personal income, and annual debt service should not exceed 7.5 percent of general revenues.

Over the next five years the State’s debt requirements should generally meet these guidelines. However, the House Fiscal Advisory Staff noted that between Fiscal Year 2014 and Fiscal Year 2019 “debt service as a percent of useable general revenue peaks at 7.6 percent, before dropping back to 6.7 percent in FY 2019.” This suggests that taxpayers should take a cautious approach when considering referenda that would authorize new debt.

Voters should give serious consideration to the following questions when deciding whether to authorize additional tax- supported debt.

Given limited resources, should a priority be given to bond issues that will enhance economic development and get people back to work?

-Would the additional debt service costs be better used to fund operating programs such as early childhood education, phasing out the motor vehicle property tax or new workforce development efforts?

-Is the General Assembly providing complete information in a transparent manner on each ballot question?

-Do the benefits outweigh the costs of the project when interest payments are considered?

-Given the current regional economic outlook, is the project timing and pricing structure optimal?

-What are the “opportunity costs” if the bond referenda are not successful?

As Alan Greenspan, the former Chairman of the Federal Reserve Bank said, “Any informed borrower is simply less vulnerable to fraud and abuse.”

Gary Sasse is Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University. He is the former Executive Director Rhode Island Public Expenditure and Director of the Departments of Administration and Revenue. 

 

Related Slideshow: 7 Strategies for Rhode Island Economic Development in 2014

What will it take to move the Rhode Island economy forward in 2014?  GoLocal talked with elected officials, candidates, and leaders for their economic development plans in the coming year. 

Below are key elements of the economic priorities for Governor Lincoln Chafee, Speaker of the House Gordon Fox, Senate President M. Teresa Paiva-Weed, House Minority Leader Brian Newberry, gubernatorial hopefuls General Treasurer Gina Raimondo and Ken Block, and RI Center for Freedom and Prosperity's Mike Stenhouse.  

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Governor Lincoln Chafee

"My goal is to have the state continue to focus on the fundamentals.  We will invest in education, workforce development and infrastructure , and provide aid to  cities and towns to lessen the burden on property taxpayers.  I’m confident that these investments and our focus on the basics will allow Rhode Island to exceed Moody’s predictions.”
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Speaker Gordon Fox

"Among the many pieces of legislation the House will address will be issues of higher education affordability, expanding apprenticeship opportunities, and offering help to our manufacturers.  We will also look closely at our tax structure to make sure we are competitive with our neighboring states, including the corporate tax and the estate tax, and I will carefully review the recommendations of the commission studying our sales tax.”

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Senate Pres. Paiva-Weed

Greg Pare, spokesperson for the Senate President, said that the Senate is planning to issue recommendations soon on workforce development initiatives to address the skills gap among Rhode Island job seekers.

"An example of a proposal anticipated in that report is the elimination of state’s Indirect Cost Recovery on the Job Development Fund, which is about $1.2 million this year. Those funds would be directed towards job training and skills development programs to provide immediate impact and help workers gain the skills necessary to succeed in today’s economy."

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Gen. Treasurer Raimondo

"To grow our economy, we need to make Rhode Island a leader in manufacturing again.  Great things can happen at the intersection of government, higher education, and the private sector.  Rhode Island is lucky to have thriving institutions in each of these three sectors, and we need to foster collaboration among them to find solutions to our challenges, and spark our economy.  

By promoting partnerships in high-growth areas, [Rhode Island Innovation Institute] will help grow our manufacturing base, and create new, high-quality jobs."  

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Ken Block

"First, we need to fix Rhode Island’s broken Unemployment Insurance program. The state’s Unemployment Insurance tax, paid by employers, is ranked worst in the country by the Tax Foundation. It is one of the factors that makes Rhode Island an uncompetitive place to do business. Also, it is inherently unfair that a large group of businesses are effectively subsidizing the payrolls of a small group of businesses who misuse the system. There is a simple change to state law that can fix this problem."

"Rhode Island’s temporary disability tax (TDI) is broken, and places an unnecessarily high tax burden on Rhode Islanders. This tax, paid for by employees, will be reduced by changing the way we manage the program. As Governor, I will substantially reduce the cost of purchasing this insurance by requiring that Rhode Island’s program adhere to national norms."

"To best encourage new job creation, I propose the following tax incentive: exempt from future capital gains taxes any new investments in Rhode Island-based businesses. This change would create a powerful incentive for investors who are deciding where to locate a new business, or where they relocate an existing one. This proposal has the potential change the economic playing field for Rhode Island."

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Minority Leader Newberry

“It would be overly ambitious to set being #1 as a goal right now, but we think 25, the middle of the pack, is a reasonable goal to set, one we think we should pursue, and one we can achieve,” said Newberry. "One of the initiatives is a requirement that every bill receive a fiscal evaluation before it can be heard by committee, better insuring that legislators know the real cost of the legislation they are acting on."

"Another proposal would exempt social security income from RI state income tax, making Rhode Island more tax-friendly for our seniors and keeping them here rather than migrating to more tax-friendly states."

“Strong action is way overdue here. Nearly 60% of Rhode Islanders now believe that the state is headed in the wrong direction. We think they’re right, and our central goal is to get it turned around."

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Mike Stenhouse

"As part of the Center's 2014 Prosperity Agenda we recommended that the state:
 
Repeal or rollback of the state’s regressive sales tax; or the requirement that families have no choice on what schools best educate their children; or punitive estate taxes that drive wealthy people to other states; or restrictions on out-of-state companies to sell health insurance in RI; or the minimum franchise tax, which stifles entrepreneurship; or corporate welfare, to level the playing field; or even renewable energy mandates that drive up costs for every family and business …"
 
 

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Comments:

Mr. Sasse, I wouldn't recommend quoting Alan Greenspan. Greenspan was just about wrong on everything he predicted and turned out to be a total fraud.

Comment #1 by Jonathan Bainsworth on 2014 02 12

Many of the projects may be good. But borrowing our way to prosperity isn't working. Take money from other programs if these are considered more worthy of our tax dollars. We simply aren't well situated for increased debt burden added to our budget.

Comment #2 by Redd Ratt on 2014 02 12

How can Chafee propose borrowing more money for these purposes when he doesn't know what the fallout will be from the State Pension reform?????

If pension reform fails, and if you include providence, there is a $12 Billion tab that RI taxpayers will be accountable for.

The tax increases from such a change would drive any resident with a good job out of this state. I have many friends and family members (all non public employee union) who are thinking about selling their homes and leaving).

I think we will be the first state to literally go bankrupt.

Comment #3 by George Costanza on 2014 02 13

BLUE STATE = BROKE STATE

Comment #4 by LENNY BRUCE on 2014 02 13

Gary,
What is the status of recognizing both Pension and OPEB debt on the balance sheets of governments using the new NPL calculations as described by GASB and at the ratings agencies? Will these obligations be included?

Comment #5 by michael riley on 2014 02 13




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