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RhodeMap or Road Rage? What is RI’s Economic Plan?

Saturday, November 29, 2014

 

Thirty years ago Rhode Island leaders were shocked when Rhode Island voters turned thumbs down, by a margin of four to one, on the Greenhouse Compact, an ambitious plan to improve the state’s economy. Until shortly before the referendum, the state’s policy elite thought they had it in the bag, even though critics had sandbagged the compact as “industrial policy,” a chief policy bugaboo back then, associated with the top-down management of a then-robust Japanese economy. Remember how Japan Inc. was buying huge swaths of America? Japan went all in on industrial policy, and has not yet emerged from a malaise that makes our Great Recession jealous.

This year’s proposed state economic plan, RhodeMap RI, has seemingly modest ambitions compared with the Greenhouse Compact. On the other hand, it will not be put to a vote of the Rhode Island electorate.

The industrial policy defeated at the polls in May 1984 has since become standard fare in Rhode Island’s tool kit of economic policy, and most other states as well. The state chooses winners and losers, using tax dollars to lure outside firms to move here from beyond our borders. State laws empower bureaucrats and politicians to hand out money to companies and industries anointed as winners long before they have won, including some that become losers immediately. Meanwhile, state and local taxes and expenditures have risen, generating ever higher hurdles to leap for anyone who wants to start or grow a business in Rhode Island. Finding a job here gets harder and harder, while more and more of the money needed by families to make ends meet finds its way into state and municipal coffers.

The twin scrums of ideology

“Social equity and climate change have become core building blocks” of economic policy under the RhodeMap, says Mike Stenhouse, who, as founder and CEO of the Rhode Island Center for Freedom and Prosperity, is a leading critic. “They say build social equity and economic progress will come,” says Stenhouse, “but that’s putting the cart before the horse.”

A leading supporter of the RhodeMap, Scott Wolf, executive director of GrowSmart RI, sees the “facile equation” of the RhodeMap with “socialism” as “simplistic, opportunistic and manipulative, part of a national movement to raise money and motivate activists on behalf of conservative causes.”

Opponents cite a federal Sustainable Communities Regional Planning Grant from the U.S. Department of Housing and Urban Development to fund the process of developing the RhodeMap as evidence that the state will yield its autonomy to the federal government. For example, federal policies that support increased housing density linked to public mass transportation in order to reduce carbon output are seen by opponents as targeting America’s preference for a house with a yard and a garage for the family automobile.

“I don’t see it as too intrusive,” says Wolf. “It’s not as if HUD has us on a short leash just because we’ve taken HUD money.” He cites Utah as a conservative state that embraces federal development priorities. Stenhouse contends that while HUD priorities may not be written into the RhodeMap, “backers are hiding behind technicalities that enable them to say that there’s nothing like that in the plan. But we know what happens next.”

Opponents of the RhodeMap could point to the cliffhanger fiscal status of HealthSourceRI. The state exchange used federal funds to finance its smooth start, but now must choose to await a yet-to-be-identified state infusion of millions to continue next year, or to fold itself into the federal Obamacare exchange, which would cede state authority to federal health priorities.

Our latter-day Greenhouse Compact

The law creating the state’s current major economic initiative, planting high-tech jobs on land freed up by the relocation of Route 195, has pots of money for firms that buy land there. Five separate subsidies were written into the 195 enabling legislation passed in 2011, available to employers depending on the type of high-tech jobs a developer might promise to create on the land. The subsidies are not exclusive to the so-called Knowledge District but reflect existing incentives passed years ago to jumpstart scientific, medical and research development and jobs in the Ocean State.

Here is a list of those subsidy programs from the legislation that created the I-195 Redevelopment District Commission in 2011 [Ch. 42-64.14-9] 

Benefits from the life sciences jobs incentive program established by this section;

Innovation investment tax credit established pursuant to chapter 44-63, with this section satisfying the eligibility determination in section 3 of chapter 44-63;

Research and development expense credit established pursuant to chapter 44-32;

Research and development property credit established pursuant to chapter 44-32; and

Elective deduction for research and development facilities established pursuant to chapter 44-32.

These particular incentives have not had a chance to prove their worth, but their older cousins have had plenty of time.

Greenhouse versus RhodeMap

And how well has that worked for Rhode Island? Where is our high-tech sector? It exists, barely, but the Silicon Valley of the East sits just 40 miles beyond the Gateway to Southeastern New England (a long forgotten R.I. brand). Are our gates still closed? Where is the parasitic spirit of the colony that once hid famous pirates along its shores – the colony that dared to fire the first shots against the oppression of monarchy? 

The Ocean State continues to be one of the first to plunge into a recession and among the last to climb out of it. The potential insider abuses that were a source of voter skepticism toward the Greenhouse Compact in 1984 are well represented in today’s doubts about the RhodeMap. The 38 Studios scandal – which we bribed to relocate in Rhode Island - continues to hogtie efforts to formulate economic policies to generate jobs and growth.

Notwithstanding that, it surely is a mere coincidence that the RhodeMap heads toward its fate amid a change of cabinet officers that includes the state’s new treasurer-elect, Seth Magaziner, the son of Ira Magaziner. The Greenhouse Compact was the brainchild of the elder Magaziner, who went on to birth Hillarycare, as it was called, in the Clinton White House.

The RhodeMap is no Greenhouse Compact. Before its defeat, the compact passed the General Assembly overwhelmingly, with funding of $100 million a year for seven years. It was designed to oversee a host of programs to implement five major policy initiatives (three of which were investment programs and two of which involved tax cuts). The document associated with the compact was 967 pages long, with a 47-page executive summary. The RhodeMap is a plan without a budget that sets up no new programs. With a draft document of 186 pages and an executive summary of eight pages, the plan is more a set of goals and aspirations than a set of policies for achieving them. That said, the RhodeMap takes a broader view of what economic policy should be than any previous economic plan in Rhode Island’s history.

Previous economic plans have sought to create and implement strategies to expand industrial and commercial growth in order to create jobs and foster a business environment that promotes the economy. The RhodeMap pulls a wider range of factors into the state’s strategy for expanding growth in its economy. It sees a better society not just as a goal of policy but as a means of achieving prosperity. Critics see that as circular reasoning. Supporters see it as a new way to define the success of statehood. Those factors include education, energy, public health, infrastructure and transportation but also racial and ethnic diversity and the environment. The latter two have served to focus the various strands of opposition to the RhodeMap, mostly from the center right of the state’s political spectrum.

The finger points at the mirror

Rhode Islanders voted to heap millions more onto the state debt to fund six bond issues for various arguably greater or lesser needs. The RhodeMap looks down its nose at state policies that pick winners and losers and then target state dollars to subsidize promised growth and hiring. And yet it does little or nothing to drop such programs from Rhode Island’s economic development strategy. The plan urges that their effectiveness be more efficiently monitored. Subsidies help to make up for obstacles to growth that are rooted in the difference between the business climates of Rhode Island and its competitors. But they do not close the gap, and the business climate remains oppressive. Old stand-bys such as one-stop shopping for permits, based on uniform standards, are a staple of reform mouthed by political candidates here for decades. Yet permitting processes remain complicated and politicized. Recommendations to fix that are right there in the RhodeMap, on page 158. But calling for such change seems no more likely to bring reforms in the business climate than other calls in the RhodeMap are likely to bring social change, let alone growth and jobs based on such change.

In the 186 pages of the RhodeMap draft are a host of interesting suggestions and good advice. And yet linking the correction of inequities in society to the mechanisms designed to promote prosperity can only complicate and undermine the process of implementation.

The Greenhouse Compact called for changes in economic policy that came about even though the compact itself was defeated by Rhode Island voters. The experts assembled by Ira Magaziner were of the same mind as the experts who have updated Rhode Island economic plans ever since, with predictable results. On the other hand, cutting taxes and regulations directly as a strategy to improve the state’s business climate has not been tried. Choosing winners and losers and subsidizing them has been tried again and again and again but has not worked. Facing this hard reality, the experts assembled to produce the RhodeMap have cloaked their lack of new ideas in calls for a better society that are pleasing to hear but are not new, except for their appearance in an official economic planning document, where they are unlikely to create jobs.

The RhodeMap ahead?

Gina Raimondo

After Rhode Island’s manufacturing base started its serious migration to the South a century ago, it took about two decades to throw the Republican bums out and replace them with Democrat bums. Instead of migrating to the South, Rhode Island’s factory jobs are now migrating overseas.

For all their differences, the Greenhouse Compact and the RhodeMap both represent replacement of the values of the old GOP ownership elite, based in rural, small-town Rhode Island, with the values of a union-based worker and intellectual elite in the cities. Few tears have been shed for the commercial oligarchy that dominated Rhode Island for a century until finally giving way to Democratic dominance since the Bloodless Revolution of 1935. But one-party rule of the have nots has not revived the prosperity that accompanied the one-party rule of the haves, or a workable alternative to it. Two wrongs don’t make a right. Nor do they create jobs.

Amid dueling op-eds attacking and defending the RhodeMap in such media outlets as GoLocalProv and The Providence Journal, the State Planning Council decided on Nov. 20 to delay a vote on the RhodeMap. The council might vote on it as early as Dec. 11. Meanwhile, Freedom & Prosperity’s Stenhouse wants Gov.-elect Gina Raimondo to abandon the RhodeMap, which he says has “clearly been hijacked by special interests.” He says a new administration is entitled to its own plan and that she should “start from scratch.”

“That would be a shame,” says Grow Smart’s Wolf, “because this has been such a fair process, with a lot of outreach to constituencies.” He notes that some 300 policy analysts participated in the work product for the RhodeMap, and says that they would consider starting the process up again as “redundant.”

Maybe it would be, given that the policy wonks brought in by the new governor could well be the same people. 

Or maybe not.

David Brussat, a weekly contributor to GoLocalProv.com, was an editorial writer at The Providence Journal for three decades until September.

 

Related Slideshow: The 15 Costliest Government Programs in RI

Prev Next

#15 Non-Highway Transport

Category: Transportation

Cost Per $1,000 of Income: $4.87

National Rank: 4

Prev Next

#14 Community Development

Category: Environment and Housing

Cost Per $1,000 of Income: $4.97

National Rank: 12

Prev Next

#13 Sewage & Solid Waste

Category: Environment and Housing

Cost Per $1,000 of Income: $5.09

National Rank: 36

Prev Next

#12 Health & Hospitals

Category: Social Services

Cost Per $1,000 of Income: $5.40

National Rank: 49

Prev Next

#11 Other Ed. & Libraries

Category: Education

Cost Per $1,000 of Income: $6.00

National Rank: 12

Prev Next

#10 Fire

Category: Public Safety

Cost Per $1,000 of Income: $6.50

National Rank: 2

Prev Next

#9 Highways

Category: Transportation

Cost Per $1,000 of Income: $7.66

National Rank: 48

Prev Next

#8 Police

Category: Public Safety

Cost Per $1,000 of Income: $7.87

National Rank: 13

Prev Next

#7 Utilities

Category: Utilities and Liquor Stores

Cost Per $1,000 of Income: $9.25

National Rank: 40

Note: Utilities are not considered to be "direct general expenditures." Instead utilities are categorized as "other direct expenditures." The category is a U.S. Census Bureau term. Unlike some states, Rhode Island does not have state-run liquor stores.

Prev Next

#6 Gov't. Administration

Category: Administration and Debt Interest

Cost Per $1,000 of Income: $11.05

National Rank: 16

Prev Next

#5 Interest on Debt

Category: Administration and Debt Interest

Cost Per $1,000 of Income: $12.13

National Rank: 3

Prev Next

#4 Higher Education

Category: Education

Cost Per $1,000 of Income: $13.59

National Rank: 45

Prev Next

#3 Pensions and Other

Category: Insurance Trust

Cost Per $1,000 of Income: $39.62

National Rank: 4

Note: Other than pensions this area of spending includes unemployment security, disability insurance, and workers compensation. Together, these expenses are categorized U.S. Census Bureau as "insurance trust."

Prev Next

#2 Public Welfare

Category: Social Services

Cost Per $1,000 of Income: $46.90

National Rank: 7

Prev Next

#1 Elementary and Sec. Ed

Category: Education

Cost Per $1,000 of Income: $48.59

National Rank: 15

 
 

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