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INVESTIGATION: Rhode Island the Most Regulated State in the US

Thursday, February 23, 2012

 

Data uncovered by GoLocalProv reveals that Rhode Island is the most regulated state in the country when it comes to land use, hampering the state economy by creating one of the toughest environments anywhere for residential and commercial developments, business advocates say.

The country’s smallest state stands nearly alone for its combination of extensive state mandates on cities and towns, the role the state itself exercises in land use decisions, and the fact that state law, at least until recently, did not compensate landowners for regulations that decrease the values of their properties. Just one another state, Maryland, shares the top spot with Rhode Island, according to the data, obtained from SUNY researcher Jason Sorens.

“Regulation is run amok in the state of Rhode Island,” said William Stamp, president of the Rhode Island Farm Bureau.

 

Rhode Island’s standing doesn’t improve when viewed in a regional context. Just one other New England state, Maine, comes close, ranking second nationally. The only other northeastern state to crack the top ten is New Jersey. (See below for chart and how the rankings were calculated.)

“Rhode Island is a very difficult place for developers to come into,” said John Marcantonio, executive director of the Rhode Island Builders Association. “Does it scare outside businesses from coming in? Sure it does.”

Construction industry bled more than a quarter of a billion dollars

Marcantonio said the regulatory environment is one reason the building permits in the state have plummeted in recent years. The cost incurred by complying with local regulations—everything from the size of a house lot to the width of a sewer pipe—can add as much as 36 percent to the final cost of a home, according to the National Association of Home Builders. As home prices have dropped during the recession, developers are finding it increasingly difficult to build homes and still make a profit, Marcantonio said. (See chart.)

 

As a result, the number of building permits issued for single family homes in Rhode Island has plummeted in recent years. In 2007, there were about 1,400 such permits issued throughout the state. Last year, there were 575, according to the Rhode Island Builders Association. (See chart.)

Such a steep drop, Marcantonio said, explains why the construction industry is saddled with such a high unemployment rate. Official state estimates put the rate between 21 and 24 percent for the 15,000 carpenters, electricians, and other workers in the construction industry. But Marcantonio said the industry estimates that the rate is far higher, as much as 40 percent.

“If you have nothing being built, all those people who would have a job don’t,” Marcantonio said, adding that each new home accounts for three construction jobs.

 

The recession can’t be blamed for all of this, he added. Even before the economy crashed in 2008, he said the number of building permits had been steadily declining. They reached a peak in the late 1990s, at about 2,500 a year, but then nosedived, hitting 1,600 in 2006. “Even in the best of times for building and real estate, the number of units in the state of Rhode Island continued to drop dramatically,” Marcantonio said.

The impact of a home-building slump extends far beyond just the construction industry. New homes mean work for landscapers, interior decorators, and others, Marcantonio said. Overall, the construction industry poured $377 million into the construction of homes in 2006, nearly triple what was spent in 2011. Year to year, since 2006, the construction industry has cumulatively bled nearly a quarter of a billion dollars, according to preliminary data released to GoLocalProv this week by the state builders association.

 

Unintended consequences

Beyond economic development, there are other unintended consequences that follow from being a highly regulated state, according to Jason Sorens, the political scientist who compiled the data. Sorens said states with fewer regulations, lower taxes, and limited spending tend to be a magnet state for people from other states where there is less economic freedom. He noted that Rhode Island has lost about 5 percent of its population to other states in the last decade.

 

“Rhode Island might be able to make itself a more attractive place to live by improving its environment for economic and personal freedom,” Sorens said.

Official: Not much land to spare in Ocean State

But allowing development to continue at the same pace it has risks making the state a less attractive place to live, according to Jared Rhodes, the chief of the statewide planning program at the Rhode Island Division of Planning. He noted that in its first 300 years, the state developed 20 percent of its land. But in the next 25 years, the pace of development rapidly accelerated, taking another 9 percent of the available land, according to Rhodes.

“We can’t continue development at that rate,” Rhodes said. “Otherwise, in a hundred years you are going to be faced with a Rhode Island that isn’t the Rhode Island we know.”

It is no coincidence that the nation’s smallest state is also its most highly regulated in terms of land use—something both Sorens and Rhodes agreed on. While other states might have thousands of square miles of open land, the entire area of Rhode Island is about 1,500 square miles, according to Rhodes. It may be small surprise, then, that the largest state in the continental United States—Texas—is also the least regulated in terms of land use.

Asked to comment on the rankings, Rhodes pointed out that Rhode Island has been held up as a model for other states to follow. He cited a November 1997 article in the magazine of the American Planning Association that praised Rhode Island for having one of the “most effective” comprehensive planning programs in the country.

But the fact that the state is doing such a good job of planning may be precisely the problem, according to Sorens, who is libertarian-leaning. “The American Planning Association is interested in restricting development and making sure that it is done at a centralized level,” Sorens said. “It’s a difference in our values.”

Local regulations ‘a maze’ for developers

Outside the narrow community of land use planners, views about the state role in land management appear to be more mixed in Rhode Island. In 2009, a state survey of 150 local officials, environmental advocates, development consultants, business leaders, and developers found that just over half of them “somewhat agreed” that Rhode Island is heading in the right direction in terms of both conserving and developing land.

Rhodes also asserted that the state makes it easier for developers. He said the state mandates that all 39 cities and towns have the same process for approving developments. That makes the process more predictable, which he said benefits businesses.

But towns are not consistent in the rules on what kind of development they will allow, Marcantonio said. In fact, at least a third of them impose environmental regulations that are more stringent those set by the state Department of Environmental Management, he added. “So you don’t have a consistent way of going from town to town,” Marcantonio said. “It’s a maze.”

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How the Rankings Were Calculated
The rankings are based on seven categories of regulations on land use and development. For each category, a state is assigned a number reflecting its regulatory environment. Six of the below seven categories counted positively toward the state’s ranking on the scale of least to most regulated—in other words, the higher the number, the more regulated the state is. Only the first category, the compensation for regulatory takings, counted negatively—the higher the number in that case, the less regulated the state is. The categories were then weighted to calculate a score, which was used for the final ranking.

1. Regulatory takings: Is compensation required for or economic assessment required before regulatory taking? Scoring: 2 for both, 1 if one, 0 for neither
2. State development plan: Are there guidelines for a state development plan?
Scoring: 0 if none, 1 if yes but no land-use element, 2 if yes and a land-use element
3. Strength of state planning role Scoring: 1 if weak, 2 if significant, 3 if substantial
4. Local comprehensive development plans: Does the state mandate local plans? Scoring: 1 if yes, 0 if no
5. Internal consistency: Does state law require that local zoning be based on the local plans?
Scoring: 1 if yes, 0 if no
6. Vertical consistency: Does the state prohibit local plans from conflicting with the state plan?
Scoring: 0 if no, 1, if minimal prohibition, 2 if full prohibition
7. Horizontal consistency: Does the state require communities to coordinate on their plans?
Scoring: 0 if no, 1 if minimal requirement, 2 if state has full requirement

WEIGHTS: How much does each state’s score in a particular category count towards its overall ranking for land use regulations? Weights are shown as a percentage of the overall score.

(1.) 14.29%
(2.) 19.05%
(3.) 4.76%
(4.) 9.52%
(5.) 4.76%
(6.) 38.1%
(7.) 9.52%

ABOUT THE DATA: Data is current as of December 2008—the year for which the data is available for all the states. (A state official confirmed yesterday that there has been no significant change in Rhode Island’s land-use regulations since then.) The data was compiled by political scientists Jason Sorens, at the University at Buffalo, and William Ruger, at Texas State University. It is raw data that was compiled as a part of their broader, ongoing research on personal and economic freedom in the states, for the Mercatus Center at George Mason University. This report is the first publication of a ranking of the states by how regulated they are in terms of land use and development.
 

 

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