Rhode Island’s Half a Billion Dollar Shadow Government

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Thursday, July 26, 2012

Stephen Beale, GoLocalProv News Contributor

They control more than a half a billion dollars in spending, maintain nearly two thousand employees, can issue millions in bonds, and wield the power of eminent domain—all largely under the shadows.

But now, in the wake of the 38 Studios fiasco, quasi-public agencies are coming under increased scrutiny.

State Senator James Sheehan, D-Narragansett and North Kingstown, says quasi-public agencies need greater oversight, transparency, and accountability. “I’ve seen too many examples of quasi-public corporations which have not been run effectively or efficiently to the satisfaction of the public,” said Sheehan, the acting chair of the Senate Government Oversight Committee. “38 Studios is the poster child for how a quasi-public has made a number of bad decisions.”

$577 million in spending

The extent of state spending that falls under the control of quasi-publics is also catching the attention of taxpayer advocates. For the 2011 budget, spending by quasi-publics totaled $577 million and their total workforce was about 1,800, more than a tenth of the total state workforce, according to the state Senate Fiscal Office. (See below table for a complete breakdown by agency.)

“There’s a lot of money going into these agencies and you have to wonder if it’s benefiting taxpayers at large,” said state Sen. Ed O’Neill, an independent from Lincoln. “We need to look at these expenditures.”

Rhode Island currently has at least 22 quasi-public agencies.

Some are quite well known. Anyone who has ridden a bus, flown out of T.F. Green Airport, or driven through Johnston is familiar with RIPTA, the Rhode Island Airport Corporation, or the Rhode Island Resource Recovery Corporation.

Other quasi-publics, like the Tobacco Settlement Financing Corporation or the Rhode Island Clean Water Finance Agency, are virtual unknowns in the public eye.

Some have little existence beyond paper, like the Rhode Island Public Rail Corporation, which has just two assets—the former rail tunnel under the East Side of Providence and the rail bridge over the Seekonk River (between the Washington and Henderson bridges), has a budget of $40,000, and is staffed through the Department of Transportation. (Its current purpose, according to a DOT spokesman is to indemnify Amtrak to allow for commuter rail south of Providence—something the state is barred from doing by its constitution.)

But many quasi-public corporations command large sums of spending and substantial staffs, like the Rhode Island House and Mortgage Finance Corporation, which had a budget of $98.9 million and 238 employees in 2011.

‘Top to bottom review’

Donna Perry, Executive Director of the Rhode Island Statewide Coalition, said the legislature has “failed in its responsibility to the taxpayer” when it comes to quasi-public agencies.

“When lawmakers and state government are appropriating roughly half a billion dollars of taxpayer money each year to operate these agencies, allowing nearly 2,000 people to be added to the public payroll and pension system, and granting vast powers of eminent domain and bonding authority, there needs to be much, much greater scrutiny and monitoring systems put in place,” Perry said. “Budgets, personnel capacity and scope of mission all need to be reviewed top to bottom across all state quasi-public agencies because this state cannot afford a financial misadventure on the scale of 38 Studios ever again.”

Those concerns are echoed in a little-noticed report issued by the Senate Fiscal Office last year. That report warned about the lack of oversight and accountability for quasi-public agencies, noting that they have “certain budgetary, governing, and policy-making independence” from both the executive and legislative branches.

Some quasi-public agencies are not bound by state purchasing guidelines and some have the ability to beget new quasi-public agencies, according to the report. “The General Laws do not provide a clear definition of what constitutes a quasi-public agency nor of the general powers or limitations of the powers of these entities,” Senate fiscal staff wrote.

Sheehan told GoLocalProv that the Government Oversight Committee has been working on addressing many of those concerns, holding a series of hearings this past spring in which representatives of about half of the quasi-publics appeared before the committee (the EDC was not one of them). But he said the committee has does not have the same grip on quasi-publics as it does on other state departments and agencies to make them turn over documents necessary for the review process.

Sheehan, who became acting chair closer to the end of the legislative session, said the committee also needs more staff.

At one point, the committee has just one staff member assigned to it, according to Common Cause executive director John Marion. “You can’t oversee the executive branch of government with a single staff member,” Marion said. “I think that’s one of the problems here.”

Quasi-secretive?

Some quasi-publics do things you couldn’t do very well without them, like float bonds for public works projects or run an airport, Marion said. Another good reason to have a quasi-public: satisfying the demands or needs of an external agency, like bondholders (which the Refunding Bond Authority does), added Tom Sgouros, a progressive blogger. Quasi-public agencies like the Narragansett Bay Commission, Sgouros added, serve the legitimate purpose of fostering cooperation between various governments.

But Marion said the state is increasingly turning to quasi-public to handle more discrete development projects—such as the redevelopment of the old Interstate 195 land—that could be done through existing agencies.

“There appears to be much overlap between the focus of certain quasi-public agencies and functions of regular state government departments and it’s long overdue that a comprehensive effort be made between the Governor and Legislature to streamline much of this,” said Perry.

Those added layers of government also diminish transparency. “The more layers you add, the more difficult it is to keep track of things,” Marion said.

It’s not just transparency that suffers. “You’re creating a semi-autonomous unit of government,” Marion said, adding that opens up new opportunities for abuse of power and corruption. “Anytime you create these power centers you create opportunities for these kinds of problems.”

For Marion it’s not a question of big government versus small government. It’s an issue of what kind of government you want to have.

“Many of the quasi-publics were created largely to get around limitations on state government: employment rules, purchasing rules, policy restrictions,” Sgouros said. “But lots of those rules have very good reasons behind them—they were the result of lessons learned after past controversies—and are flaunted at the peril of having to learn those lessons all over again. If the rules are not necessary then make an argument for why they’re unnecessary and get rid of them. Don’t get rid of them for one group of bureaucrats and not for others.”

That very flexibility was once viewed as an advantage for quasi-publics, said state Senator Daniel Da Ponte, the chairman of the Senate Finance Committee, D-East Providence and Providence. “Now the question is raised—do they have too much autonomy?” he said. “The wheel seems to have turned in what was an argument for quasi-publics now seems to be in the public domain a criticism of them.” (Da Ponte declined to express his own opinion, saying he is focusing on his re-election campaign.)

Reform efforts already underway

But other state officials tell GoLocalProv that there are already efforts underway to rein in quasi-public agencies. In May 2011, Gov. Lincoln Chafee issued letters to every single quasi-public entity asking them to “conduct a strenuous review of all existing contracts” focusing on those that relate to public relations firms, advertising agencies, and lobbying firms and canceling any that are “not demonstrably critical to the fulfillment of your agency’s mission.”

The Governor’s office followed up with requests for more information about their operations and what could be done to improve them, according to Chafee spokeswoman Christine Hunsinger.

From the very start of his term, she said Chafee has taken a “keen interest” in finding ways to make state departments, agencies, and quasi-public agencies run more effectively and efficiently through whatever mechanism possible—whether legislation or internal reviews, such as the review that the Governor has asked the Rhode Island Public Expenditure Council (RIPEC) to conduct of the Economic Development Corporation.

Hunsinger said the information that the Governor’s office collected last summer was turned over the Senate Government Oversight Committee.

In the wake of the 38 Studios, Sheehan said the committee may be able to accelerate its work, saying he expects some reform legislation to emerge from its hearings next year or the year after.

“It’s a target-rich environment—the number of remedial steps that need to be done to improve the performance of quasi-public agencies and I’m confident we’ll be able to achieve them going forward,” Sheehan said.

EDC in the spotlight

Undoubtedly, the quasi-public under the greatest scrutiny right now is the Economic Development Corporation. “Events of the past few months have revealed that the EDC is basically operating its own bank, and allowing a quasi-state agency to have the loan-making authority it’s been allowed to have should be examined,” Perry said. “RISC has been calling for months for a full freeze on the loan programs of the EDC until the present audit and investigations are completed.”

Sgouros said the public good would be better served if the EDC was a part and parcel of state government, rather than something apart. “EDC used to be a state department. The motivation for releasing them from the restrictions of state rules seemed weak to me,” Sgouros said. “I would like it if EDC functionaries thought of themselves as bureaucrats—parts of a well-functioning state—rather than as well-paid executives.”

EDC spokeswoman Melissa Chambers said the director of the Department of Business Regulation, Paul McGreevy, will be working closely with RIPEC in its examination of EDC’s overall management and its analysis of the agency’s structure, programs, and role within state government. She said that review process should be done by early September.

Spokesman: A quasi-public that’s working

For all the negative publicity that the EDC may have generated, some point to the Quonset Development Corporation as a quasi-public agency that is working effectively, without taking any taxpayer funds for its operations (although it has benefited from public investment in infrastructure development and other capital improvements).

“As it relates to Quonset, it would be hard to think of a government agency that has performed better than the Quonset Development Corporation in recent years,” said Quonset spokesman David Preston. “As you know, the Quonset Business Park is home to 8,800 jobs at over 160 companies, including the 7th largest auto importer in North America. The Business Park has seen 2,750 new jobs created there since 2005, and $157 million in private investment in that same time frame.”

As for oversight, he said the corporation is governed by an 11-member board that is appointed by the Governor and confirmed by the state Senate. “The corporation is subject to regular and rigorous scrutiny by both the legislative and executive branches, internal audits and the local press corps,” Preston said.

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NOTE: The above figures do not necessarily reflect appropriations from the General Fund.

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