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Guest MINDSETTER™ Larry Girouard: It’s Working! What’s Working?

Monday, December 28, 2015

 

Governor Raimondo recently released a video on YouTube entitled “It’s Working” that touts Rhode Island’s turnaround in the last year. From a taxpayer perspective, I question that position.

The statement below is directly out of Governor Raimondo’s inaugural address earlier this year: "In just the last year, we've had the highest unemployment rate in the country for nine straight months. We've been 49th among states where companies want to do business, and dead last for helping entrepreneurs."

There is ample data that supports the Governor’s statement above. This is an accurate representation of the “current state” of Rhode Island. Rhode Island’s brand is clear -- Rhode Island is the most hostile state to do business in the US. This fact should be sobering to every taxpayer.

The strength of any state’s economy is aligned directly with the strength of the state’s business community. Business creates the sustainable jobs that supports the tax base for government to provide their expected services.

So the question on the table remains - "Has Rhode Island’s leadership improved Rhode Island’s brand over the last year?  On balance, has there been more positive things than negative things that have occurred over the past year that would offer encouragement that we are moving in the right direction to validate that “it’s working”? Better said, which way is the scale tipping?

Let’s look at the positive side of the balance scale:

  • Reduction of the corporate tax from 9% to 7%.
  • Modification of the death tax and removal of the fiscal cliff.
  • Modifications to Medicaid.
  • Lean in Government program to improve efficiency.
  • Regulation modifications ... Leslie Taito’s past initiative.
  • I am sure there are a few others that I have left out, but these are the main ones that are garnering much of the press. This list is painfully short.

 

OK, let’s put those positive items on the right side of the balance scale, and then consider the placing those items that detract from the business brand on the left side of the balance scale.

Some detractors might be:

  • 38 Studios ... this is the poster child for RI ethics, and even after 5 years, continues to dominate the news.  Taxpayers should not be on the hook for paying off this bond. This is a national embarrassment that continues because of Schilling’s celebrity. Also, the lack of transparency regarding the process for how this $75,000,000 deal actually came to be still remains a mystery.
  • I-195 Land .... prime waterfront property in the heart of the Northeast corridor and no one wants to move there. Why?  The risk is too high because of the high tax and regulation structure. The vacant I-195 land is really the signpost for our business unfriendly reputation. The vacant land is like an open sore.
  • Tolls .... we have an $8.7Bn budget and historically Rhode Islanders have spent more on roads than most states ... below is a quote by our Governor from an interview with Katherine Gregg of the Providence Journal last February: "4th highest in road costs per mile, but 45th in road quality." Tolling trucks will not be good for business. Also, with the insatiable appetite for spending by leadership, tolling cars would only be a “flip of the switch” away. With the recent approval by Washington to send money to all states to improve bridges and roads, RI stands to get over $1.3Bn dollars.  So why do we need tolls now?  Also, would it not be more prudent to send out a more positive message that leadership was to get additional monies needed for tolls from the existing budget?One final point ... the secrecy surrounding where the tolls will be located raises the big transparency flag. We await the Governor’s recent promise that these locations will be revealed.
  • The recent K-12 PARCC Test Scores clearly show that the RI education system is flawed, yet we are paying a lot of money into it. In the same Katherine Gregg article the Governor stated: "8th highest in education spending, but 27th in education achievement"
  • RhodeMap RI ... pitched to be the economic development plan for Rhode Island, a large part of this program is all about HUD, Section 8 housing, and the intent on better homogenizing the demographics of all neighborhoods. To be against this program has raised the heat of the dialogue where the term “racist” is moving to the top of the charts. This program represents the first statewide HUD initiative in the US.  Here is another example where leadership had lacked transparency on a key issue. By the way this RhodeMap RI program was passed by a committee, not by any of our elected officials.
  • Rhode Island is one of two Sanctuary States ... I believe that the other state is North Dakota. Coincidentally, Rhode Island is also one of two states that are losing population. Because of our sanctuary state position, and the fact that we are one of the most generous welfare states in the US, the demographics of our remaining population are changing. Value added workers are moving out of the state with their families to find work and are, in part, being replaced by lower income, lower educated people. Rhode Island is rumored to be on the cusp of losing one of her US House seats in 2020 because our population remains at 1 million relative to the growth of other states. In addition, many seats in our classrooms are empty because of the exodus of families whose breadwinners were either unemployed or under employed in Rhode Island.
  • Baseball Stadium and Trolley System ... moving the ball park to Providence and building a trolley system in the capital city plays into the argument that ... if you build it they will come. While I can certainly envision a vibrant capital city with a stadium, trollies, Water fire etc, businesses will NEVER come unless it is economically sound to do so. The window dressing of a stadium and trolleys will be minor in impacting these type of business decisions. Also, the fact that the initial stadium proposal was to hit up the taxpayers for $120M over 30 years sends a clear message for what the position of leadership is regarding the taxpayers and business owners.
  • Pensions ... any business that moves to Rhode Island will be liable for the pensions and the pension unfunded liability shortfalls. The renegotiated pensions were calculated based on a 7.5% ROI. This year the return was only an abysmal 0.88% thereby carving out another $400M in debt. This has raised a big red flag for any business wanting to move to RI .... again, the risk is too high based on Rhode Island’s current and past fiscal performance.
  • Fire Protection ... in the same Katherine Gregg interview the governor stated that RI is "second highest in fire safety costs per $1,000 in personal income." With this in mind it is hard to accept the position of the Providence and Coventry fire departments, especially in light of the big fiscal picture the our state finds herself in.
  • RI Budget ... the RI budget is nearly 60% funded by the Feds in some manner, shape or form.  This is one of the highest in the US, and it puts RI in a very precarious position should the Feds ever decide to cut back.  One has to wonder if the Feds are leveraging their position by using RI as their personal Petri Dish for programs like the statewide HUD initiative and the Sanctuary State designation. This, in my mind, adds to our brand as a business hostile state.

Politicians talk a good game about change, but what has actually changed, or been modified, in our culture this year that would support the claim that “It’s Working."  Taxpayers were thrown a bone regarding the corporate tax and death tax, but from a cost standpoint, these two together cost the state less than $40M to implement.

In looking at the negative items listed above, and placing them on the left side of the balance scale, what does the balance scale look like now? It is hard to conceive that GOOD outweighs the BAD. Better said, Rhode Island has not moved the needle forward in her brand. Rhode Island continues to lose good people and good businesses. Rhode Island is clearly not competitive, and leadership is doing little beyond rhetoric to improve the brand.

Rhode Island has many assets that can begin to form a stronger foundation for any business or family that must locate in the Northeast. We all know what they are:

  • The Bay and Coastline ... arguably one of the best in the US.
  • History and historic buildings.
  • Higher Education.
  • Restaurants.
  • Proximity to Boston and New York.
  • Small size ... which should shorten the lines of communication.
  • A more temperate winter.

 

That said, leadership cannot take the position that it is a privilege to live in Rhode Island. Our negatives are way too strong on both a regional and national scale.

Because of our fragile fiscal position it is difficult to make sweeping fiscal changes digitally. That said, there are some things that can be done that do not cost any money, but will help to send a message to the business community, both in and out of the state, that RI leadership is committed to changing Rhode Island’s brand.

What Rhode Island Needs to Do

Here are a few ideas that cost little or no money. These focus on the behavior of leadership regarding how they do their business:

  • Line Item Veto for the Governor ... this will help to curtail spending and provide a system of checks and balances between the executive and legislative branches of our government.
  • Real teeth in the Ethics Commission ... The Speaker says we do not have an ethics problem any more.  What better time to put teeth in the ethics commission?
  • Limit the number of bills submitted by the legislature over the next 2 years to only those that positively impact the RI brand in a “measurable” way.  We have over 2000 bills submitted every year with most not addressing the serious issues that face our state.  I am a believer in the 80/20 rule.  Focus on the 20% that will make an 80% positive difference in making RI competitive again. The non-essential bills, while some may sound good, just clog up the legislative process and present a big waste of our legislators valuable time.
  • Require that all bills be accompanied by an economic impact statement. Like in business, the question “WHY?” must be asked and validated.
  • Explore term limits.
  • Put voter initiative back on the table.
  • Redirect lottery income to education rather than the “black hole” general fund.  Lottery income was initially slated to be directed to education.
  • Follow the Constitution  ... we have a constitution ... follow it.  Stop moral obligation bonds that are more than $50,000 unless voted on by the electorate (this directive is currently in the RI Constitution but not followed). Follow the open meetings rules.
  • Provide for an inspector general’s office ... that will certainly have some costs associated with it.

When a company is near bankruptcy, or your child comes home with marks that are all F's and Ds, this suggests that some dramatic changes must be placed on the table. Rhode Island is in a bad place and leadership continues to dance around the key issues. The Governor clearly punctuated the “current state” of Rhode Island this year in her inaugural address, and her interview with Katherine Gregg.  While the Governor has made some moves to improve the business climate in Rhode Island, I believe that we are continuing to slide backwards based on all my comments above.  We cannot incrementally change our way out of our current position.  It will take courageous elected leaders to drive change. It will take courageous business leaders to do the same. 

The Chamber of Commerce leadership have been a big disappointment. You would think that the business hostile culture of RI, as punctuated by the Governor’s statement again: "In just the last year, we've had the highest unemployment rate in the country for nine straight months. We've been 49th among states where companies want to do business, and dead last for helping entrepreneurs," would result in the chamber leadership marching on the statehouse in unison on behalf of their business members, demanding change. Yet the silence has been deafening.

Perhaps things will need to get worse before any positive change will happen. What does “get worse” mean ... Providence and Woonsocket going bankrupt is one unnerving thought.

From this vantage point, it is difficult to view Rhode Island’s future in a positive light in the absence of courageous leadership, thereby making it difficult to embrace the “it’s working” mantra.

Larry Girouard is President and Co-Chairman of RI Taxpayers. RI Taxpayers is a 501(c)(4) nonprofit organization whose mission is  to advocate for honest, effective, and fiscally sound government on behalf of Rhode Island taxpayers.

 

Related Slideshow: 5 Economic Projects - Can Raimondo Get Them Done?

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#5 Wexford-CV Properties

The Raimondo administration continues to work with the 195 Commission to seal the deal with the Baltimore-based Wexford Science and Technology for development of prime real estate on the former highway land.  While a proposal was made back in June for a mixed-use project, the negotiations between the state and the life sciences have been mostly behind the scenes, with a key vote taken on the proposal taking place Monday night -- in closed session.  

"It is important to note that a P&S while an important milestone, is still just a step in the development process," said Commission spokesperson Dyana Koelsch.  You can see the plan as presented on the Jewelry District's website HERE.   Will we see shovels shortly?

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#4 General Electric

Reports that the Connecticut giant is eyeing a move elsewhere — with Rhode Island on that short list — has many a Ocean Stater excited at the possibility.  The Boston Globe not surprisingly made the case that their state should top the list (taking a dig at the others), saying that the "Boston area is on the short list of contenders for the headquarters and its 800 people, as GE’s search focuses on high-cost states in the Northeast. In relation to those states, Massachusetts compares favorably on its business tax climate."

However a Connecticut State Rep told the Hartford Courant a month earlier that Rhode Island as an option “wouldn’t surprise him.” Said State Rep John Frey in November, “It's been expressed to me by a couple of people at GE that they've been impressed by what the governor has done with state employee liabilities." To say a GE coup by Raimondo would be monumental for Rhode Island would be an understatement.

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#3 Citizens' Campus

The Rhode Island-based banking powerhouse has indicated that is looking for a vacant location state as a potential new campus for 4,000 + of its employees — while maintaining its headquarters downtown at One Citizens Plaza.  There is little indication at this time however of consideration of a vacant parcel of prime Providence real estate just to its HQ's south (that being the Industrial National Bank “Superman” building); the bank is indicating that keeping its support facility in Cranston is still an option.  

“The lease for our service and support facility in Cranston expires in 2018. We are exploring several opportunities ranging from renewal to potentially consolidating some of our staff and back office functions at a new location in Rhode Island," said Citizens spokesperson Jim Hughes.  Watch to see how Citizens moves forward -- and what, if any, role Raimondo has in the process -- and outcome.

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#2 Superman Building

The arguably most iconic building in Providence — and Rhode Island’s - skyline lost its last tenant in 2013, and a year later an appraiser deemed it to have “zero value.”  A failed effort to utilized tax credits and public investment by High Rock Development has left watchers asking if and when anything is going to move into the historic (if slightly aging) building.

Former Mayor and real estate developer Joseph Paolino, who has been a vocal supporter of trying to get Citizens Bank into Superman, told GoLocal, “I think the biggest problem [in the city] is Superman, because it depresses everything around it. Paolino, who bought three properties nearby downtown back in 2014 — said the revelation that the Industrial National Bank building was empty had cost him a mortgage with a major lender.

Whether there is an opportunity for a Citizens Bank move, or a new developer to re-package a viable mixed-use proposal, if the Superman building is still empty in several years' time, that is not a win for anyone -- not the city, not the state, and not the Governor.

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#1 195 Rollout

When Raimondo took office, she understandably made a number of changes on the 195 Commission. A tax stabilization agreement (TSA) structure was finalized this past summer, and the Commission has the Wexford biotech proposal moving forward — but how much more development, and how soon, will the Raimondo administration be able to accomplish what it pledged it would do?

Raimondo called for the 195 land to be a manufacturing hub during her campaign — and while year one might have been setting the stage, the next years are critical for the state — and Governor.  Will she usher through her proposed Innovation Institute?  

 
 

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