Russell Moore: Rhode Island Needs An Economic Overhaul, Not A Tweak
Monday, July 08, 2013
Rhode Island's economy needs a total overhaul, but the General Assembly is holding big change hostage with small tweaks.
Yet despite promises from leadership to the contrary, the legislative session, which recently came to an end last week, did remarkably little to achieve that end.
The report doesn't tell us anything we didn't already know.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe report graded each state’s manufacturing and logistics economy, tax climate, and several other factors. Basically, the state received lower grades than the average adult who took the NECAP at the Providence Student Union’s behest a few months ago.
Rhode Island gets another "D"
Rhode Island, the birthplace of the American Industrial Revolution, received a paltry D for its manufacturing industry health. Neighboring Connecticut received a “B” and Massachusetts received a C, respectively. New Hampshire, for its part, also received a “B” for its manufacturing climate.
“Rhode Island remains one of the least hospitable places to manufacture goods in the United States,” Michael Hicks, the Ball State economics professor and director of the Center of Business and Economic Research recently told the Cape Cod Times.
... and a couple of "F's"
Somehow, the state received even lower marks—an F—for its “logistics”. The logistics portion of the study took each state’s employment per capita in logistics and related industries as well as the state’s per capita expenditure on highway construction into consideration. Massachusetts and Connecticut weren't much better in this particular sector, both receiving “D’s”.
It will surprise nobody, with the exception of Governor Lincoln Chafee, that the state received an “F” for its Tax Climate ranking. To calculate the state’s tax climate, the study took ranks of corporate, individual income, sales, unemployment insurance, and property taxes into account. Both of our neighboring states received “D’s”.
The report is a sobering reminder of how outsiders see the Rhode Island economy.
Due precisely to reports like this one, the legislative session began with grand promises to “move the needle." In other words, General Assembly leadership pledged to reverse the trend of the state receiving negative economic rankings and reports like this one.
And what did the General Assembly do?
Yet in the wake of the legislature’s adjournment last week, it’s hard to identify many initiatives that will achieve those goals.
That’s not to say there weren't bright spots. The reinstatement of the state’s historic tax credit program, which will provide a boon to the state’s construction industry, was a smart move by legislative leadership. The removal of the sales tax on liquor will also help Rhode Island liquor stores compete with their competitors across the line in Massachusetts.
But despite those initiatives, there was no game changer for which many have been searching. The state legislature changed the name of the Economic Development Corporation (RI-EDC), and altered its responsibilities with also giving the agency’s head a new title (Secretary of Commerce) and a few added responsibilities such as dominion over the Department of Business Regulations.
But as the Ball State report implies, RI needs to do more than change its bureaucratic structure.
A Governor who believes in half-measures
Chafee would disagree. Chafee has argued that those even those changes are unnecessary. Instead, he thinks merely changing the people at the RI-EDC, which he has done, will do the trick. He’s got his hands on the wheel, he said recently, and we just have to let him drive the car. Isn't that reassuring?
There were actually a few initiatives that may hurt the economy instead of helping it.
For instance, the lawmakers increased the state’s temporary disability tax by expanding the program to provide paid leave from work to care for newborns and sick relatives. While the new law will be a relief to people in those situations, the fact remains that it will increase the cost of doing business—not a positive for the economy.
And then there were tolls. Lawmakers approved a 10-cent toll for the Sakonnet River Bridge on Aquidneck Island—much to the ire of residents and business owners from that island as well as the East
Bay.
Tolling a bridge where people are accustomed to passing for free is not a way to encourage economic development. To my progressive readers, I will point out that tolls are the most regressive form of taxation. The move is particularly perplexing because, as the study acknowledges, the state already pays a large amount of taxes and fees already.
Governor Chafee told reporters that the 10-cent toll would in all likelihood be hiked sooner than later. Economics is all about incentives, so this will further discourage tourists and shoppers from visiting Newport.
“You have to pay for the things you buy,” Chafee told reporters.
It’s truly fascinating that Chafee thinks Rhode Islanders pay too little in taxes. To his credit, he has been open and honest about his belief since he declared his candidacy for Governor back in January of 2010. Is there anyone else, besides Chafee, who thinks we’re paying too little in taxes here? I think not.
It could have been (even) worse
To be sure, the legislative session could have been worse. There were no broad based tax increases. There were no staggering new regulations. The budget didn't hike spending (much). But the budget doesn't cut taxes, spending, or ease regulations on businesses either.
Imagine an obese man who didn't gain any weight this year. His condition didn't worsen, but he didn't make the progress he needs either. That’s how I view this year’s legislative session from an economic standpoint. Don’t expect an improvement in economic rankings or reports any time soon.
For a state that needed a touchdown, this year’s session wasn't much more than a punt.
A native Rhode Islander, Russell J. Moore is a graduate of Providence College and St. Raphael Academy. He worked as a news reporter for 7 years (2004-2010), 5 of which with The Warwick Beacon, focusing on government. He continues to keep a close eye on the inner workings of Rhode Islands state and local governments.
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