New RIPEC Report: RI Begins Post-38 Studios Recovery

Monday, August 05, 2013

Dean Starkman, GoLocalProv News Editor

 

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Rhode Island stopped shooting itself in the foot and actually helped itself in the last General Assembly session – so says a new report by the Rhode Island Public Expenditures Council. 

In so many words, the report said that the package of governmental, tax, and regulatory reforms passed in the most recent session was a start—but only a start -- toward fixing a broken economic development system that had done little to improve the state’s underperforming economy before collapsing into the maw of last year’s 38 Studios loan fiasco.

“Broadly,” the report says, the session was “successful, in that legislative leaders focused on needed short- and long-term economic development reforms.”

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The report says the state finally achieved some “momentum ... to improve the state’s approach to economic development,” even if propelled by a drumbeat of bad economic news, capped by the investment scandal.

John Simmons, RIPEC’s executive director, said in an interview that other aspects of the assembly’s record were more “mixed,” pointing a bill expanding the state’s temporary disability insurance program, a measure favored by labor and opposed by business.

Structural change

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Released this morning, the report points in particular to structural changes to state government included in the package, especially a law to replace the discredited, quasi-public Economic Development Council with a new state agency, the Rhode Island Commerce Corporation, and giving its new head, a commerce secretary, broad new powers. The idea is to centralize authority over state economic policy and hand broad new powers to a single official, and make the whole apparatus more accountable by bringing it firmly under reporting channels leading to the governor. The report also flags the creation of the new Economic Development Planning Council as step toward a “more data-driven, coordinated, and focused approach” to economic development in the state.

The report rises from the rubble of the 38 Studios, the ill-starred video-game maker fronted by former Bosox great Curt Schilling that received a $75 million loan from the old EDC only to collapse into bankruptcy and a welter of lawsuits last year. In the wake of the scandal, Governor Linc Chafee in May 2012 asked RIPEC to look into both the state’s economic problems and how the state might fix its approach to economic development, which traditionally has been ad hoc, at best, corrupt at worst. The result was a report that report last September that called for sweeping changes to the state economic development approach.

It’s no great surprise that RIPEC would applaud the General Assembly’s work last term since most of the measures passed roughly follow recommendations made by RIPEC itself. RIPEC, in turn, provided staffing help for legislators ushering reform bills through committees and onto the floor.

Shuffling deck chairs?

Still, huge questions remain whether the changes amount to a significant breakthrough in the way the state does business, or just shuffling deck chairs on a listing ocean liner.

Governor Chafee was not enthusiastic – to say the least -- about all portions of the bill, allowing, for instance, the EDC restructuring and the creation of a new commerce secretary to become law without his signature.

And Gary Sasse, founding director of the Hassenfeld Institute for Public Leadership at Bryant University and a former state administration director and RIPEC executive director, says the economic development reforms amounted changes in “process” but do little to address the substance of the state’s dire economic problems. He notes, for instance, that as a part of a compromise to get the bills passed, many of the measures – including the creation of the Commerce Corporation -- don’t go into effect until 2015. Rhode Island, however, has big problems right now.

“There’s no sense of urgency,” Sasse says “The state has the highest unemployment in New England. By all indicators, we’re lagging in the region. Massachusetts has replaced all the jobs it lost before the recession; we’re at a fraction of that. And our solution is to create a new government-run agency that’s not going to be up and running for two years. Meanwhile, the house is burning.”

Commerce 'Czar'

Another problem: the reforms call for significant changes in the state governmental bureaucracy – including merging some functions of the Departments of Administration and Labor and Training, among others into the new Commerce Corporation; but should the governor at the time be reluctant – and Chafee, for one, was not enthusiastic -- such reforms could be a dead letter. Further, he says, the new commerce secretary could be overextended, with roles running the revamped EDC, co-chairing an inter-departmental coordinating committee, chairing the economic planning council, among many other jobs.

“It’s like a czar,” Sasse says. “But the last czar I knew was Nicholas of Russia.”

Simmons countered that one of the state’s chronic problems has been its tendency to ignore the unglamorous but necessary work of organizing itself for long-term change in favor the “quick-fix,” the onetime “game-changer,” that rarely succeeds.

“We don’t believe that’s the right approach,” he says. “Do we do the one-offs? Do we do another 38 Studios?”

He adds that “predictability and stability” in economic development policy are valuable in their own right.

Indeed, some of the weaknesses of the reforms –their deliberate nature and emphasis on process -- may also contain some strengths. One merit of the package is that it addresses medium and long-term problems the state traditionally has had simply in organizing itself for the complicated tasks of attracting business to the state and sparking an economy that lags its New England neighbors by most measures, particularly employment. For instance, until Council of Economic Advisors was created, the state had no central collection point of economic data and information – a basic prerequisite for policymaking. Likewise, while the current EDC, and other state agencies have economic modeling software that allows planners to conduct industry-specific analysis, but no one within the state actually did such analysis in anything like a systematic way.

A measure of transparency

The reforms are also designed to bring a measure of transparency to the murky world of state-backed venture capital. The new Commerce Corporation is required, for instance, to develop metrics and reporting requirements to disclose programs and services provided by the corporation, as well as their effectiveness, in an annual report.

But mostly, the reforms, including the new Economic Planning Council might be useful in answering the big questions about Rhode Island economic identity. With manufacturing withered, finance usurped by mega banks, and technology clustered, at least for now, around Boston: what are Rhode Island’s economic engines? On what sectors should the economic development apparatus direct its focus and money?

In the short term, these reforms offer little relief. In the long term, they just might. 

 

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