What Will Fix RI’s Business Climate?

Monday, May 11, 2015


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Rhode Island recently made a jump three spots -- and out of the bottom ten -- in CEO Magazine's Business annual business rankings, unemployment fell over 2% during the past year, and URI Economics Professor Len Lardaro reports this week that four of the five leading indicators contained within the Current Conditions Index improved for the state in March. 

While the situation appears to be improving, Rhode Island was just recently ranked the "4th worst state to be a taxpayer" (and Providence was dubbed the second worst city for small business). What will it take to make the state more competitive?

Governor Gina Raimondo has touted such initiatives as the Qualified Jobs Incentive Program, to provide tax credits to businesses to create new jobs, to making the state more competitive by reducing Medicaid costs (albeit at a higher costs to hospitals and nursing homes) as cornerstones so far of her administration's economic development plan.

However, URI Professor of Business Edward Mazze said in his view there are "five major impediments" that are affecting RI's economic development, from deal-making, leadership issues, taxes, recruitment - and retainment. 

SLIDES:  See RI Leaders' Views on How to Fix the State Economy BELOW

"The state's reputation as a "let's make a deal state" places Rhode Island in the position of being a state where it is difficult to do conduct business. Businesses want to operate on a level playing field, said Mazze. "[An] economic game changer [would be] legislation relating to ethical behavior on the part of elected officials with significant penalties for violations."

Addressing Structural Challenges

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The Governor's agenda had the backing of the business community in the way of the Greater Providence Chamber of Commerce. 

"Driving innovation in the delivery of Medicaid services will free up funding for the expansion of economic development programming that's on par with what other states are doing," said Chamber President Laurie White. "The small business tax credit will incent and reward growth for the vast majority of local businesses."

Former Director of Administration Gary Sasse raised the question as to how the proposed changes could be funded to scale

"Several of the Governor's economic development initiatives hits [these] themes. However, to be game changers they must be funded at the appropriate economic scale," said Sasse. "Reviewing the amounts budgeted does raise questions about the funding scale of some of these initiatives.  Finally, while Medicaid reform is a necessary cornerstone of fiscal stability it is not an economic development strategy."

Two-time gubernatorial candidate Ken Block, who has been focused on a number of issues since the election including fire district costs, said he believed addressing capital gain exemptions has potential.

"Rhode Island needs to tip the balance to cause companies to locate here and bring jobs.  We don't have a lot of companies banging down our door right now. One great way to attract businesses would be to exempt future capital gains on investments in Rhode Island-based businesses," said Block. "This exemption could cause businesses to consider Rhode Island when they otherwise would not, and the exemption will not have a huge cost - these businesses aren't coming now.

Taxpayers on the Record

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Taxpayer advocacy groups were critical of what might be needed to further stimulate the economy - and especially how much impact a new PawSox stadium in Providence could ultimately have. 

"RI’s business climate will not improve until leaders address the cost of government.  The game changers will be very unimaginative but necessary reforms.  Areas where we are an outlier must be brought back into alignment with other states.  We can’t compete if our cost structure is too high.  The cost of welfare fraud, waste and abuse is consuming the state’s resources.  The cost of public union salary and benefits, including the pension and opeb liabilities are dragging us down. Illegal immigration has strained our education system to the breaking point.  WatchdogRI has highlighted the excessively high cost of fire services, indicating yet again, that RI is an outlier compared to comparable cities and counties," said Pam Gencarella with OSTPA.  "These areas have been spotlighted over and over again, yet our leaders nibble at the edges.  Full blown reform in these areas, along with important ethics reform, will be the game changers for RI’s business climate. Not things like picking winners and losers through tax credits or creating new schemes like a state infrastructure bank or indenting taxpayers in field of dreams projects like moving the Pawtucket Red Sox to Providence."

While the recent bump in state ranking stemmed from the reduction in corporate income tax rate, advocacy group RI Taxpayers questioned that the new position was an indicator of any true gains.  

"With the Governor stating in her inaugural address that RI is 49th in states where companies want to do business and last is supporting entrepreneurs, it is hard to conceive that RI jumped to 37th in a few short months just by dropping that corporate tax from 9% to 7%. The I-195 land still has no takers for this prime Northeast real estate," said RI Taxpayers Larry Girouard. "Why?"

"The PawSox stadium will NOT be a game changer for our state," continued Girouard. "While a beautiful stadium with AAA baseball in Providence would be terrific, this will not attract business.  A stadium would be the icing on the cake, but the cake has not been baked yet.  No business wants to move into Providence with the city facing such fiscal challenges (see attached NEWMAX article). I fear that if the stadium goes forward, this will be the only reason why there are “cranes in the sky."

"And by the way, [Massachusetts] is below RI in this CEO report and there are plenty of cranes in the sky inside the 128 loop," said Girouard. 


Related Slideshow: Leaders on Fixing RI’s Economy

Recent rankings put Rhode Island #37 for business climate.  And while that takes the state out of its most bottom-dwelling days, leaders across RI have weighed in as to what could futher the state moving forward. 

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Leadership Issues

Dr. Edward Mazze, URI Distinguished Professor of Business

"Knowing who is in charge when it comes to setting policy, making things happen and being able to mobilize resources to support policy. Economic development in Rhode Island is fragmented, cities competing against cities, cities competing against the state, the executive branch competing against the legislature. There is no "one state" economic development focus. The Governor has to be in charge in charge of setting policy, and have the resources to accomplish her objectives.

ECONOMIC GAME CHANGER: Line item veto so the Governor can make things happen."

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State Taxes

Dr. Edward Mazze, URI Distinguished Professor of Business

"State taxes (business and personal income, sales, estate) and local taxes (property) impact every decision a business makes.  High taxes exist in Rhode Island because the state is divided into so many cities and towns needing funds to support their activities. The state needs to look at different ways to reorganize local government structure.  Without a new structure, state and local governments will continue to have increasing deficits which will require increasing taxes.

ECONOMIC GAME CHANGER: Government-Business Task Force under the leadership of the Lieutenant Governor to recommend a structure best suited to provide the services required by Rhode Island taxpayers in a more economic and efficient manner."

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Dr. Edward Mazze, URI Distinguished Professor of Business

"The best recruiters for economic development are the business community. Chambers, professional groups and educational institutions play a role an important role in this activity but it is nowhere as important as the role played by individual business people/leaders. Many of Rhode Island's largest businesses are "owned" and/or "headquartered" in other states or countries.

ECONOMIC GAME CHANGER: Getting business people "invested" in economic development and letting the private sector do their thing."

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Support vs. Stars

Dr. Edward Mazze, URI Distinguished Professor of Business

"Reaching for the giant business "stars" and not taking advantage of the state's strategic assets, namely, the small business community. The state's strategic location and assets provides a competitive advantage to marine industries, the hospitality industry, exporting and importing, health and education and professional services- many of these industries  are made up of small/medium sized businesses. 

ECONOMIC GAME CHANGER: Providing the support ( tax credits, less burdensome regulations, a better tax structure) for small businesses to survive and grow. Small businesses are the Main Street businesses in Rhode Island and create jobs."

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Multi-Faceted Approach

Gary Sasse, Founding Director of the Hassenfeld Institute for Leadership at Bryant University and Former Director of Administration 

"The centerpiece of an economic development strategy is the productivity with which a state uses its human and capital resources. Only businesses can create jobs and economic growth. Therefore, states compete to offer the most productive climate for the private sector to succeed.

There is no silver bullet. Making Rhode Island economic competitive requires a five-part strategy encompassing workforce development, urban education reform,  tax competitiveness, targeted recruitment and retention and technology commercialization with an emphasis on middle class jobs and small business."

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195 Incentives

Laurie White, President, Greater Providence Chamber of Commerce

"I would...add that the $25 million incentive pool to maximize a game changing investment on the 195 lands is critically important for many reasons including sending a signal that RI's period of unilateral disarmament is over."

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Game Changes Needed

Larry Girouard, RI Taxpayers

"There is not one game changer that will begin to drive the RI brand up the competitive ladder ... Rhode Island will need a series of “game changes” if the business community is to take notice.  

*Line Item Veto for the Governor ... 44 states have this.  The Line Item Veto will provide some checks and balances regarding leadership spending.

* Put real teeth in the ethics commission ... need I say more

* Develop a more stringent approach to bills where, in the short term (1-2 years) the focus will be on only those bills that have an impact on the RI competitive brand.  Each bill should have an economic impact statement associated with it to justify the legislature spending its valuable time on it.

* All bonds over $50,000 must be approved by the voters.


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