What Will Fix RI's Business Climate?

What Will Fix RI's Business Climate?

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.

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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

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

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.