The Rhode Island Public Expenditure Council (RIPEC) is hosting its conference, titled “Rhode Island’s Business Climate: How Rhode Island Measures Up,” at the Fidelity building in North Smithfield, by Bryant University. On the way over, I passed an excellent metaphor for Rhode Island as the backed-up traffic heading into Providence gradually made its way past the stalled vehicle of an unfortunate woman trapped in the left 95N-bound lane. Despite all of our many advantages, and the many talented and otherwise impressive people driving the state forward through both self interest and charitable inclinations, it doesn’t take much to slow the works down.
As I wait for everybody to filter in and the show to begin, I have to say that I know that I’m putatively a journalist, but all of these conferences put me in wonk heaven. At the press table at last night’s RI Senate Economic Summit, one of the reporters noted how dry this sort of material is. I suppose that might be the case in comparison with, I don’t know, sex scandals and violence, but it can be intriguing with just a little bit of understanding about what’s going on behind the scenes.
Here’s the media release about the conference: PDF. The speakers/panelists are:
- Joseph D. Henchman, Tax Counsel & Director of State Projects, Tax Foundation
- Jonathan Haughton, Senior Economist, Beacon Hill Institute for Public Policy, Suffolk University
- Paul McGreevy, Director, Rhode Island Department of Business Regulation
- Leslie Taito, Director of Regulatory and Quality Management, Rhode Island Economic Development Corporation
By the way, the person with the worst duty at these conferences, by far, is the assistant who has to get the PowerPoint slides working. It seems like it’s always a problem, and the silly mistakes and mistypes are up on the wall for all to see.
We’re underway. RIPEC Executive Director John Simmons opened the event…
… with subsequent comments from John Muggeridge, VP Public Affairs at Fidelity Investments.
Muggeridge is hopeful that the General Assembly will hold the line, after doing a good thing with regard to income taxes.
(Side note: the free guest wifi blocks Twitter. Those who know me will understand how encouraging I find that.)
The conference is related to a recent release from RIPEC on the same topic that I touched on a bit last week.
Simmons says both the Tax Foundation and Beacon Hill will be announcing some new data, today. Apparently, there’s all kinds of optimism going around, particularly with regard to regulatory changes. We’ll see.
I don’t know… the latest version of RIPEC’s report (PDF) has the Tax Foundation ranking the state 44th in 2010 and 42nd in 2011. However, the handout on the tables here today puts us at 47th for 2011 and 46th for 2012.
Question from the audience: Is the pension reform reflected in this data.
Simmons: The data was collected before the reform. However, there is some debate about whether the pension reform was the right area to focus; some say fiscal reform would have been a better use of political capital.
Henchman: “When I go to other states, I often point to scrappy little Rhode Island despite all that’s working against it.” That’s despite the bad numbers he’s going to be presenting.
JH notes that China will soon be lowering its corporate tax rate below that of the U.S. He also notes that income tax cuts will be expiring. It’s an election year. And the Supreme Court will be weighing in on ObamaCare (he didn’t use that term).
Audio difficulties at the podium. See, even all the resources of a major finance firm can’t avoid the realities of physics.
Back to the topic: Rhode Island’s Tax Freedom Day is April 13… national April 12. Factoring in the deficit, the national date moves into May.
Henchman notes that the Tax Foundation doesn’t account for the “value of government services or regulatory benefits/costs or tax collection efficiency.”
Americans on average paid 9.8% in state & local taxes. RI is 5th or 8th highest (depending on measurement)
Interesting slide: RI was actually in the middle of the pack on taxes, even on the low end, in the ’70s. Around 1989 is when the state started to climb toward the peak of the national ranking.
Meanwhile, Massachusetts is now right in the middle.
RI is worst in the country for state sales tax, but we benefit (to 24th) when our lack of local tax is factored in.
A new study being released tomorrow creates a few hypothetical companies and calculates the tax bill in each of the states, once for new firms (incentives) and once for existing firms (no incentives).
RI is 29th for a call center, 31st for corporate, 33 for R&D. (He’s going too fast.) But RI is 12th best for capital-investment manufacturing. Overall, there’s quite a difference (typically about 10 places) between mature & new businesses.
Jonathan Haughton from Beacon Hill Institute jumped right in by noting that, despite all of the horrible rankings, “Fidelity decided to commit suicide and do business here.”
Haughton says RI is actually about middle of the pack and weathered the recession about as well (in terms of ups and downs) as the nation as a whole. That’s hard for me to believe; perhaps because we started to sink sooner.
Haughton: RI started losing jobs earlier and has remained well above the nation and especially MA. He blames the loss of manufacturing, “and it’s not clear that that’s going to come back.” “How do we make a Pittsburgh out of the state of Rhode Island?”
Haughton reveals Beacon Hill’s rank for 2011 as 19th.
You know, it occurs to me that Beacon Hill’s ranking seems surprisingly out of step with the other rankings, but it comports with what we all say about the state locally. Its advantages have given it room to implement some really horrid policy and tolerance for corruption. The question that comes immediately forward for an answer: If we’re 19th on Beacon Hill’s rank right now, imagine if we managed to become even middle-of-the-pack on the other ranks.
The state could be number 1.
He notes that RI’s unemployment insurance is particularly high, which might help explain why our unemployment numbers are so high.
He also cautions against building a bunch of expensive windmills that will drive up the cost of electricity.
Unionization rates deter heavy industry, while RI’s tax structure benefits it (see last night’s comments from the representative from Sea Breeze).
We’re bad in tort reform… good for lawyers, bad for business.
It’s very interesting (my thought) to compare the shift in subindexes that lead to the state’s moving up a notch:
- Govt. & Fiscal policy moved from 42nd to 31
- Security from 2 to 6
- Infrastructure held at 34th
- Human Resources 18 to 23
- Technology 8 to 4
- Business Incubation 32 to 34
- Openness 21 at 21
- Environmental Policy 35 to 36
RI leaves “behind a remarkable segment of the population.” In Human Resources, we’ve got a lot of doctors and college students but a low % of high school graduates and bad unemployment. “That dualism is what brings Rhode Island down.”
[Not surprising to those of us who follow the state. There’s not much mobility and there’s a strong in-the-club culture.]
“This is a provincial state.” We’re not trading outside of the state.”
If I may inject a quick thought: It seems to me that the “two Rhode Island” idea plays into support for school choice. What’s needed aren’t top-down silos, but more availability of fluid motion for residents to advance at their own pace or fall at their own desert.
He suggests that RI join MA in looking toward hydropower imported from Quebec.
Meanwhile, our high school graduation rate is a problem, as is our unionization rate (although he mitigated the latter with disclaimers that it’s just an effect of the measurement).
If RI were average in all of the metrics that it currently trails, we’d be 13th, with another billion dollars in GDP ($800 per person).
Richard Licht asked if the Tax Foundation looks at the corporate rate or the effective rate. Similarly, sales tax, do you look at the many exemptions?
Henchman: For the burdens report, that’s just looking at the dollar value (so it would account for exemptions etc.)
On the tax climate index, there are 100 different variables; the top rate does factor in, but they account for exemptions and such.
The new study factors it in. “Even there, generous incentives aren’t helping Rhode Island. The sticker price is just too high.”
Question: Does the Beacon Hill Institute rank states into international rankings?
Answer: Too many of the variables aren’t comparable.
Question: Is there any published data on high unemployment benefits causing unemployment.
Answer: The academic research “shows quite clearly” that people respond to exactly this incentive. Haughton notes France, where it’s possible to live decently on unemployment, and they never stop, whereas Sweden takes more of a tough-love approach.
Q: Where do we rank in the broadness (or lack thereof) of our sales tax?
Henchman: The average sales tax in the U.S. is actually not very broad (about 40% of transactions). It “double taxes” business transaction and doesn’t tax retail. He doesn’t no for sure where RI is, but it’s neither very high nor very low.
Q… or actually statement: 39 RI reps have signed on to increases in the income tax, thus thwarting our improvement in the rank.
Henchman: Higher tax brings in money in the short-term but harms long-term growth. Other states (e.g., NJ) have tried it and are pulling back, and he’d encourage RI not to try to prove them wrong.
Haughton: People look at income tax more than sales tax.
Q: What would be Haughton’s two-minute elevator speech to sell RI.
Haughton: “Let’s assume that we’re talking about a fairly established business.” If you need skilled labor, there’s plenty [huh?]; quality of life is good (safe, clean, oceans); it’s close to markets (transportation); if skills are needed “probably could work” with local education institutions: “It’s a small-enough state that people might be receptive to changes; decision-makers are relatively accessible.”
I missed the question, but Haughton is explaining that, with Finland as an example, “Apparently, with sustained commitment [and political will], it is possible to turn around an education system.”
They’ve moved on to the topic of regulatory reform, with Paul McGreevy, Director, Rhode Island Department of Business Regulations, speaking.
Inter-agency cooperation “seems to be the biggest challenge” for businesses. “We have to improve the coordination.”
Their approach to addressing the issue entails establishing the Office of Regulatory Reform, surveying key industries in the state, developing a “Model Permitting Process,” and improving regulations’ management process. The latter is important, so they’re worth retyping: “develop balanced criteria to create/review regulations” and “streamline legislative framework; incorporate better metrics.” I’m not sure what the latter (which is the action point) means, but it could be problematic.
Leslie Taito, Director of Regulatory and Quality Management, RIEDC said that she thinks she just got one of the “coolest” jobs in the state. Ahem. I’d have had to disagree if she’d said she has the coolest.
Gov. Chafee and the RIEDC “have made making it easier to do business one of their top five business and job growth priorty areas.”
She’s describing the activities and personnel of ORR. I’m wondering whether this is an example of government creating a problem that requires an expansion of government to solve.
It’s curious to note that Taito keeps using the word “progressive” to describe the motivation to reform… as in “they’re being very progressive.”
Bottom line: “The cost of a regulation should be no greater than the value of the benefit created for the community.” That includes ensuring that man-page regulations need to be streamlined.
“We can get to ‘best in this state'; there is no doubt in my mind.” She thinks we can do it in 3 to 5 years.
Has Rhode Island got itself another strong reform woman?
John Simmons is “pleased” that the governor is moving forward with ORR.
Q: “We experience these overlays of regulations. New regulations get put in, but old ones never get repealed.” He suggests that regulators often have more experience in a particular business than a company that’s actually in it. “So frequently, they are the party of ‘no,’ where the people with the expertise could actually be more helpful. Example: the EPA has a whole lot of expertise but is more focused on imposing penalties.
Taitor: They’ve developed a single point of contact at each organization to ease the process of working with them. When addressing problems, they’re getting all of teh players into one room.
McGreevy: “We have to instill customer service in all our employees.” “The public of Rhode Island are your customers.”
Q: Hoping that they’ll move from the executive branch to others (like Secretary of State). The decentralization of government is great for distributing power (“or whatever”), but it makes it difficult to coordinate business processes.
McGreevy: We have to use technology to create multiple ways in which a business can enter into the process and flow to the answers that they need. He’s referring to the “model process.”