Government Runs the Economy in Reverse

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Sometimes policies become commonplace to the point that we no longer question their purpose or wisdom until legislators build them up so high as to expose their underlying problems.  Targeted development funds from the state government may have hit that point with S2042, which passed the Rhode Island Senate but died in the House this session.

The legislation would have allowed cities and towns to set up “micro zones,” requiring them to give property tax exemptions or at least stabilization agreements, that would open up access for developers and businesses to exemption from a wide array of state taxes, such as sales tax, income tax, and interest taxes, as well as discounted and expedited fees related to development, all under the famously watchful eye of the Commerce Corp.

Apart from the details, though, two passages catch my eye.  This one’s from from the “legislative findings” section:

That the numerous programs undertaken by the federal government and the state during the past two (2) decades to stop the deterioration and stimulate economic activity in these 14 distressed areas have, in large part, failed…

Even acknowledging that they’ve failed — that their approach simply doesn’t work — legislators think the solution must be to double-down and ramp up the special treatment, which relates to this section:

To the maximum extent possible, the directors of the departments of administration, business regulation, labor and training, environmental management, human services, transportation, and the Rhode Island housing and mortgage finance corporation shall provide special assistance to the zones. This shall include, but not be limited to:

  1. Expedited processing;
  2. Priority funding;
  3. Program set asides; and
  4. Provision of technical assistance in furtherance of the public policy enunciated in 34 §42-64.32-2.

Even in milder forms, it’s objectionable that the state government would distort market signals by subsidizing development in certain areas, but this legislation truly brings into relief the degree to which the prioritization comes at the expense of others, who have to get in line behind the super-favored developers.  Of particular note is that the state government is making the healthy parts of the state’s economy wait behind parts that have failed… and without any assurance (or even hope) that the underlying factors that have made those parts failures have been fixed.

It’s not as if Rhode Island, overall, is going so gangbusters that its economy is throwing off wealth for the state government to apply in this way, and if it were, the state probably wouldn’t have to do anything to make it happen.  The market would take care of it.

This proposed program is all too emblematic of Rhode Island’s approach.  A corrupt government would be reinforcing an admittedly failed strategy to invest the state’s limited resources in the areas of least opportunity.  How could that scheme possibly work?



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