With the General Assembly session nearing the end, we fully expect the new state budget to contain no meaningful remedies to the many problems that plague our state, such as high taxes across the board, high energy and healthcare costs, and onerous regulatory burdens on job-producers. In our Public Union Excesses report, we identified that there are $888 million per year in excessive collectively-bargained costs, responsible for driving up local property taxes by up to 25%.
One of the most objectionable schemes of government union collective bargaining process, which excessively drives up the cost of government for taxpayers, in ways or at levels that do not exist in the private sector, is being paid for not working.
The grotesque incongruity of some of the highest per-mile infrastructure spending and some of the worst roads and bridges in the country.
The opioid epidemic is a widespread, complicated problem, and only a collective effort will begin to solve it. The healthcare community and lawmakers need to work in tandem to find policies that effectively lessen opioid abuse while still keeping our state’s economic health as well the health and safety of the patient in mind. It’s unfortunate, however, that Senate Bill S0798, the Opioid Stewardship Act, fails on both accounts.
Wow, has our report shaken up the status quo! We have done the research, and we have connected the dots. The number one driver of the Ocean State’s declining population and jobs numbers – the high property taxes we all pay – can now be directly connected to the excessive costs of government, as mandated by government union collective bargaining agreements.
Now, we are asking your support to help us spread the word.
At $888 per year for each of Rhode Island’s 1 million residents, a family of four is paying over $3,500 annually for excessive compensation deals for government workers, while the basic needs of their own families are being ignored by politicians.
With almost two-thirds of these excessive costs being heaped upon municipal taxpayers, the report further estimates that property taxes could be reduced by 25% if more reasonable, market-based collective bargaining agreements were negotiated.
Beyond these extreme financial costs, an even more corrosive impact from this political cronyism is at play. People have lost trust in their government and are fed up with betrayals from lawmakers who have forgotten them, who cater only to special-interest concerns. Lawmakers make it ever-harder for people to take care of their families and reside in Rhode Island.
For these reasons, Rhode Island is not keeping pace with the rest of the nation when it comes to jobs and population growth. After 10 years of perhaps the slowest economic recovery among all states, Rhode Island’s political leaders are failing on their promises to help the average family.
Instead, by heaping more privileges upon those who help get them elected, politicians continue to lose the trust of the people, who are also losing hope for their state. These tragic circumstances have conspired to make it a virtual certainty that the Ocean State will lose a prized U.S. congressional seat after the 2020 national census because of its stagnant population growth.
Rhode Island strangles its families and businesses with taxes and regulations, but often, the sheer unfairness of the system can be the real poison. As a member of the Tiverton Town Council, yesterday I participated in a “business walk” hosted by the Newport County Chamber of Commerce, which involved stopping in to talk with some business owners around town.
Of course, we heard about the problem of taxes, but the subjects that really animated business owners would better be classified as injustice. The cost of government labor was seen not only as a cause of high taxes, but also as a budget imbalance preventing infrastructure improvement. Similarly, the capriciousness of enforcement, with the rules not seeming to apply fairly to every business and changing depending on which government inspector paid a visit, is irksome beyond the cost.
Even after figuring out how to overcome all the regulatory obstacles that the state throws in their way and even after building high taxes, regulation-driven energy costs, and government bungled healthcare expenses into their business models, they still never know when an inspector will find some new rule to enforce or the legislature will come up with some new fee or obstacle to impose.
With the third highest property taxes in the country, a major encumbrance within an overall anti-taxpayer and anti-business climate that has dropped Rhode Island into bottom-10 rankings in a number of critical national indexes, the excessive costs of collectively bargained government services can be directly linked to this statewide problem.
A summary for Pensions & Investments of Rhode Island’s latest report concerning local pension plans passes a spotlight quickly past the ways in which government agencies, aided and abetted by labor unions, obscure the costs of benefits:
For the underfunded plans, assumptions about investment returns and payroll growth “may not be realistic,” said the report, which cited Providence’s 8% return assumption as the highest in the state.
“In more than a few cases … local pension liabilities are, or have the potential for, crowding out other important budget priorities.”
Take a look at the scorecard for Providence on page 22 of the report. The plan is 26.3% funded, which means it would have to have about three times more money in the fund collecting investment returns right now in order to be solvent. The city assumes that its payroll will only grow 3.5% per year, which must account for both raises and new hires. It also assumes an unrealistic 8% return on its investments every single year, which means it can put less actual money into the plan each year, because it assumes more will come from investments than is likely.
To top it all off, Providence has more former employees collecting pensions than it has employees paying into the system. Consequently, it pays out more every year than it adds to the fund, by about 4%.
Think about that. The city’s pension fund is actually shrinking, not growing.
In order to buy labor peace, Rhode Island governments have made huge retirement promises. So they don’t break the bank, they’ve then disguised the true cost with unrealistic assumptions.
That sword cuts both ways, though. Because the pressure that the pensions should be applying to budgets is drastically understated, labor unions are able to push for bigger raises and benefits for active employees, which has crowded out the money for appropriate pension funding. Now that accounting standards are making pension funding more visible and even mandatory, it has joined with other labor costs in squeezing the budgets for other expenses — even as prevailing wage and other union rules have ensured that the money for those other expenses cannot go as far as it should.
As the RI Center for Freedom & Prosperity’s new report on excessive labor costs shows, these and other problems are creating a huge additional burden on our state, which is already struggling to meet budgets while allowing its economy to grow.
Today, the RI Center for Freedom & Prosperity released a major study that I coauthored with Penn State business professor Dennis Sheehan about the effects of collective bargaining in the public sector on the cost of government. Using both statistical estimates and reviews of specific contract provisions and budgets, we found that the state government’s cost of labor is $96–299 million too high, with an additional total for all municipalities, school districts, and fire districts coming in at $228–825 million.
Our “best estimate” for the combined total excess for the whole state is $888 million, or 21%. This is money that state and local governments should be able to use for other purposes, including tax relief. In this sum, we see the primary reason that state and local governments never seem to have enough money to accomplish basic objectives like maintaining buildings, roads, and bridges and why our taxes are still among the highest in the country.
There is a lot to the report, and we’ll be laying it out in detail and building on it over time. The ultimate conclusion, however, can be seen in the following chart. We chose Portsmouth for our most-detailed analysis because it is the median town for taxes and population and also makes a good amount of the required information publicly available.
One way to understand this chart is to take the two largest segments as the baseline budget that the town must have to do everything it currently does, with market-rate employee compensation in green and the budget for everything else in dark blue. Right now, every wedge on the chart in between those two goes toward employee pay and benefits.
If the report’s “low-end estimate” of excess compensation is correct — that is, if we use our most conservative methodology — the second-darkest blue wedge could shift from employee compensation in order to pay for other expenses or to provide tax relief. At the other end, if even our “high-end estimate” of excess is accurate, nearly one-quarter of the town’s entire budget could be shifted away from paying employees.
Although the state’s rank stayed the same, this month was not a good month for the state on the Center’s Jobs & Opportunity Index. Rhode Island remains last in New England at 47th place in the country. Employment was down another 521 people from the first-reported number for February, and the labor force dropped 1,234.
A week ago, Providence Journal reporter Katherine Gregg tweeted out that the state’s revenue was under performing by about 7%:
Note two things. First, if not for the application of sales taxes to new items, especially online, and an increase in the various fees and such that make up “departmental receipts,” the picture would be significantly worse. Second, about half of the shortfall is attributable to unexpectedly low income taxes.
This is fully in keeping with the latest Jobs & Opportunity Index report from the RI Center for Freedom & Prosperity, which found that Rhode Island is uniquely lagging the country in residents’ personal income growth. In fact, we were the only state to lose personal income between the latest report from the Bureau of Economic Analysis and the originally reported numbers for the prior quarter.
Combine that fact with a downturn in employment in the Ocean State, and we’ve got a clear warning sign that we need to change direction. Unfortunately, our governor is busy pushing progressive social-welfare policy while the General Assembly is hurrying to grab the unions everything they can before the next downturn.
That last note kind of makes one wonder what the legislators know that the rest of us don’t. If they are expecting another recession in Rhode Island, that would be the time to lock in as much as they can for their friends in the labor unions.
Happy Easter from everyone at the Center to you and your family! We hope you had a great holiday weekend.
We wish we had better news to deliver. Unfortunately, the employment situation in Rhode Island is getting worse, bucking the national trend. While state politicians crow each year about not implementing broad new taxes, the unfortunate truth is that by nickle-and-diming residents and by not implementing aggressive reforms Rhode Island will continue to lose ground, nationally.
Mandating school participation in free breakfast programs makes sure that somebody gets fed, but it also feeds the government bureaucracy.
Who does the Rhode Island General Assembly really work for? Too often, the people of our state are left voiceless as special interest dominate the conversation. Recently, the Ocean State Current broke a major story that ignited media coverage across the state. In H5662 and Whom Rhode Island Representatives Represent, Research Director Justin Katz, uncovers a key admission from the political class.
During the March 11th Tiverton Town Council meeting, a member of the General Assembly admitted that he put forward the bill at the request of Speaker of the House, without regard to the cost to the town he represents for the state firefighters union.
Don’t wait, you can catch the video on the Current by clicking the link here. You can also find the followup here.
In the coming weeks, the Center will be releasing a major report on the cost of collective bargaining in the Ocean State. This will be the longest and most in-depth research project the Center has ever undertaken on any topic. We invite you to be on the lookout for this critical report.
The state of the State of Rhode Island is not competitive. Even as the rising national economic tide has lifted ships in all states, when compared with the rest of the nation, our Ocean State is severely lagging, and is in danger of sinking further behind if progressive policies continue to be implemented.
However, things do not have to be this way.
Jeff Rose has an interesting article on Forbes.com calculating the take-home value of a $200,000 income in all 50 states. Such a review requires assumptions and broad strokes, but the attempt is interesting.
Naturally, Rhode Island is in the bottom 8, with the theoretical person taking home $140,500 after taxes, or a 30% effective tax rate. That ties the Ocean State with New Jersey and is worse only than Connecticut, Minnesota, Maine, Vermont, Hawaii, and (at the bottom of the list) New York. At the other end of the ranking is Delaware, with $149,500, or an effective 25% rate.
Therein lies the key point. Sure, folks will have a hard time feeling bad for those with such high incomes, but when they can give themselves up to a 6% raise simply by relocating, we should expect that many of them will try to do so.
That likelihood raises a related topic. These rankings are purely tax burdens. Different states have different costs of living, too. If you’re living in Providence, your cost of living is 22% higher than the national average, according to Payscale.com. Dover, Delaware, by contrast, is 3% lower than the national average. That’s a 25% swing.
Readers can play around with the tools to look at the states that Rhode Islanders often mention when they daydream about leaving. Raleigh, North Carolina, is 6% below the national average for cost of living. Nashville, Tennessee, is 4% below. Here’s the table that Payscale.com generates for comparisons:
Rhode Island doesn’t need new gimmicks or more corporate cronyism to turn itself around. We need to recognize and respond to this core problem of making it too expensive to live here, with too little opportunity to show for it. More and more, it seems that we pay a tax premium merely to enable government employees and other insiders to make up for our high cost of living.
On March 19, the federal district court in Providence dismissed the American Trucking Associations’ lawsuit against Rhode Island’s truck-only tolls, heeding the State of Rhode Island’s legal argument that their truck-only tolls are not a federal but a state matter and within the state’s purview to assess because they are actually taxes. (Wait, what?? Since when? From the beginning and all through the toll battle, Governor Gina Raimondo and state leaders repeatedly told us that tolls are a “fee”, a “user fee“, an apple – anything but a tax.)
At that point, the ATA had two choices: file the suit in state court or move to keep the suit at the federal level by appealing the decision. They just issued a statement indicating that they have chosen the latter course, stating, in part
Yesterday, the American Trucking Associations, along with three motor carriers representing the industry, appealed last week’s decision by the federal district court in Rhode Island to dismiss their challenge to Rhode Island’s RhodeWorks truck-only toll scheme, on procedural grounds.
In its challenge, ATA contends that Rhode Island’s truck-only toll scheme is unconstitutional because it discriminates against interstate trucking companies and impedes the flow of interstate commerce. In its March 19, 2019 decision dismissing the case, the district court did not address the merits of that constitutional claim. Instead, it held only that ATA’s challenge could not proceed in federal court.
ATA President and CEO Chris Spear went on to underscore, “…we look forward to establishing the unconstitutionality of Rhode Island’s discriminatory tolls on the merits.”
[Monique has been a contributor to the Ocean State Current and Anchor Rising for over ten years, was volunteer spokesperson for the citizens advocacy anti-toll group StopTollsRI.com for three+ years and began working for the Rhode Island Trucking Association as a staff member in September of 2017.]
Businesses should be applauded for hiring those most in need of work…not punished with more taxes, and certainly not made out to be the bad guy. It is misguided to think that if employees are not covered by their employer’s insurance plan, full or part time, and instead are enrolled in Medicaid, then the business should be punished.
Existing state law (General Law 44-18-18) specifies a “trigger” for a sales tax rate reduction to 6.5% (from its current level of 7.0%!) if certain internet sales tax collection criteria are met. The rationale for this law was to relieve Rhode Islanders of the additional burden of imposing a sales tax on a broader range of purchased goods, by easing the tax.
On Monday, the RI Center for Freedom & Prosperity suggested that the State of Rhode Island should keep its promise to reduce the sales tax rate to 6.5% whenever it began to collect taxes on Internet sales. Now, Republican Representative George Nardone, of Coventry, has put in legislation intended to do just that:
State Representative George Nardone District 28 Coventry is introducing legislation to lower the sales tax from 7% to 6.5% based on a 2014 R.I. law that was universally supported by the House, Senate, and Governors office.
“It’s time for state lawmakers to keep the promises we made”
The bill, H5854, is very simple. State law already states that Rhode Island will collect Internet sales taxes and drop the rate to 6.5% “upon passage of any federal law that authorizes states to require remote sellers to collect and remit sales and use taxes,” and reduce the rate. Nardone’s legislation simply adds the words “or court decision” after “federal law.”
This would be a no-brainer for elected officials if their brains were able process the notion of not always increasing revenue.
Today, the RI Center for Freedom & Prosperity released a policy brief arguing that, with the 2020 budget, the state will have effectively reached the point of online sales tax collection that was supposed to trigger a reduction in the tax rate from 7% to 6.5%:
While the U.S. Supreme Court’s decision is not literally the same thing as “passage of any federal law,” it can be argued that the State of Rhode Island has effectively triggered this threshold of collecting sales taxes from remote sellers, including Internet vendors. It can further be argued that our state has actually exceeded this legal threshold.
Yet, politically, not one lawmaker has made any noise about how Rhode Islanders may legally be getting ripped off by a broadened sales tax that doesn’t fulfill the legally required lowered rate that was promised.
The Center suggests that the General Assembly should honor its commitment to the people of Rhode Island, should abide by legislation that the legislature itself passed, and should complying with state law. The House of Representatives should include in its FY20 budget statutory language that would officially reduce the state sales tax to its statutorily required 6.5% rate.
The included chart pretty well tells the story of the state’s expansion of the sales tax — at more than twice the rate of inflation, with nearly a 40% increase since fiscal year 2012:
The Ocean State is doomed to lose a US Congressional seat because of its hostile tax, educational, and business environment. The state’s current thinking chases away the wealth, families, and businesses that are needed for all of us to be truly prosperous. The far-left big government policies that have reigned in our state for far too long will continue to only make matters far worse. Instead, we need a change of direction.
Here’s an-easy-to-have-missed tidbit on the Raimondo nickel-and-diming front:
To help buy and maintain new DMV technology, Gov. Gina Raimondo’s budget plan for next year proposes hiking the $1.50 “technology surcharge” on DMV transactions to $2.50 and making it permanent. (The fee was slated to sunset in 2022.)
What the budget doesn’t mention, but Raimondo administration officials acknowledged this week, is that in addition to increasing the size of the fee, the DMV hopes to start charging it to vehicle owners when they have to take their cars in for mandatory safety and emissions inspections every two years.
These fees may seem small, but when you’re hit with them every time you take a breath, they add up. And when new fees are constantly added to cover that which was supposed to be covered under other fees or taxes, we should ask where all the money is going.
Presumably, this proposal would greatly enhance Rhode Island’s tax credit scholarship program:
While most of the K–12 educational-funding and -policy decisions are appropriately housed in the states, an innovative new policy idea would allow the federal government to play a constructive role in expanding educational opportunity in America. U.S. Secretary of Education Betsy DeVos has unveiled a proposal for Education Freedom Scholarships, with corresponding legislation introduced by Senator Ted Cruz and Representative Bradley Byrne. The plan would invest $5 billion annually in America’s students by allowing individuals and businesses to make contributions to in-state, non-profit Scholarship Granting Organizations (SGOs) that provide scholarships to students. Contributors would receive a non‐refundable, dollar‐for‐dollar federal tax credit in return for their donations. No contributor would be allowed a total tax benefit greater than the amount of their contribution, and not a single dollar would be taken away from public schools and the students who attend them.
The program would actually be administered through the state, which puts Rhode Island at an advantage because we’ve already got such a program going. Of course, it would be even better if Rhode Island expanded its own program in the ways suggested, here, notably by allowing individuals, and not just corporations, to contribute.
In early December, I pointed to a story about the state taxing authority going after funeral homes to tax urns and prayer cards. The State of Rhode Island was hitting these small businesses with bills for back taxes on products that had always been handled as tax exempt.
As I looked through the tax changes in Democrat Governor Gina Raimondo’s budgets for the past few years over the weekend, a connection became clear, with an important lesson:
- In fiscal year 2017, the governor called for two new revenue agents for field audits and three new revenue officers for collections, with an estimated increase in revenue of $1,793,806. The General Assembly accepted this proposal, but assumed a net budget impact of $3 million, meaning that the actual revenue collected would be higher in order to pay the five new employees, so actual revenue would be around $3.5 million.
- In fiscal year 2018, the governor called for two more revenue agents and two new data analysts who were supposed to generate another $750,000. The General Assembly accepted this proposal but assumed a $2 million increase in revenue.
- In her current budget, the governor wants to add a lawyer and case management system to the collections unit, to generate another $750,000.
Going after small businesses for back taxes nobody ever told them to collect is what this effort looks like. After the changes in fiscal years 2017 and 2018, the state had nine new employees with an implied mandate to find $5.5 million in new tax revenue.
To the extent anybody even notices these new hires, the impression is that they’ll be going after scofflaws for money they are somehow hiding from the state. There may be some of that, but what the funeral homes are experiencing is the effect of the state hiring people with a monetary target and siccing them on the people of Rhode Island.
My weekly call-in on John DePetro’s WNRI 1380 AM/95.1 FM show, this week, was about new fees for beaches and parks, Mayor Hurricane signs on against climate change, and a mysterious personage in RIGOP circles.
The National Academy of Sciences’ Transportation Research Board (TRB) recently met to assess whether changes to truck size and weight (TS & W) should be implemented. The nation’s scholars, engineers and infrastructure “wonks” came away from the conference with a consensual determination that there was not enough data to support changes and that further studies were needed before any revisions were made to either decrease or increase the allowable dimensions and weight on America’s highways and bridges. In fact, the group spent significant time developing a plan for future research on the TS & Weight issue because there are information gaps and inconsistencies in studies.
So why are DOT leaders around the country yelling “fire in the theater” as they pin the trucking industry with the ills of our infrastructure?
To fix Providence’s pension fund, Mike Riley proposes a solution that might surprise some folks:
People dont Realize that Providence debt burden is the 3rd worst in the country. Raimondo and Elorza plan to pass this to State taxpayers. I say NO WAY !!@!!
This is Providence mess to clean up. They should impose a wealth tax to cut this number in half. Don’t tax us. Tax your own wealthy citizens who have elected Elorza and let him kick the can. Those wealthy people are dying soon so I would start imposing the wealth tax ASAP.
In addition the City should impose a real Estate Transfer tax of 50% on any Property over $3 million dollars that changes hands in the next 3 years or until the Pension Shortfall is < $500 million. These taxes , both the Wealth tax and the transfer tax, would be deposited directly into Providence Police and Fire pension plans.
One suspects the “tax the rich” approach is offered, here, mainly for educational purposes. Riley’s drastic proposal is made in response to an F for Providence’s finances from Truth in Accounting. Those who’ve watched Rhode Island finances will find a catch in that linked document: namely, that just about every Rhode Island municipality faces similarly dire straits.
The state of the State of Rhode Island is not good. Even as the rising national economic tide has lifted ships in all states, when compared with the rest of the nation, our Ocean State is severely lagging, and is in danger of sinking further behind if progressive policies continue to be implemented.
Perhaps no indicator more appropriately demonstrates the failure of the leftist status quo, than does the near-certainty that Rhode Island will lose one of its precious House seats in the U.S. Congress. The persistent jokes of family and friends “moving out of state” have now tragically manifested themselves into the harsh reality that our state is not competitive enough to see population growth on par with the rest of the country.