Rhode Island’s New Political Reality a Disturbing Joke

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How about some review?  Under Governor Gina Raimondo (D):

  • The governor’s big economic development plan is centered around an intricate refinancing deal that essentially allows her office to borrow around $80 million without taxpayer approval.
  • The State Police has issued a heavily political report attacking the Republican mayor of Cranston (i.e., the governor’s electoral competition).
  • A bridge near the law office of the Speaker of the House was mysteriously closed down in the middle of an infrastructure debate for work that was of questionable necessity.
  • The governor’s toll-and-borrow plan for infrastructure is another way to borrow millions upon millions of dollars without ever having to win approval from Rhode Island taxpayers.
  • The quasi-public Commerce Corp. is acting like a Gina Raimondo PAC.
  • Wealthy political donors to Raimondo are “independently” funding a D.C. think tank to advance the governor’s policies, with clear cooperation from her office.
  • The Dept. of Transportation has hired a marketing firm to help it push Raimondo’s infrastructure proposal.
  • The DOT is also becoming a difficult place from which to receive documents requested under open records law.
  • Ultra-insider Richard Licht’s son landed a high-paying job with the Commerce Corp.

I’m sure there’s more that I’ve forgotten, but new to the list is the hiring of recently retired state representative Donald Lally to an $87,057-a-year position with the Dept. of Business Regulation, which (along with the Commerce Corp.) is under the direction of Raimondo’s Commerce Secretary, Stefan Pryor.  Despite the befuddlement of John Marion, one of the leading experts on RI ethics laws, Lally claims that revolving door provisions don’t apply to him because he technically works for the governor and is just on loan to the Dept. of Business Regulation.

The sick joke comes at the end of Stephanie Turaj’s report about Lally’s hiring, when the former rep explains his motivation as follows:

“I have two children, a daughter finishing up at the [University of Connecticut] and I have a son who’s a sophomore at the [University of Rhode Island] in business,” Lally said. “I’d like to give them the opportunity to work in Rhode Island if they wanted to. I wanted to help out and do my part.”

Well, if Mr. Lally wants to ensure Rhode Island–based work for his children, building his connections within state government seems to be about the only certain way to do so.  Any other parents who wish to do the same better get with the Raimondo program.

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REMI and the 14% Solution

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Projections using REMI to estimate the effects of doubling the sales tax illustrate the economic thinking that will go into the results of its review of Raimondo’s toll-and-borrow infrastructure scheme.

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With Raimondo, REMI, and Brookings, Providence Journal Plays Insider Footsie

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Providence Journal political attacks on government outsiders come in sharp contrast to the credulity its reporters bring to an actual cabal working to manipulate the public and transform Rhode Island according to an ideological vision.

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Park Avenue Bridge: Did the Wood Even Need to be Replaced? Was the Correct Part of the Bridge Repaired? “Lieutenant Colonel” Columbo Has a Few Questions

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With the completely unacceptable, lose-lose for Rhode Island prospect of across-the-board vehicle tolling suddenly on the table, let’s take a closer look at a high-profile toll-related incident from a couple of months ago: the closure by RIDOT of the Park Avenue Bridge.

You may recall the WPRI investigation last month by Ted Nesi on the timing of the Park Avenue Bridge inspection. RIDOT had ordered an inspection – it turned into three inspections – of the Park Avenue Bridge in Cranston, a bridge just down the road from Speaker Nicholas Mattiello’s office. The inspections resulted in the abrupt closing of the bridge at the height of Governor Raimondo’s attempt to get her tolling program passed by the General Assembly.

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Updated – Terrible Tolls Would be a Win-Win for Governor Raimondo and a Lose-Lose for Rhode Island

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From the wow-that-didn’t-take-long department, the Providence Journal’s Kathy Gregg, in a piece of kick-butt journalism yesterday, reports that the tolling of all vehicles is now on the table as an option. It seems that, at Speaker Mattiello’s suggestion, Governor Gina Raimondo is carrying out an “economic analysis”.

In recent months, the administration also commissioned an “economic analysis” of Raimondo’s truck-toll plan and a variety of other possible revenue-raising options that could, potentially, include: other new “user-fees,” gas taxes and a revived effort to toll all vehicles — not just big trucks — on Route 95 near the Connecticut border.

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Commerce RI as Raimondo PAC

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How is this even remotely appropriate, from the news page of the Web site for the state’s quasi-public economic development agency, Commerce RI?

Raimondo Poised to Fix Rhode Island

In just eight months as the first female governor of Rhode Island, Governor Gina M. Raimondo passed an economic development and jobs focused budget through the General Assembly in record time, giving the state an unprecedented toolkit to reboot the economy.

Contrary to what Rhode Island insiders may believe, it is not the role of government agencies to promote the particular politicians who happen to be in charge at the time.  It would be questionable enough for elected officials to use their own government offices to promote their activities in a nakedly political way, but when other offices do so, it’s way out of bounds.

For one thing, it implies that interaction with that agency is related to approval of the politician’s agenda.  Suppose a business is considering a move to Rhode Island and initiates contact with Commerce RI.  The executives might justifiably get the impression that fealty to the governor is a must, if they expect help from the quasi-public (let alone fully government agencies).

For another thing, this sort of behavior gives incumbents access to a multi-billion dollar organization’s exception for unregistered and unregulated in-kind contributions for their political races, to the point of electioneering.

I’ve already been tracing the way in which the rule of law is falling apart in Rhode Island and the country, creating arbitrary rules based on who has power rather than who has rights.  If government agencies are becoming unabashed promoters of elected officials (and attackers of their political opponents), we’re crossing into a new type of government altogether.

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The Brookings Activity Guide for the RhodeMap

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Among those who don’t tend to think that the state government of Rhode Island should be tasked with completely ordering the lives of the people who live within its borders, the conversation about the relationship of the recently announced Brookings Institution study and RhodeMap RI has already begun.  Some think that RhodeMap was the framework to which Brookings will add specifics.  I don’t think that’s quite right.

Consider these two disconcerting paragraphs from Ted Nesi’s WPRI article, yesterday, drawing out some details of the intentions:

“This is an opportunity that you don’t get that often, to take a shot at putting the state on a different trajectory,” [Mark Muro, director of policy for Brookings’ Metropolitan Policy Program] added. “It’s been a rough decade.” …

“I think in most parts of the U.S. it’s still, the government does this, the corporations do that, the universities are somewhere else,” [Bruce Katz, the nationally-known head of the Metropolitan Policy Program] said. “In the successful places around the world there’s a seamless interaction between all these different sectors, and if they’re all on the same page – then that’s when you get the bigger returns. So it’s not just the policy … it’s this foundation of collaboration.”

This study will be part of the same ideological program as RhodeMap, but they’re distinct pieces.  RhodeMap is concerned with controlling where people live and how they structure their lives.  Brookings is going to instruct the state government about what professional activities Rhode Islanders should be engaged in while they live here and how to bring the private sector into alignment with the central plan.  (Whether they’ll go into detail about what laws to pass to force compliance, or just make friendly-sounding suggestions about how to create incentives to benefit special interests that are aligned with the program or are willing to adjust, we’ll have to wait and see.)

Consider this carefully, Rhode Island.  Even in a small state of about one million people, you can’t have “seamless interaction.”  Our entire government system is (or was) set up so that we can interact in a way to ensure the maximum freedom while allowing us to work together peacefully.  That’s the central challenge of a free society; progressives can’t just ignore it away.

When they skip over that challenge, what they’re really assuming is that they will be able to pick people in non-government sectors — in business, in academia, and in cultural institutions — who will stand in as if they speak for their whole sector and who will agree to follow the plan.  You may be able to live your life your own way, but it will become progressively more difficult to the extent that you want to do something of which the pointy heads at Brookings and the control fanatics who invited them in disapprove… or even that they don’t quite understand.

If what you want to do conflicts with the powerful people, well then, you’ll have to be banned.

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Governor to Suspend Economics by Decree

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On the tropical island of Rhod Ah, Chief Rai Mondo has convened a council of the Elders to craft words by which to decree that the island’s active volcano will no longer erupt.  Said the chief, through a translator:

Right now, if you own a business on Rhode Ah Island or if you’re anybody who lives here, the lava has been encroaching on your life every single year.  It’s unaffordable.  It puts a burden on islanders who just want to go about their lives.  It makes it so other people don’t want to come here and makes it harder for us to get anything done.  The whole point of this decree is to say, “Hold on.  We can’t sustain that.  Let’s bring the amount of volcanic activity down.”

OK, that’s not the story.  Actually, Governor Raimondo has convened a “Working Group for Healthcare Innovation” with the central mission of figuring out how to place “a cap on both public and private health care spending.”  The model state, Massachusetts, ties health care spending to the state economy, but according to Providence Journal reporter Jennifer Bogdan, “some suggested that the Massachusetts law did not provide a strong enforcement mechanism for sticking to those targets.”

This is a terrible, terrible idea, and it’s backwards in the both the sense that it seeks to decree a plug at the output-side of an essentially natural process (economics) and in the sense that it’s retrograde, like a laughable island dictatorship.  The Massachusetts experiment has not run its course, yet, and there’s always room for spin, but this September article from the Boston Globe shows hints of the problems that one should expect:

Partners spokesman Rich Copp said costs grew faster than expected in 2013, but that over time Partners will reduce costs by delivering more coordinated care in lower-cost community settings instead of its big academic hospitals, Massachusetts General and Brigham & Women’s. Partners is trying to acquire community hospitals north and south of Boston. …

… The annual estimates are an outgrowth of the state’s landmark health care reforms, which sought first to expand insurance coverage and later to control costs — among the highest in the nation. …

… Doctors at UMass Memorial Health Care decreased spending 1 percent for some patients, while the doctors group Atrius Health had a decrease of 3 percent for others.

Something and someone is driving the spending.  A top-down decree to control spending will not necessarily target the people and incentives that create the spending, but those that the people at the top want to target.

At the end of the day, such caps create incentive for consolidation and quotas, less choice, and increasing transfer of costs (which will continue to grow) to those in preferred groups or roles in the market and from everybody else.

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The End of Education Reform in Rhode Island?

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Obviously, it’s way too early to know how Governor Gina Raimondo’s newly appointed education commissioner, Ken Wagner, will fit into the education debate in Rhode Island.  Reports headlining him as “a uniter” are not encouraging.  Here’s Linda Borg in today’s Providence Journal:

Rhode Island’s new education commissioner is described as a good listener, a peacemaker and someone who doesn’t toe a strict ideological line.

Ken Wagner, who was considered the face of public education in New York after the departure of state education commissioner John King, was introduced to the public Wednesday by Governor Raimondo. The governor said Wagner has all of the qualities that educators and community leaders are seeking: he’s a good listener, an inspirational leader, someone who treats teachers with respect. …

Carl Korn, spokesman for the 600,000-member New York State United Teachers, said, “Ken did his best to walk a fine line between a governor who wanted a greater reliance on standardized tests and a test-and-punish teacher evaluation and the concerns of major stakeholders who said, ‘This isn’t what’s best for students.’”

The problem is that the education establishment — with emphasis on the teachers’ unions — is ideological and focused on their own interests.  If Rhode Island lacks a governor who is pushing hard for reform, then which “sides” will Wagner bring together?

Judging from Borg’s article, it sounds like the “sides” are teachers and students.  In New York, that apparently meant teachers who didn’t want challenging evaluations and students and families who didn’t want difficult standardized testing.  That seems a bit more like one side, to me.

He’s apparently a strong advocate for the federal Common Core standards, so perhaps the two sides are the local interests who want to keep control over education and the federal bureaucracy and ideologues who want to take it over.  But I don’t find that possibility any more encouraging.

Strange Coverage Note

As an indication of strange interests, Borg gives the following as non-career flavor from Wagner’s biography:

Wagner grew up on Long Island, New York, is married, and has two poodles, Rocco and Stella.

Some might respond to that sentence by wondering whether Rocco and Stella are adequate to give Wagner sufficient empathy with the parents of the children whose educational experience he’ll now be directing.  A more immediate question, though, might be why it’s important for us to know the names of his dogs rather than that of his wife.

A spokesman for the Dept. of Education tells me it’s Christine Marra, and she’s a psychologist.

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Let’s Make Sense Out of Refinancing

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Governor Gina Raimondo’s proposed RhodeWorks project to repair Rhode Island bridges and roads with debt financed through tolls on truckers is a 10-year project:

Our plan will get us to 90% structurally sufficient bridges by 2025, make Rhode Island more attractive for businesses, and create about 11,000 job-years over the next decade

The latest variation is the one that passed the state Senate, which the House may (or may not) take up in an autumn session.  The Senate’s version presents a smaller scale, down to a $500 million bond, from $700 million, but it also includes “an additional $120 million… through the refinancing and restructuring of prior federal debt.”  Folks should take a closer look at that part.

Reviewing supporting documentation, it appears that the extra money is actually the first four years of lower debt service from refinancing GARVEE bonds for an extra four years.  As things currently stand, the state still owes $289 million on the bonds and will be done paying them after 2021.  The refinancing will extend the payments to 2025 and add another $15 million in interest.  (Refinancing costs aren’t mentioned, so let’s assume it’s part of the $15 million.)

Think about that.  Over the ten years of the RhodeWorks project, this refinancing will actually cost $15 million.  It will direct $15 million away from infrastructure or some other area of state spending.  If the state simply pays off the bonds, it’ll spend around $50 million a year through 2021 and then that money will be freed up for the final three years of RhodeWorks.

By contrast, if the state refinances, it will free up $20 million early on but add $30 million in the later years, with an overall increase of $15 million when all is said and done.

Now let your imagination run wild and consider the possibility of the state’s paying for bridge and road repairs with savings rather than debt.  $500 million is $50 million per year for 10 years.  Over the course of the RhodeWorks program, the last three years would be paid for simply by paying the GARVEE debt on time.

It boggles the mind to wonder how many decisions like this are piled up on the regular expenditures of the state’s nearly $9 billion annual budget.

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The New Toll Plan Will Still Be Challenged in Federal Court

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If getting bond investors their interest payments construction underway as quickly as possible is of the utmost importance, Rhode Island’s political leaders will need to consider how much of a risk of a lawsuit they are willing to take in order to get the local carve-out; a case like this would take years to work it’s way through the Federal courts and the whole tolling-plan might possibly be enjoined during the litigation process. Of course, an injunction against the toll-plan would mean no money for bond payments road-repairs right away.

On this issue, Rhode Island’s legislators would be wise to keep in mind the lesson of Gordon Fox: Because Rhode Island’s Democratic leadership can play fast-and-loose with interpretations of rules and laws while inside the statehouse (e.g. nullification, revolving door judgeships) does not mean they can extend that power very far outside and forgetting about this can lead to unfortunate consequences.

The legal analysis that leads to this conclusion is in the main post.

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Follow-Up on Childcare Subsidy Increase

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Last week, Rhode Islanders learned of a $2.15 million increase in state childcare subsidy rates for providers.  Although details of the first-ever agreement with the Service Employees International Union (SEIU), which now represents the private, independent providers, have still not been released, the House Speaker’s office has provided The Current a few additional budgetary numbers.

The $2.15 million is being added to base spending of $58.9 million, or a 3.65% increase, overall, bringing the total to $61.1 million.  If these provisions of the budget pass as currently written, it will represent a $7.45 million bump in spending for these payments over the current fiscal year, or a 13.90% increase.

Despite requests to multiple government agencies, the state has still not released any details of the agreement, including dues.  Child Care Union Info, with which the RI Center for Freedom & Prosperity has worked in the past, reports a wide variety of dues from other states, although some of the contracts have been terminated.  At the higher end are states in which the union’s dues are calculated as a percentage of subsidies, sometimes with a maximum.

In Michigan and Massachusetts (which is SEIU), the rate is 1.5%.  In Washington (also SEIU), it’s 2%.  Either rate would put the SEIU’s take in Rhode Island around $1 million, or about half of the total raise that the budget would grant.  (Given Rhode Island’s small size, the union would be likely to seek dues at the higher end.)

As I stated in a release just put out by the Center, the governor and General Assembly could have increased payment rates without the involvement of a union, if needy families are having difficult finding childcare providers.  As yet, there has been no claim of such difficulty.  In 2013, the law was changed (in a way that is likely unconstitutional) to give independent childcare providers more leverage, and now the Speaker of the House tells Providence Journal reporter Katherine Gregg that he believes they “deserve to be paid a fair and equitable wage.”

Clearly, these providers have advocates at the State House, and those advocates could have provided the same raises at a lower cost to taxpayers by cutting out the SEIU.  However, between 2004 and 2014, the SEIU gave $30,333 to Rhode Island politicians, according to the Board of Election’s campaign finance Web site.  This makes the interaction win-win-win for everybody except those who have to pay the bills.

UPDATE (2:57 p.m., 6/17/15):

See here for updated numbers.

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End of the Sessioner #2: To Bond or Not to Bond, Questions About Priorities in the Governor’s Toll Plan

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What Rhode Island’s Governor and legislature decide in the next couple of weeks with regards to highway tolls depends on what their policy priorities are, by which I mean…

1. Despite the fact that a case for funding a decade or more of highway construction with a revenue bond, instead of saving money on interest and spending the savings directly on construction, has not yet been presented to the public,…

2. …a revenue bond financed through tolls seems to be an integral part of Governor Gina Raimondo’s transportation infrastructure plan.

3. Speaker of the House Nicholas Mattiello is concerned about the impact highway tolls would have on the local economy, which is a reasonable concern, and has signaled he’d like to see some kind of local-relief plan implemented.

4. However, Federal case law based on the U.S. Constitution’s interstate commerce clause clearly looks askance upon local carve-outs when it comes to highway tolls/user-fees/whatever you want to call them, meaning that…

5. …if a tolling plan did include a local “discount” in its structure, there is a risk it would be immediately enjoined (with the help of ground-transportation trade organizations which appear to have some pretty good lawyers).

6. And, of course, if a tolling program were enjoined right away, a bond sale probably couldn’t proceed until the case was resolved, which would probably take several years, at least.

What to watch for is this: if the priority is issuing the bond, something without anything resembling a local exemption that could bring the court-system into the process needs to be passed soon, and a special session in the later half of the fall might be too late to get bonds issued for this tax-year. If, on the other hand, the bond itself is less of a priority, the timeline is not quite so immediate, and some explanation to the public of why interest payments associated with a bond make sense is in order.

But bond or no-bond, it’s going to be difficult to construct a local preference for vehicle tolls that survives Federal court scrutiny. Based on the proposal already submitted, we know this won’t prevent the Governor from supporting tolls. Will the Speaker eventually come to share to the same attitude?

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A Budget for Special Interests

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The budget that appears poised for passage through the General Assembly and Governor Raimondo’s office fills me more with dread than hope.  In recent years, state budgets have moved us incrementally in a worse direction.  The combined effort of Raimondo and House Speaker Nicholas Mattiello seems almost like a reordering of things in the favor of special interests, with substantial risks for the future, like a wrecking ball held high somewhere in the dark.

Consider the programs that directly offload risk from private development companies and create union jobs.  A sample from Patrick Anderson’s Providence Journal article:

The other large tax break Raimondo proposes is a “tax-increment financing” program that would allow new state tax revenue created by big development projects to be funneled back into paying for the project or infrastructure surrounding the project.

Most commonly attached to local property taxes, a state TIF could involve a range of state revenue, including income tax, sales tax and hotel tax. For example, a developer proposing a neuroscience building that includes a hotel and shops could pay off a bond using a portion of the new state taxes it generates.

What a contorted concept.  When does a developer get his or her hands on tax revenue to pay off his or her own debt?  Never.  These would be non-voter-authorized bonds taken out with future tax revenue as security.  Whether tax revenue actually goes up or not, the money must be paid.

Maybe most frustrating, though, is that the call of the obvious is finally starting to permeate the discussion, but our supposedly fiscally responsible leaders are refusing to hear it.  Here’s a line about the Superman Building’s limbo:

… if demand for downtown Providence real estate were stronger and companies were clamoring for Financial District offices, someone, if not the current owner, would come to the rescue.

And here’s a word from an economist:

“Providence seems to have a surplus of empty buildings already, so providing incentives for more is not going to make this better,” said Brown University economics professor Matthew Turner. “If they are vacant because it takes hundreds of thousands of dollars in legal fees and two years at City Council to get approved, then the government should be simplifying the permitting process. If the answer is that no one wants to occupy them, you will end up with more empty buildings.”

The fatal problem that appears destined to destroy Rhode Island and undermine the United States is that simply making things better and easier for everybody does not create enough opportunity for political favors and self-dealing.

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Credit for Healthcare Initiatives

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When you read the following, from today’s Providence Journal, who do you think ought to get credit for the innovation?

So with Governor Raimondo pushing her cost-cutting Reinventing Medicaid initiative, Neighborhood Health Plan of Rhode Island is eagerly touting what it says is the early success of a program begun just five months ago to address Medicaid subscribers with frequent and hefty medical bills.

Astute readers might pick up on the fact that the program began five months ago, which would mean the governor would have been implausibly dynamic to get it rolling, if it was possible at all.  Still, you should be forgiven if you finished the paragraph with the impression that Reinventing Medicaid is to credit.  How about this one?

Most states have not [advanced data and analytics to target high-cost insurance members], because of the intense partisanship over “Obamacare” and in some cases because of technical problems.

Instead, they rely on the federal HealthCare.gov website. Rhode Island, however, has its own health-care exchange, HealthSource RI.

So, maybe it’s HealthSource to credit, then.  But wait a moment:

The program has been in development for two years and is similar to other projects under way in the state, Trilla said. Given Reinventing Medicaid’s goals of targeting so-called “high utilizers,” he said that Health@Home has “ended up dovetailing nicely” with the governor’s efforts.

Two years ago would be May 2013, at which point HealthSource was still in development (based on wildly inflated projections).  That suggests this innovation was not driven by Governor Raimondo, and it was not driven by ObamaCare or HealthSource RI.  Rather, one can infer that it was driven by a private organization’s assessment of how it might better use its resources.

Maybe we can find our way to giving government some credit if Neighborhood’s innovation was inspired by the much-maligned Global Waiver program (to which Raimondo’s Reinventing Medicaid initiative bears some striking resemblance), but then the credit would have to go to Republican President Bush and Republican Governor Carcieri.  ObamaCare and Democrats actually hindered savings from that effort.

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Riots, Regimentation and Rhetoric

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I am afraid that the third paragraph from the bottom of Wednesday’s E.J. Dionne column on the riots in Baltimore all-too-accurately reflects the state of elite thinking in America, and not in a good way…

[William Julius Wilson] offered a central truth: “Regular employment provides the anchor for the spatial and temporal aspects of daily life. It determines where you are going to be and when you are going to be there. In the absence of regular employment, life, including family life, becomes less coherent.”

Unfortunately, this kind of thinking, where the idea that people who agree upon some bigger meanings in life can work together to build something is replaced by an idea that people cannot find meaning until they’ve first been regimented, seems to have become the dominant philosophy of a wide swath of a “respectable” political elite who, for various reasons, are unable to articulate anything beyond a few economic platitudes when discussing what a society should aspire to (e.g. “Let’s get Rhode Island back to work“), and who assume everything else takes care of itself, if government can be made to function as the comprehensive human-resources bureaucracy for everyone.

Or am I reading to much into E.J. Dionne seeing something profound in William Julius Wilson’s statement above?

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A Fishy, Misnamed State Bank

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The more I read about this “Rhode Island Infrastructure Bank” being proposed by Governor Gina Raimondo and General Treasurer Seth Magaziner, the worse the idea sounds:

As they envision it, $22 million or so in state tax dollars, left-over federal stimulus dollars and bond proceeds would be funneled to the cities and towns for energy-cutting projects, such as these, through the renamed Rhode Island Clean Water Finance Agency, created in 1990 to provide loans for improvements to sewage and drinking water systems.

So, this will be new municipal debt without, it seems, voter approval.

… the legislation would also salt away an unspecified amount of state money away in “one or more” loan-loss reserve funds to encourage private banks to lend money to private homeowners and businesses for similar kinds of energy-saving building upgrades. The legislation does not say how much.

So, the public would absorb the risk for projects financed by private companies for private entities and individuals.

When asked why National Grid was among those backing legislation that could cut into its revenues by reducing energy use, company vice president Michael Ryan said the answer lies in an earlier “decoupling” law guaranteeing National Grid a “bump” in its rates if usage drops, as a result of energy-efficiency efforts.

So, it won’t actually save Rhode Island money on energy; it’ll simply shift the burden from government agencies and private entities that are able to get the loans onto those who are not.

The answer from treasury staff to many of those questions [about limits to the funds and processes for claiming losses] was this: the “operational details” are not spelled out in the latest, 80-page version of the bill. According to Rogers, details such as these — along with the mechanism for repayment of the loans — would be spelled out, at a future date in “rules and regulations.”

So, the make-or-break details will be out of legislators’ hands.

Robert Boisselle, the lobbyist for the Associated Builders and Contractors of Rhode Island, was among those raising red flags about references in the legislation to “Project Labor Agreements.” Boisselle said such agreements (“illegal in 22 states”) effectively bar non-union shops — with 80 percent of the state’s laborers — from bidding.

So, the prices will be driven up in order to make sure that the money goes directly to union members (and thus filtered back into advocacy and donations for Democrats).

If the whole thing seems risky and even fishy, keep looking, a reader tells me via email.  In an op-ed supporting the bank, Magaziner cites the Connecticut Green Bank as a model.  Look into the Connecticut Green Bank, and you find this:

[Coalition for Green Capital (CGC)] leaders Reed Hundt, and Ken Berlin were involved with the establishment of Connecticut’s green bank from start to finish and remain closely involved with the banks operations.

Internet searches for former FCC Chairman Hundt, now an investment advisor, turn up a lot of overlap with Magaziner’s father, Ira.  More notably, his name turns up in campaign finance reports, with $2,000 in donations to the RI Democratic State Committee in October and $1,000 to Gina Raimondo, last June.

On the other hand, some of us might not need to do that level of digging.  It’s enough to know that we have the worst roads and bridges in the country and the people in charge of the state government want a state “infrastructure” bank that helps governments pay to replace their windows.

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Taxing the Privilege of Owning Property Might Have to Wait

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I’m slow to mention this, so readers have likely seen it, but it’s worth marking down Ian Donnis’s RIPR post for the record:

House Speaker Nicholas Mattiello wants to eliminate the “Taylor Swift tax”  — Governor Gina Raimondo’s proposed statewide property tax on vacation homes worth more than $1 million.

“I’m hoping that the revenues are there to eliminate that,” Mattiello said during a taping Thursday of Rhode Island Public Radio’s Political Roundtable. “You could look to see that eliminated. I agree with the public sentiment that you don’t open the door to a new tax, because it’s just going to expand in the future, so that’s something that I’m really looking to eliminate.”

Mattiello added, “I don’t want to speak for her, but I believe the governor concurs with that at this point, and we’re doing that collaboratively.”

Of course, before the governor announced her budget, we knew that the state’s revenue was running higher than the estimates that she was required to use for her budget.  It was therefore predictable that there would be items that would be easy to pick off.

Perhaps the policy and politics folks in the governor’s office figured they might as well use that fact in order to make budget feints, shoring up progressive support by going after The Rich and letting Mattiello take the heat (and opposing rewards) for removing the absurd policy.

If that was the plan, though, I have to wonder whether this particular one wasn’t a bit of a fumble.  The association with a pop star blew the proposed tax up from a local story to a national one, adding to the narrative that holds Rhode Island to be anti-business and generally anti-success.  Even just locally, though, the proposal might have cost Raimondo the last benefit of the doubt that more-conservative Rhode Islanders might still have been giving the former general treasurer for attacking pension reform.

(Naturally, I still prefer to believe that it was the parody song that did it.)

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Press Conference To Oppose Taxpayer Funded Stadium Tomorrow at 3:45 pm; Meanwhile, PawSox Graciously Offer to Buy the Land

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As you may have heard, tomorrow at 4:00 pm, the Commerce Corporation (formerly the EDC) will meet to hear a proposal from the PawSox for locating a baseball stadium in Providence — and what they want from state and Providence taxpayers to do so.

Almost simultaneously, all of the organizations and individuals* opposing the PawSox proposal will be holding a press conference — right outside of the building where the Commerce Corporation will be meeting with the PawSox. In the event you are able, please stop by. It will kick off at around 3:45 pm. Below is the address of the Commerce Corporation, where the meeting will be taking place inside and the press conference opposing will be taking place outside.

315 Iron Horse Way
Providence, RI 02908

Helpful tip: should you need directions from Mapquest or Google, as I did, be sure to enter “555 Valley Street, Providence” instead.

So the latest development is that the PawSox have offered to purchase from the state the prime, waterfront land upon which they propose to build, largely if not exclusively at taxpayer expense, a baseball stadium.

They presumably still want $4 million/year from state taxpayers. (They have, remarkably and not very credibly, actually increased their estimate of offsetting tax revenue to the state from $2 million to $2.4 million/year. Let’s remember that, while the tax revenue from the stadium is a pure guess … er, projection, the $4 million/year from the taxpayers to the owners of the PawSox would be a firm obligation.) And they’d presumably still like to be relieved of the obligation to pay property taxes, an obligation that Providence Council President Aponte quickly tried to shift to state taxpayers.

Even WITH the PawSox offer to purchase the land, these constitute remarkably aggressive terms for a use whose seasonal nature prima facie limits its potential for economic activity.

In a way, the PawSox proposal is worse than 38 Studios. As WPRO’s John Loughlin pointed out, 38 Studios was a Hail Mary pass. But a Hail Mary pass has some chance, however remote, of succeeding. With this stadium, EVERYONE, including our elected officials, KNOWS UP FRONT that it would be a financial loser for taxpayers.

We all very much want the Pawtucket Red Sox to stay in Rhode Island, if not Pawtucket. But the price has turned out to be very high, indeed. No one has made a remotely rational case as to why, in the face of red budget ink as far as the eye can see, our elected officials, on behalf of state taxpayers, should take on yet another economic development loss leader like the Convention Center Authority.

We cannot easily divest ourselves of that $15 million/year net loss. But for heavens sake, we also don’t need to knowingly add another $2 – $4 million/year into that budget column.

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Getting Economic Development Wrong

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Readers may get the impression of a broken record with this post.  Before I go on, perhaps I should explain to the younger folks that records were large black vinyl discs, of about 10 or 12 inches, that would spin on a table called a “record player,” with a needle following grooves in the plastic and thereby transmitted prerecorded audio.  If the record were scratched, the needle would skip across grooves and the listener would often hear the same phrase repeated over and over again.

Anyway, repetition is obligatory in Rhode Island, these days, because the people we’ve elected to public office have the completely incorrect view of economic development.  Here’s Governor Gina Raimondo’s Commerce Czar Stefan Pryor responding to the House Finance Committee’s concern that the governor intends to give him a great deal of money and discretion:

… Pryor bluntly told the committee that the corporation cannot grow the state’s economy without the programs proposed in the governor’s budget. He described a conversation he had with the corporation’s executive staff before he formally assumed his new role earlier this year. Pryor said he asked the staff how Rhode Island would attempt to compete with a company that arrived in the state with a list of project terms provided by another nearby state, such as New York.

“This is not a fictionalization. This is the actual answer I got back: We cannot — on any point,” Pryor said. 

“That’s a problem. We must ensure the appropriate level of accountability and the necessary level of flexibility to carry out this work. But the primary problem that we have is we can’t even counter. We can’t help our businesses in Rhode Island grow.”

Simply put, it should not be the role of government to take money away from the people who live in the state in order to outbid other states’ bribes to lure the economic actors whom government prefers to the state.  Rather, the government’s role should be to ensure that Rhode Islanders have the space — in stability, security, and infrastructure — to make their state a place that attracts the sorts of economic actors whom they prefer.

Politicians sometimes say that Rhode Islanders are Rhode Island’s greatest asset, but they don’t really mean it.  If they did, they’d let Rhode Islanders maximize their own efforts toward building their lives and shaping their state.

The technocratic, Raimondian method of economic development is akin to confiscating money from the music industry in order to subsidize companies that make enhanced record players when they should be leaving the money in the economy and trimming regulations in order to allow Rhode Islanders to develop cassettes, compact discs, and mp3 players.

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A Two Million Plus Dollar a Year Loser of a Stadium: What Does the Governor See that Almost No One Else Does?

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Two million dollars per year because that is the projected annual loss for state taxpayers in the just-unveiled proposal by the new owners of the Paw Sox for construction of a baseball stadium in Providence. It’s worth repeating: the numbers offered by the Paw Sox owners THEMSELVES have state taxpayers losing two million dollars per year.

“Plus” – and the plus could be quite a large figure – because the president of the Providence City Council has told WPRI’s Dan McGowan that Providence would be looking to state taxpayers to pick up the property taxes that the owners of the Paw Sox have requested to be relieved of. This suggestion would be a laff riot, especially in light of the state’s multi-hundred million dollar structural deficit, except that the council president seemed quite serious about it.

Earlier today, John Marion tweeted out,

Received a call from someone looking to know if there is an organization actively opposing the PawSox stadium deal. Anyone know if there is?

Most of the reaction I’ve seen and heard can be described as “actively opposing” the stadium (also: vigorously opposing, seriously concerned about and downright appalled by), though a single-purpose opposition organization – presumably what Marion’s caller meant – has not yet popped up. Even Bob Plain over at RI Future, never shy about spending tax dollars, has expressed skepticism about the proposal.

In fact, it would be far quicker to list those who support the Paw Sox proposal. This list so far consists of the building trades unions – not a shock as the Paw Sox owners have promised that the proposed stadium would be built with union labor.

Enter Governor Raimondo, who spoke to NBC 10’s Bill Rappleye today.

“I also think this has the potential to create a lot of jobs – immediately construction jobs,” Raimondo said. “It brings people into the city and could catalyze other economic development in the area, which has been done in other cities. If we do it right, I think it could be a good piece of our economic puzzle.”

The Convention Center Authority, 38 Studios and others – the very last thing that state taxpayers can afford is yet another costly economic development loss leader. But by the Paw Sox owners own calculations, that’s exactly where we would be headed with a minor league baseball stadium in Providence. We would respectfully ask to see your numbers, Governor Raimondo. How exactly would a brand new $2+ million hole in the budget make a good contribution to the state’s “economic puzzle”?

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Governor Wants to Remove “Privilege” from Tax

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Behold the power of a parody song.  Governor Raimondo’s office sent a request to the House and Senate finance committees yesterday:

The Governor requests that several amendments be made to Article 11 entitled “Relating to Revenues”, including changes to sections 3, 8 and 15. The changes requested are listed and explained below.

The bulk of the changes (irrespective of the actual impact of each one) are geared toward removing the language that, as I first pointed out last month, makes the “Taylor Swift Tax” on valuable second homes a tax on the privilege of owning the property, rather than on the property itself.  As a matter of legal and political philosophy that’s a massive affront to property rights, because it implies that owning property is not a right, but a privilege granted by the state.

Of course, this only adjusts the outrage from being an assault on rights to being a first step toward imposing a new tax on Rhode Islanders, and a duplicate one, at that — even a triplicate or quadruplicate one.  Rhode Island cities and towns already have property taxes.  Indeed, fire and water districts also levy taxes on real estate holdings, as do (or will) waste-water districts, like the one that the General Assembly just imposed on the people of Tiverton.

Apparently, reading all of the reports that the General Assembly has commissioned to study our tax and business environment, government officials took the fact that we have high property taxes as an indication that it was a good place to stick a syringe.  Here’s the new language from Governor Raimondo:

Imposition of Tax. (a) The tax administrator of the state of Rhode Island is empowered to impose a tax on non-owner occupied residential property within the state during any tax year commencing with the tax year beginning July 1, 2015 and every tax year thereafter.

In other words, the only thing making this a tax on high-end properties is the “definition” section of the legislation.  This could easily be adjusted downward as budget shortfalls require.

Worse, now that the tax is on the property, not the “privilege” of owning it, rental properties with “five or less units” will definitely be caught up in it.  A landlord renting out five units valued at $200,000 each (not exactly luxury living, necessarily) will be caught.  And as property values climb (assuming they do, in Rhode Island) more and more properties will be captured, even without the General Assembly lifting a finger to tighten the screws.

In the not-too-distant future, a family owning a relatively modest vacation home or renting out property will face up to four different taxes on it.  As the song goes: “Ask any economist, he’ll tell you we’re insane/But you know we love taxpayers, like hungers love game.”

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UPDATED: Governor’ Raimondo’s $13.6 Million Refinance

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Give this to our super smaht, financially savvy new governor: She knows how to pack a budget with things that require detailed review and analysis if the public is going to have any real sense of whether it’s a good or bad package, on the whole.

Jennifer Bogdan does the good work of digging into the big refinance part of Governor Raimondo’s proposal in today’s Providence Journal:

Roughly $64.5 million in Raimondo’s 2016 fiscal year budget would come from a refinancing effort. Another $20 million would flow in fiscal year 2017. The bonds in question have an average interest rate of 4.9 percent, but if refinanced the interest rate is expected to be lower than 2.34 percent. She calls the refinancing conservative and says it would be irresponsible not to consider a money-saving measure for the state.

By “money-saving,” what the governor means is that she’s using the restructuring to borrow around $84 million in the first two years.  In the third year, the state will actually have to pay about $10 million more in debt service, and the years will change between costing more and costing less over the refinancing period.  As shown in a table included with Bogdan’s article, when the state reaches the end, in 2032, it will have actually paid $13.6 million more in debt service.

That’s where the governor deploys an accounting trick to make the analysis a bit murkier.  In the words of Budget Officer Thomas Mullaney, “The key here is that we would not enter into this transaction if the state would not ultimately come out ahead.”

He’s referring to the fact that if you look at the present value of the changes in payments up and down over the sixteen years — in other words, adjust them for inflation to what they would be in today’s dollars — the real value of the changes is actually $225,238 less in debt service.

Like so many of the “bold and innovative” moves in the governor’s budget, that’s misleading.  For one thing, the assumed inflation rate is critical.  A rough spreadsheet suggests it’s 2.97%.  In that case, it would erase these so-called savings if inflation turns out to be 2.91%.  Below that, we’ll be well into negative territory.*

For another thing, the state isn’t going to treat the refinance like a restricted fund.  The state will spend the savings in the years that there are savings and will have to come up with the money in years that there are costs.  The money is going to have to come from somewhere to pay the extra debt service, and that somewhere will very probably have been worth more to the economy than simply inflation.  (Hey, maybe the governor should invest the savings along with the state pension fund, which the state assumes makes 7.5% profit every year.)

Simply refinancing from 4.9% to 2.34% interest for the same number of years would have saved a great deal of money that could have been left in the hands of Rhode Islanders.  Whatever the governor’s room full of smaht people do for economic development, they have to do better not only than the cost of the refinance, but also the economic activity of people acting without the government’s meddling.

UPDATE (03/27/15 8:37 p.m.): According to the governor’s office, the estimated rate of inflation is 2.44%, which my math leads me to believe would produce a $2 million cost to the refinancing, in current dollars.  I’ve asked for more insight into the governor’s math, but if anybody has an idea, I’d be interested to hear it.  There also must be something incorrect in the information out of the governor’s office.  They’re saying the refinancing is of $160 million of debt, but the Projo’s numbers have the state paying nearly that amount every year.

* Posting this of a Friday afternoon, I got my signs reversed.  I’ve fixed the relevant text.

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Some of the Larger, Seriously Ill-Advised Items In the Governor’s (What Kind of) “Jobs Budget”

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During the days following its release, reporters, analysts and observers worked to unpack the budget that Governor Raimondo sent to the General Assembly — and found some unpleasant items therein. Here is a bullet list of some of the bigger ones.

Proposed Statewide Property Tax

… aka, the Taylor Swift tax.

Justin got clarification from Governor Raimondo’s office that the INTENT is not to include apartment buildings as properties to be taxed. This conforms to Governor Raimondo’s attempt to sell this tax as having only a narrow list of targeted properties. (So, gosh, don’t worry about it. And, anyways, we only want to tax those icky rich people.)

Intent, however, is completely secondary. If this tax passes into law, the door will be opened wide for future – and current! – governors and General Assemblies to tax apartment buildings (of all classes and sizes); commercial buildings; second homes of less than one million dollars; PRIMARY homes of more than one million dollars; primary homes of $750,000 – $1,000,000; et empty state cetera. The critical issue is not that the initial list of targeted properties is short. It’s that the list comes to exist at all. To subject just one property classification to a new, statewide tax would set the precedent to subject virtually all real estate in Rhode Island to a statewide property tax via an easy tweak of the targeted property list.

In a perfect bit of timing, RIPEC released an analysis right before the governor released her budget of just how much Rhode Islanders are already taxed. By one measure, Rhode Island already has the fourth highest property taxes in the country. The governor is seriously proposing to raise that ranking? In fact, the one thing above all that our elected officials should not do is exacerbate this burden.

Further, there’s the matter of Rhode Island’s already undesirable reputation as a high tax state. On Twitter, Gary Sasse correctly asks,

When Tax Foundation.et. al.rank tax climate will new statewide property tax impact rankings w resulting reputation risks?

Further to “reputation risks”, WPRO’s Gene Valicenti pointed out Friday morning that the governor’s mere proposal has made the national news via the AP’s feed. This is exactly the kind of publicity that Rhode Island needs to avoid, not curry.

Governor Raimondo’s Proposed Statewide Property Tax Redefines Ownership of Real Estate as a Privilege

This one was a great catch by Justin.

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Governor Raimondo’s “Blank Check”

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How could a proposed new statewide property tax that’s been given a nickname homage to a part-time-resident pop star not have a parody song?

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Governor’s Office: Apartment Tax Not Intended

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Ever since Governor Gina Raimondo announced a proposal to impose a statewide property tax on residential properties over $1 million, if their owners do not live in them for a majority of the year, debate has raged as to what would be included.  Much of the discussion has been behind the scenes, among people who follow Rhode Island policy closely and representatives of groups that might be affected.

Initially, anonymous blogger CoffeeBlackRI suggested that the tax would apply to rental apartment properties worth more than the threshold.  I replied with an interpretation of the law suggesting that it would not.

The director of Office of Revenue Analysis, Paul Dion, told Katherine Gregg of the Providence Journal that his estimate of revenue that would be produced by the tax included “two-to-five-family residences,” along with other properties.  Some observers took that as conclusive evidence that the tax would apply to small apartment complexes.

A budget summary from Ted Nesi, posted today on WPRI’s Web site, seemed to confirm the interpretation.  Nesi quoted from a report by the House Fiscal office, “It appears that the intent of the legislation and the revenue estimate excludes apartment buildings from the tax; however, as written, the tax would apply to these properties.”

In a statement to the Ocean State Current, Raimondo spokeswoman Marie Aberger echoed House Fiscal’s report, affirming that “the intent is to exclude apartment buildings.”

Specifically, the intent is to apply it to the following categories, if they are worth $1 million or more: non-owner occupied single family residences, two-to-five family residences (only if they are non-owner occupied and not available for long-term tenants), and non-owner occupied estates, seasonal and beach property, residential condos, time shared condos, dockominiums, mobile homes, and vacant residential land.

The “two-to-five family residences” category was included in the estimate from Revenue Analysis because available data does not allow finer differentiation.  For example, wealthy seasonal residents often employ groundskeepers who reside on the property year round.

According to Aberger, the administration’s plan had been to draft more-specific guidance while writing regulations to enact the law, if passed.  “However,” she continued, “we are happy to work during the legislative process to modify the language, if necessary, to ensure that the intent of the legislation is carried out.”

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The “Twice on the Pipe” Tax

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There appears to be unanimity that I was reading the legal language of the “Taylor Swift Tax” on second homes too closely when I wrote that it should not apply to apartment buildings.  Lawyers for landlord groups, analysts in the executive branch, and analysts in the legislative branch all agree that the net will snag smallish multifamily units, if they’re worth $1 million or more.

If we’re looking for a new nickname for the proposal, I’d suggest the “Tony Orlando Tax.”

But frankly, I’m still suspicious.  As a long-running concern, I think it’s a grave problem that all of us in the policy and law game fall to the legalistic practice of pretending that profound shifts in legal language (like taxing a “privilege” rather than a “property”) are just immaterial “terms of art.”  At the end of the day, the law isn’t what’s written on paper; it’s what lawyers and bureaucrats agree that it means, as a sort of legal clerisy.

Well, these things are “terms of art” until they aren’t… when we discover on some massive, crucial question that (quoting some future judge) “the principle that the ability to have and hold property is a privilege granted by the state is firmly established in the law.”  When that day comes, we’ll learn that the words as written actually did mean something, even though legal experts on both sides of the issue advised us to focus on more immediate traps and loopholes.

As a practical political matter, I have a hard time believing that Governor Raimondo and her staff thought they’d try selling this as a tax on rich vacation-home owners only to turn around once it had been passed and declare, “Ah-ha!  We fooled you landlords!”  At the same time, it’s difficult to believe that they didn’t pick up on the fact that even the guy estimating the revenue for them included such properties.

I suggest the new nickname of the “Tony Orlando Tax” not just because his most famous song was about a guy in an apartment, and not just because the video was filmed in front of a mansion-looking building, but because I think there’s political significance to the lyric:  “knock three times on the ceiling, if you want tax; twice on the pipe, if the answer is ‘no.'”

In order to sneak in the leading edge of a statewide tax on property — on the very privilege of owning property in the first place — the governor knocks on the ceiling asking to tax vacation property, vacant land, and year-round properties.  Then the landlords bang on the pipe to signal, “no, just the other two” and the mistake of including the most organized target for the tax is fixed.  Everybody’s happy, right?

The state’s Director of Revenue Analysis, Paul Dion, tells me that 111 of the 2,359 properties over $1 million that he included in his estimate are “two-to-five family residences,” accounting for 4.7% of the total take.*  That’s about $550,000 total — an easy concession to make in the course of negotiating a budget through the legislature.

* Note: An earlier version of this post characterized the 111 properties as “multifamily rentals,” which was how I asked the question. I should have used “two-to-five family residences,” which is how he responded.

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Raimondo’s Outrageous Statewide Property Tax Actually an Attack on Property Rights

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Raimondo’s “statewide property tax” isn’t a tax on property at all, but a tax on “privilege,” which means she thinks the government grants it. That’s an extremely dangerous principle to accept, even if it’s limited (at first) only to “the rich.”

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More on Raimondo’s Outrageous Health Insurance Tax

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Kathy Gregg has more details on Democrat Governor Gina Raimondo’s proposed tax on health insurance in Rhode Island in today’s Providence Journal, and it looks increasingly outrageous.  First is a little budgeting trick.  The tax kicks in midway through the fiscal year, so on an annual basis, it’s actually twice the cost that the budget advertises:

Targeted to take effect in January 2016, the premium surcharge that Raimondo proposes would raise an initial $6.2 million of the $30.9 million the Raimondo administration is proposing to spend during the year that begins on July 1 to operate the state’s “health-insurance marketplace’’ over the next year.

Over the first full 12 months, HealthSource RI administrators anticipate the surcharge will raise $11.8 million.

And the rate is outrageous, too — above what the federal exchange would charge, for most users:

It would be assessed on the premiums of all health plans purchased in Rhode Island by individuals (at a rate of 3.8 percent) and small employers (1 percent).

As Gregg reports, that will be over $400 per year for some members.  The rate is also higher than the similar taxes in Massachusetts (2.5-3.0%) and Connecticut (1.35%).

One thing that is misleading, I believe, is spokeswoman Maria Tocco’s explanation that, per federal law, “a premium assessment has to be levied this way, as premiums must be the same inside and outside the Exchange for the same products.”  As I explained yesterday, the governor’s proposed language imposes the rates based on market, not plan.  In other words, the governor is taxing all plans whether or not they are offered in the exchange.

I imagine she’s doing that because the rate they’d have to charge in order to follow the method of the federal exchange and still pay for HealthSource would have made Rhode Islanders eyes pop (and further prodded the exodus of productive people from the state).  As healthcare expert Sean Parnell estimated for an article I wrote, last year, applying the federal rate to Rhode Island’s exchange would generate around $5 million.  Roughly speaking, Raimondo’s tax is more than twice as costly, so if it were structured like the federal fee, the rate would have to be up to nearly 8%.

Obviously, more plans and more people means a lower rate.  That’s why Massachusetts and Connecticut can charge less even though their exchanges cost more.  But none of this is news.  The RI Center for Rhode Island has long been saying that Rhode Island’s market is simply too small to justify its own health benefits exchange.

Even agents of the state of Rhode Island admitted this, back when they were free to be honest.  Last June, I quoted from a 2009 report reviewing the lieutenant governor’s proposal for an exchange like HealthSource.  Their conclusion back then?  “Insufficient scale to justify investment. Do not pursue.”

What’s changed that has a supposedly financially savvy governor touting this as economic development?  Perhaps that they think they can get away with it, now.

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Beware: The Health Exchange Premium Fee Is a Simple Tax

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With publication of the legislation enacting Governor Raimondo’s budget, as House bill 5900, some of the details left ambiguous in standard budget documents can be checked.  One of the more disconcerting is the supposed “fee” assessed on health insurance premiums in the state.

The budget presentation avoids naming what the “fee” is, but the talk and reportage during and after last night’s speech by the governor presented it as a fee structure similar to the way the federal government pays for the federal health benefits exchange.

Reviewing the legislation makes it clear that this is not the case.  The new revenue stream for HealthSource RI is simply a tax.

As I explained during the last legislative session, the federal exchange fee works like so:

  • Health insurers are assessed a 3.5% fee on the premiums of plans sold through the exchange.
  • They are not permitted to charge different prices for the same plan on or off of the exchange.
  • Therefore, the price of the fees must be spread across all people who purchase that particular plan, whether on or off of the exchange.

According to the governor’s legislation, the new health insurance tax would work very differently:

  • HealthSource will determine its budget for the year.
  • That total will be allocated to the small employer market and the individual market in proportion to each market’s participation in the exchange.
  • The insurer will increase all premiums in each market by the percentage necessary to generate the necessary money.

One consequence of this different method that must appeal to our progressive governor is that it shifts the tax burden toward Rhode Islanders with more-expensive plans.  No matter what the proportion of bronze, silver, gold, or whatever plans on the exchange, the tax is a flat percentage on all plans, so people buying more-expensive plans will pay more.

A consequence that surely appeals to the state’s government-first establishment is that there’s no escape from the tax.  It doesn’t matter whether insurers participate in the health benefits exchange or not, and it doesn’t matter if they sell different plans on or off of the exchange.

But the most important consequence is that this fee is completely unrelated to actual usage of the exchange.  Again, it’s just a tax, collected via health insurance plans.

According to the governor’s budget, HealthSource will cost $30.9 million to operate next fiscal year, but $24.7 million of that is still coming from the feds.  You don’t have to agree with me that the Obama administration is breaking the law by continuing to pay for state exchanges to understand that the operating costs of HealthSource are guaranteed to grow by leaps and bounds, as federal involvement tapers off.

In other words, nobody who cares about Rhode Islanders or the local economy should want to cross this particular Rubicon.  Once this new tax is law, all bets are off.  The success or failure of the exchange becomes immaterial.  The General Assembly never has to face the heat for increasing taxes.  The bloated government start-up company that is HealthSource RI becomes just another factor driving up the costs of Rhode Islanders’ insurance.

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