STATEMENT: New IHS Study Supports Center’s Concerns – Have Lawmakers Received Inaccurate Toll Impact Projections?

FOR IMMEDIATE RELEASE
January 13, 2016

REMI: Questionable Economic Modeling Theory & Revenue Assumptions?
Lawmakers Must Not Rely on Single Perspective, as Center Warned in September 2015

Providence, RI – Lawmakers may have received inaccurate information when it comes to the economic impact projections of the Governor’s proposed highway toll plan. As the Rhode Island Center for Freedom & Prosperity cautioned months ago and now supported by a new report by IHS Global, the original study ordered by Governor Raimondo by Regional Economic Models, Inc. (REMI), to evaluate such impact, may have severely overstated the benefits.

Among the concerns raised by the Center and IHS include:

• Overstating the positive impact of government spending on construction
• Understating the negative impact of the extraction of money from the private sector
• Faulty assumptions on revenues, based on questionable trucker traffic and trucker diversion estimations
• Potential conflict of interest by REMI, as an existing vendor to the State of RI

As the Center previously stated, as part of the special 2013 Sales Tax Commission hearings, the Center met in Boston with staff from REMI, to compare their Keynesian economic modeling assumptions with the market-based assumptions of STAMP, an alternative modeling tool created by the Beacon Hill Institute (BHI). After the meeting and after consultation with BHI, it was the conclusion of the Center that the REMI model places too high a premium on the economic impact of government spending: This runs counter to traditional free-market theory, which holds that there is higher economic value to private sector vs public sector spending.

With regard to the trucker toll plan, which would take money out of the private sector in order to fund a half a billion dollar construction bond plus another half a billion or so in financing fees, the REMI model, at its core, tends to overstate the net economic benefit of state and government spending. Alternative models, such as STAMP and as used by IHS, obviously show a very different result.

The economic multiplier that REMI apparently utilizes when it comes to government spending is far too optimistic according to the Center and other economists who believe the true government multiplier effect is less than one-to-one; meaning that for every dollar taken out of the private sector and spent by the government, there will be less than a one dollar return, resulting in a net economic loss.

“In addition to the vast differences in economic theory, when there is no firewall between the state government as customer and REMI as vendor – necessary to ensure an objective analysis – lawmakers should not view the REMI report as gospel,” commented Mike Stenhouse, CEO for the Center. “In hiring REMI, the Governor pretty much knew what she was going to get.”

According to RIOpenGov.org, the Center’s government transparency portal, REMI is an existing vendor to the RI Department of Revenue and has previously received payments totaling over $35,000 from the state since 2010.

The Center believes that Rhode Islanders can enjoy the benefits of an improved infrastructure and the jobs that go along with it, without a toll, without a corresponding economic loss, and without enriching Wall Street insiders. This can be accomplished without double-taxing the private sector if the highly needed construction projects were to be paid out of existing general revenue funds. This would require lawmakers to exercise the budget discipline necessary to prioritize infrastructure spending over other, non-essential spending programs.

Media Contact:
Mike Stenhouse, CEO
401.429.6115 | info@rifreedom.org

About the Center
The nonpartisan RI Center for Freedom & Prosperity is Rhode Island’s premiere free-enterprise research and advocacy organization. The mission of the 501-C-3 nonprofit organization is to return government to the people by opposing special-interest politics and advancing proven free-market solutions that can transform lives by restoring economic competitiveness, increasing educational opportunities, and protecting individual freedoms.