Rhode Island Employment Snapshot, December 2012: Tied for Worst

Rhode Island’s unemployment rate renewed its incremental decline, to 10.2% in December, although the rate of its employment increase continued at the more-moderated results seen in November. In the two months prior to the election, Rhode Island’s employment growth was unusually strong.

The first chart below shows that both labor force and employment continued to move upward in December. The second chart shows that the Ocean State still has a long way to go to reach its January 2007 level of employment, and is still well behind Massachusetts and Connecticut, despite several months of employment bleeding in Connecticut.

Nationwide, Rhode Island is now tied for the worst unemployment rate in the country, with Nevada having made up its huge gap with Rhode Island.

Corporate Tax Cut is Not a Game-Changer for RI

The tax centerpiece of the governor’s new budget is to reduce the corporate tax rate to 7% from 9% over the next 3 years, with the hope of creating a stronger economy and putting more Rhode Islanders back to work.

Indeed lowering taxes in general will boost economic activity. And yes, this business tax reduction would give our state the lowest corporate tax rate in New England. All good.

But just how much of an impact will the governor’s proposed tax cut have on the state economy? Especially when compared with the sales tax proposal our Center has recommended?

Utilizing, RI-STAMP, a complex state tax modeling algorithm commissioned by our Center and customized for Rhode Island, the three year projections from these two tax proposals can be compared:

2016 Projected Changes
Corp Tax (9.0% to 7.0%) Sales Tax (7.0% to 0.0%)*
Private sector jobs 144
23,873
Corp tax receipts ($million) -$56.04
$42.4
Sales tax receipts ($million) $0.92
-$1,016
Income tax receipts ($million) $2.8
275.12
Other tax & fee receipts ($million) $1.01
$231.6
Total state receipts ($million) -$51.3
-$466.3
Local receipts ($million) $4.26
$157.7

* Corporate tax data derives from the 2013 iteration of RI-STAMP, whereas sales tax data derives from the 2012 iteration; 2013 data for the sales tax should be available later in the week.

A 0.0% sales tax would bring an economic boom to RI

Zero.Zero 2012

Related Links: view complete Zero.Zero brief as a PDF; view economic and revenue projections here; view Zero.Zero Executive Summary here; view Zero.Zero media release here; go to Zero.Zero home page; Report Card on RI Competitiveness

Background

In January of 2013,  Massachusett’s Governor, Deval Patrick, proposed cutting the Bay State sales tax from 6.5% to 4.5%. This could be a devastating blow to Rhode Island’s already fragile economy.

Competition among states is real, and it is clear that the Ocean State is losing its bid for people, money, businesses, and jobs. Public policy is not enacted in a vacuum; when a state makes changes to its policies — whether dealing with taxes or regulations — its overall image and competitiveness are affected.

In order to generate money to pay for Rhode Island’s growing appetite for public spending, the state has been forced to acquire new sources of revenue via tax and fee increases. This failed culture of trying to tax our way to a better future has steadily degraded the state’s ability to maintain and attract the critical human and capital resources required to grow its economy.

The RI Center for Freedom & Prosperity’s recently released Report Card on Rhode Island Competitiveness demonstrates how the state’s burdensome tax structure has weakened its competitive status versus other states in securing the necessary building blocks for a vibrant economy. The report card grades both the state’s overall tax burden and its business climate as Fs. In fact, 27 of 49 areas are graded F. With proposals to raise taxes even higher, fiscal irresponsibility and fears of a double-dip recession in the state persist.

Rhode Island needs a reboot. Our state must reverse course and embark on a different path that will restore prosperity, beginning with a firm statement of its future intentions. A new culture must take root — one that appreciates the power of unleashing, rather than restricting, the great potential of individuals and businesses.

Many states across the country have embarked on aggressive tax-reform paths designed to foster economic growth. States with no income tax outperform their high-tax counterparts across the board — in gross state product growth, population growth, job growth, and, perhaps shockingly, even tax-receipt growth. Over the last decade, on net, more than 4.2 million individuals have moved out of the ten states with the highest state and local tax burdens (measured as a percentage of personal income). Conversely, more than 2.8 million Americans migrated to the ten states with the lowest tax burdens.

Our New England sister, New Hampshire, has a significantly higher-performing economy as a result of its dramatically lower overall tax burden, providing the Ocean State with ample empirical evidence. If Rhode Island is to keep pace, it too must embrace market-driven policies that acknowledge the importance of incentives and disincentives as well as the reality of taxpayer mobility.

In short, Rhode Islanders must decide whether they want to stay on their current path and simply hope for change or should boldly shift gears and move toward a new path of fiscal sustainability.

Policy Proposition: Eliminate the State Sales Tax

In seeking the single most-effective tax reform providing the most-immediate impact to the most-pressing problem in the Ocean State — jobs — the Center for Freedom & Prosperity determined that the state sales tax would be an auspicious place to start. Mainly, the more mobile the factors being taxed, the larger and more immediate the response to tax rate changes. Consumer shopping habits are highly mobile, and cross-border shopping is especially convenient for Rhode Islanders and their neighbors.

While Rhode Island requires broad reform, making tax policy more efficient across multiple categories, our Center simulated and projected the economic effect if Rhode Island were to follow New Hampshire’s proven path and completely eliminate the state sales tax. With any significant reduction in the state sales tax, a few important benefits would arise for the Ocean State:

  1. Hundreds of millions of dollars would be put back into the state economy.
  2. Tens of thousands of jobs would be created.
  3. Municipalities would collectively realize a windfall of tens or hundreds of millions of dollars.
  4. Gross domestic (state) product would increase by billions of dollars.
  5. State population, and the state tax base, would increase by thousands of people.
  6. State revenue losses would be less than static expectations because of the positive and “dynamic” economic effects that would be realized.

In short, Rhode Islanders’ decision is whether or not increased jobs, increased GDP, economic growth, and increased revenue for our cities and towns are worth some reduction in state spending.

Analysis

Problems with the Retail Sales Tax

Unfortunately, there are so many problems with Rhode Island’s tax code that it is almost impossible to know where to begin correcting them. There are simply too many high taxes in the Ocean State.

As an overriding goal, Rhode Island needs to start pruning the tax tree, and the best starting point is the single tax that, in the aggregate, is the most damaging to Rhode Island’s overall economy: the retail sales tax. There are several reasons that the sales tax is especially troublesome.

1. The general assumption that broadening the sales tax base is always a good idea is flawed.

The retail sales tax in the United States arose in response to the economic damage created by the gross receipts tax (GRT), which was more prevalent a century ago. The tax base of the GRT is the total receipts of a business, which maximizes the economically destructive “tax pyramiding” through the entire production structure of the economy.

To fix this problem, exemptions were created to transform the GRT into a retail sales tax that more resembled a consumption tax. However, due to the problem of “dual use,” whereby a good or service can be used for either business or personal reasons, exemptions have proven to be a crude and often ineffective way to create a pure consumption tax. Simply eliminating exemptions, especially on services, would only serve to rebuild the GRT Frankenstein piece by piece.

A study by the Council on State Taxation explains, “The current state and local sales tax differs from a true or ideal retail sales tax. A true retail sales tax would impose a uniform tax only on consumption — all goods and services sold to households — but would not impose any tax on business purchases of intermediate goods and services. The current sales tax system imposes over $100 billion of taxes on business purchases of business inputs and investments. This type of tax has significant adverse state economic development implications.”

The study found that 49.2 percent of Rhode Island’s sales tax is paid by businesses — higher than the national average of 42.8 percent.

2. The sales tax is a tax on investment.

Since the retail sales tax can never be fully eliminated on business inputs, the sales tax is ultimately a tax on investment. It is especially detrimental to the manufacturing and construction industries when their materials costs are subject to the sales tax. That raises the cost not only to the final consumer, but also to the companies themselves, since their suppliers are subject to the same tax on their materials. The end result is less money available for future investments, compounding over time.

In fact, Dr. Mark Crain, using a rigorous econometric analysis, found that “states suffer a substantial penalty for levying a marginal sales tax rate that is high in relation to other states. Of course, the reverse also applies. Substantial economic benefits redound to states with relatively low marginal sales tax rates … intuitively, the impact of the sales tax is analogous to a general, broad-based increase in the cost of production.”

3. The sales tax promotes consumer mobility.

Another negative aspect of the sales tax is that consumers are mobile and can easily shop online or in lower-tax jurisdictions — especially in Rhode Island, which not only is the smallest geographic state in the country, but also has the highest sales tax in the region. As a result, cross-border and Internet shopping are undermining the viability of the sales tax.

Studies show that New Hampshire, which does not have a sales tax, economically benefits from cross-border shopping from neighboring Maine and Vermont. In Maine, retail sales could be as much as $2.2 billion higher per year along the border if Maine had the same level of retail sales as New Hampshire. In Vermont, retail sales could be as much as $540 million higher per year, with an additional 3,000 more retail jobs.

Dr. Roger E. Brinner and Dr. Joyce Brinner find that sales tax–induced cross-border shopping can have broad negative effects: “a 1% point increase in the sales tax rate can cut about 2.6% from state output growth over a decade … consumers choose their buying locations to find relative bargains; if they can escape a tax by hopping across a nearby border to buy goods with lower excise or sales taxes, they will do so. Many other studies have found strong evidence of cross-border retail impacts, and these simple regressions confirm the statewide damage than can be caused.”

For these reasons, elimination of Rhode Island’s sales tax can be supported as a solid public policy option. However, it is important to note (given that Rhode Island’s overall tax burden grade is an F) that there are other tax changes that must be considered as part of a larger tax reform policy for the Ocean State.

Positive Economic Impact

If the state retail sales tax were to be eliminated, the Ocean State would realize multiple economic benefits before the new economic equilibrium has been reached. As projected by RI-STAMP, our economic modeling tool, Rhode Island would see the following:

  • Over 21,000 new private sector jobs, reducing unemployment by over three points
  • Up to $160 million in additional annual tax revenue to cities and towns
  • An additional $1 billion available to spend in the state’s economy
  • An increase of over $500 million in tax receipts
  • Almost $500 million in new capital investment in the state

Is the Tax Cut Revenue Neutral?

Not quite. The state of Rhode Island would indeed see lower net receipts from elimination of or reductions in the state sales tax. However, net losses would not be as much as most would anticipate using a static (straight-line) calculation. There are three primary reasons that the dynamic effect would greatly mitigate actual revenue losses:

  • A lower retail sales tax would spur additional retail sales. With increased in-state and cross-border shopping as a result, the state would be taking a smaller sales tax slice, but from a bigger pie. Under a four-year phase-out of the sales tax, this new revenue would pay for about 20% of the anticipated sales tax losses in the first three years.
  • Increased receipts from other taxes. With the personal and business tax base expanded because of the new job creation, and with increased levels of economic activity in the state, receipts from other taxes and fees would pay for over 50% of the anticipated sales tax losses. Such receipts would come from projected increases in receipts from personal income taxes, corporate taxes, cigarette taxes, and others.
  • Administrative costs. The state bears the full cost of enforcing the sales tax. If the state sales tax is completely eliminated, several dozens of state jobs dealing with collection and enforcement of the sales tax could be eliminated each year during the phase-out period. With 207 full-time equivalents (FTEs) currently proposed for fiscal 2013 and a total budget of about $21.3 million, the state’s Division of Taxation may eventually be able to reduce its budget by approximately one-third. These personnel savings would compensate for an additional 5–6% of the revenue losses in the first three years. It is also anticipated that these jobs could be absorbed into the new growth economy.

Other Benefits to the Economy and Implementation

Separate from the question of state revenue, the issue of sales tax compliance costs is a serious one for most businesses. Sales taxes are particularly onerous, since the taxability of goods and services can vary greatly — even within a single business establishment — and virtually all businesses would save administrative and/or service costs by not having to categorize, collect, track, and remit sales tax revenue to the state. These savings are not estimated in this report but represent a benefit in addition to those conveyed in the RI-STAMP projections.

The Center for Freedom & Prosperity makes no specific recommendation as to how to implement elimination of the state sales tax. (See Attachment A for a schedule of projected revenue and economic impact measurements.) Rather, the primary goal is to demonstrate that cutting taxes provides an alternative path when considering how to put Rhode Island’s economy back onto a solid competitive footing.

Actual implementation of this plan will depend largely on the political willpower of public officials and citizens, and their willingness to embrace a new culture that seeks to enhance the state’s competitiveness instead of seeking to perpetuate the status quo. Options for implementation include:

  1. Four-year phase out of the state sales tax. Pros to this approach include less-dramatic year-to-year revenue losses and associated budget cuts. Cons include “cold feet syndrome,” whereby legislators may reverse course at some point during the phase-out period (as they have done with the planned car tax phase-out, not to mention income tax reforms like the flat tax) and the opportunity for neighboring states to respond before the full effects of the sales tax elimination actually take place.
  2. Immediate elimination of the state sales tax. Pros to this approach include a more immediate economic impact and realization of new jobs, with less chance for competing states to react. Cons include the need for larger near-term budget cuts and the difficulty of projecting actual revenue one, two, and three years out.

Balancing the Budget

It is expected that the four-year phase-out would be the most politically viable option. With the sales tax elimination potentially paying for up to 75% of itself in the early years, the important question becomes how to budget for the loss of the remaining 25% in order to balance the state budget on an ongoing basis.

Some combination of the following budget items could make up for much of this difference:

  • Control budget growth. The least painful option would be to control budget growth during the phase-out years. As Figure 1 illustrates, a four-year phase-out of Rhode Island’s sales tax would be no more dramatic than the adjustments that the state government has been making to its enacted budgets year after year.

Figure 1. Sales Tax Phase Out Effect in Context of Historical Actual Adjustments to Enacted Budgets

  • Furthermore, the state’s budget has been growing so much more quickly than inflation and population changes alone would justify that the General Assembly’s proposed 2013 budget is 26.24% larger than it would be using a 2001 baseline. Figure 2 shows that even immediate full elimination of the sales tax would represent a relatively minor adjustment toward that level of spending, returning state government to a budget a little below its 2011 level. Once again, New Hampshire provides an example — that government growth can reverse — with actual policy changes implementing over $600 million in cuts to its 2013 budget.

Figure 2. Actual Budgets Versus Inflation and Population (2001 Baseline)

  • Eliminate corporate welfare. Eliminating approximately $50 million per year in systematized corporate handouts, in addition to slush funds like the $125 million in loan guarantees RIEDC was authorized to risk on special cronyism deals with connected companies, would also go a long way toward mitigating any remaining budget cuts that may be necessary to pay for elimination of the state sales tax.
  • Apply the FY12 $81.4 million budget surplus. If we are serious about revitalizing our state in the manner described in this brief, we must immediately prioritize spending and revenue toward this end. There is no time like the present. This $81.4 million would cover over one year of the budget cuts necessary to pay for elimination of the sales tax.
  • Reduction in government jobs. The administrative savings of 75 jobs, or about $7 million per year as described previously, can also help pay for some of the cost. As collection and enforcement of the current state sales tax will eventually no longer be needed, certain savings in this area can be realized.

Conclusion

Recent performance indexes make it clear that Rhode Island is on the wrong path, and only dramatic reform can produce dramatic results. While a broad package of tax and regulatory reform is required, the elimination of the state sales tax would mark a bold — yet viable — change of course.

When presented with the dire economic circumstances currently facing the Ocean State, all legitimate options to improve our state must be considered. While the elimination of a tax that provides approximately $1 billion in revenue to the state each year may seem extreme at first glance, legislators and the general public should seriously consider the facts, projections, and theories discussed in this report.

WHAT IS RI-STAMP?

Economic Modeling: There is a common and fundamental miscalculation when it comes to projecting the effects of tax policy on tax receipts. Too often, the more short-sighted and simplistic static (straight-line) calculation is utilized, when in reality the more complex dynamic impact should be evaluated. The downstream ripple effects of tax policy on various aspects of the economy and upon other tax receipts and fees are rarely discussed or attempted to be quantified, either at the state or municipal level. RI-STAMP seeks to fill this gap.

Developed by the Beacon Hill Institute at Suffolk University, RI-STAMP is a customized, comprehensive model of the RI state economy, designed to capture the principal effects of city tax changes on that economy. In general STAMP is a five-year dynamic computable general equilibrium (CGE) tax model. As such, it provides a mathematical description of the economic relationships among producers, households, government and the rest of the world. It is general in the sense that it takes all the important markets and flows into account. It is an equilibrium model because it assumes that demand equals supply in every market (goods and services, labor and capital); this is achieved by allowing prices to adjust within the model (i.e., prices are endogenous). The model is computable because it can be used to generate numeric solutions to concrete policy and tax changes. And it is a tax model because it pays particular attention to identifying the role played by different taxes.

RI-STAMP has been accurate in projecting the effects of recent changes to tax policy in Massachusetts and New York City, among other locales.

Concluding a Strange Season for Employment Data

For the final month of the year, the “headline” unemployment number, which is the percentage of people in the labor force who say they are actively seeking work, held at 7.8%. Two frequently highlighted considerations are that, one, certain demographic groups are way above that percentage and, two, the rate would be significantly higher if the American labor force hadn’t slowed its pace. If the labor force of the last five years had continued to grow at the rate of the prior five years, the unemployment rate would be 8.6%.

Each of the following charts shows the monthly number of Americans who say that they are currently employed. The bluer the line, the older the data; the redder the line, the newer the data. The dashed line is 2012. The first chart shows the data seasonally adjusted, which is the more common way of reporting the numbers; the second chart shows them without the adjustment.

U.S. Seasonally Adjusted Level of Employment, 2002-2012

U.S. Not Seasonally Adjusted Level of Employment, 2002-2012

 

The seasonally adjusted story of 2012 is utter stagnation with a big, unusual upswing from August to October. Without the seasonal adjustment, the story is a typical increase in employment for the first half of the year and late-summer down-slide followed by an unusually large and consistent spike in October, the month before the election.

Regarding the seasonally adjusted chart, the end of year change in past numbers — which a BLS spokesman tells me happens every year, always addressing the previous five years — reduced the big autumn jump by 9.3%. That is, the seasonal adjustment for the months leading up to September raised the line up, while the peak in October shifted down and the next month, November, increased a bit. (For some reason, September’s number didn’t change at all.)

So, in the “raw” unadjusted numbers, we see a strange jump, which the seasonal adjustment de-emphasized, and the revised numbers de-emphasized it further. But if you’re thinking that it would be interesting to see how all these lines develop over the coming year, you’re out of luck. This is from the BLS news release, this morning (emphasis added):

Effective with the release of The Employment Situation for January 2013, scheduled for February 1, 2013, new population controls will be used in the monthly household survey estimation process. These new controls reflect the annual updating of intercensal population estimates by the U.S. Census Bureau. Historical data will not be revised to incorporate the new controls; consequently, household survey data for January 2013 will not be directly comparable with that for December 2012 or earlier periods. A table showing the effects of the new controls on the major labor force series will be included in the January 2013 release.

It will certainly be interesting to see which way the new methodology shifts the numbers.

ZERO.ZERO % Sale Tax Too Much for the Imagination of the Political Class

Imagine tens of thousands more people employed in Rhode Island.

Imagine new retail and construction jobs to support an economic growth spurt.

Based on a 2012 policy recommendation by our Center, some members in our General Assembly actually think we can make these things happen in our state.

Yet, as we close out the year with reports of even more dismal national rankings for our Ocean State, the Political Class is looking to kill this policy idea from our Center that some believe could make those imaginations happen in 2013; an idea that is clearly ‘out of the box’; but sadly, an idea that those who defend the status quo cannot even begin to comprehend.

Rhode Island desperately needs a number of game-changing policy reforms to gain a competitive advantage over our neighboring states and to provide much needed economic opportunities for workers; the elimination or phase-out of the state sales tax is a policy reform idea that offers the most immediate jobs dividend.

In June our Center published a report detailing the positive jobs and economic benefits Rhode Island would realize if we were to reduce or eliminate the state sales tax. Just this week, a front-page story in the Providence Journal discussed how some members in the House are considering this strategy, making reference to our Center’s report.

But – per a recent ProJo article about related legislation – to hear members of the Political Class reject this notion out-of-hand is an indictment of their lack of leadership and imagination. How can we afford not to have this important debate?

Our Center produces credible information and it’s unfortunate that we have to find a way around so many with closed minds. Our Center is an idea factory … and one such idea was put forth in our Zero.Zero report; a well-researched study that projected the benefits of sales tax reductions: A report that reviewed how this policy has been successful in other states; a policy that is consistent with a free-market economic philosophy. Yet the Political Class still cannot comprehend … and they choose to stick their collective heads in the sand and say “it isn’t so”.

The problem is that they are fixated on “balancing the budget” … a budget that has clearly failed our state. Balancing the budget – especially this budget – is not an economic policy and it should not be the Holy Grail for our public officials … making our state more competitive and creating jobs should be the goal!

The budget, then, should be crafted to support that more worthy goal; a budget that will likely be significantly smaller so that we can reduce taxes on citizens and businesses in order to create a positive business climate … scandalous!

But those without imagination; those who are not prepared to lead; and those who are afraid of upsetting the apple-cart find it all too easy to hide behind the limitations of our existing job-killing budget, to impose a few new taxes on someone else to raise a few more dollars, and then wash their hands and say “we did good”.

This failure of leadership and this culture of failure is what we voters have continually put in place over the recent decades … so that now, any bold, new idea is systematically rejected by the establishment.

This will happen with our innovative sales tax idea unless you, and thousands of citizens like you, are willing to stand-up, speak-out and demand that our state rigorously debate the pros and cons of a policy concept that could reduce our state’s chronically high unemployment rate by about one-third!

Forward this email, make your calls, talk to your family and friends … but do not complain about our state if you are not willing to stand up to the Political Class. They will listen if you and I speak loud and often enough!

In 2013, I look forward to working with anyone with an open mind to advance the bold policy reforms that our state so badly needs.

by Mike Stenhouse, CEO

 

 

Rhode Island Employment Snapshot, November 2012

Rhode Island’s unemployment rate stopped its incremental improvement in November, marking the first month since April that it didn’t fall.  However, for most of that period, the drop was attributable to the fact that more people were leaving the labor force than losing their employment.  In November, by contrast, the steady rate results from a labor force increase that was nearly as large as the employment increase.

That said, the first chart that follows shows that the unusually large gains by both metrics — which placed Rhode Island inexplicably at the head of the nation for employment gains —lost steam in November.  Meanwhile, the Ocean State remains well behind its January 2007 numbers — still significantly behind both Massachusetts and Connecticut, despite several months of employment free fall in Connecticut.

Nationwide, Rhode Island is one of the two remaining states with unemployment rates above 10%, with the other, Nevada, rapidly making up the ground between them.

Rhode Island Labor Force and Employment, January 2007 to November 2012

RI, MA, and CT Labor Force and Employment, November 2012 Percentage of January 2007

RI Only State Losing Population Two Years in a Row

Quick Links: see larger out-migration report here

Since the U.S. Census department released its latest state-by-state population estimates, it has been widely reported that Rhode Island was one of only two states to lose population from 2011 to 2012.  The other was Vermont.

However, as with the RI Center for Freedom & Prosperity’s findings in September, looking more deeply reveals that the headlines actually understate Rhode Island’s poor position.

In total, Rhode Island lost 354 people, or 0.03% of the 1,050,646 estimated to have lived here in 2011. As bad as that is, it looks preferable to the 581 whom Vermont lost, which was 0.09% of that state’s population. Two considerations smudge that silver lining.

As a percentage of population, most of the difference was in the higher number of births in Rhode Island: 1.02% of population versus 0.92% in Vermont.  To some extent, that’s a positive finding, but it’s only significant because Rhode Island offset more of the residents who moved to other states (0.51% of population, to VT’s 0.28%) with higher immigration from other countries (0.34%, to VT’s 0.10%).

The second smudge is that this year is Rhode Island’s second on the population-loss list.  Last year, its company wasn’t Vermont, but Michigan.  Over the two-year span, from 2010 to 2012, Vermont’s population has grown; over the last year, Michigan made up most of its loss from the year before.

Uniquely, Rhode Island is still slipping, with a two-year net loss of 2,275 people.  Of course, international immigration and a natural increase (with births outnumbering deaths) soften the blow. Since 2010, 1.26% of Rhode Island’s population — 13,259 people — have left for other states. As with the other numbers presented, here, that’s a net number, meaning it’s the number of Rhode Islanders who left above and beyond the number of people who moved here.

It’s true that Rhode Island is the second most densely populated state in the nation, after New Jersey, so a rapidly growing population might be problematic in the long term.  Be that as it may, multi-year trends of losing population — especially losing established Rhode Islanders to other states — is a symptom of a state in need of dramatic turnaround.

Projo Omits the Real Story of Health Benefit Exchanges

The Providence Journal’s article checking in on the progress of Rhode Island’s ObamaCare health benefits exchange ignores the major policy questions and potential objections that have made the exchanges a subject of controversy across the country.  With the exchange’s executive director, Christine Ferguson, as its only source, the article is little more than a preview press release for an expensive government service that is of dubious origin, questionable promise, and dangerous potential.

Here is a mere sampling of the conspicuous omissions:

  • The article ignores the controversy of more states’ refusing to set up exchanges than agreeing to do so. Oklahoma is leading the way in a lawsuit challenging the authority of the Internal Revenue Service (IRS) to impose a fee on medium-sized and large employers that do not offer healthcare benefits in states that will have federally run exchanges.
  • The article glosses over the distortion of the employment market caused by the employer mandate. With the threshold of 50 full-time employees before businesses are required by the law to offer healthcare benefits or pay the IRS penalty, the law is creating perverse incentives that are leading employers nationwide to limit workers to part-time status and potentially not to hire them at all.
  • The costs of the exchange and the Medicaid expansion to the state are not mentioned. The initiation of ObamaCare in Rhode Island looks like a windfall of federal dollars for the state, but within a few years, the additional local costs will add strain to the state’s annual struggle to balance its budget. With data from the Kaiser Family Foundation, the RI Center for Freedom & Prospeity estimates that the cost of the Medicaid expansion to Rhode Island taxpayers will be approximately $50 million per year.  When it comes to paying for the exchange itself, Rhode Island may follow Massachusetts’ strategy of charging a 3% fee on top of premiums.
  • The planned expansion of the exchange as a “unified infrastructure” is nowhere to be found. The officials behind Rhode Island’s health benefits exchange are also planning to integrate it with other state subsidies and services, such as welfare and food stamps. The Center has dubbed this strategy a “dependency portal,” because it would potentially create an automatic “on ramp” to dependence on government handouts.
  • The article also ignores the interests on the exchange’s board. In populating the governing board of the exchange, Governor Lincoln Chafee paved the way for expansion of services supplied through the exchange, without appointing any board members who might act as a counterweight to the special interests around the table.

Rhode Islanders deserve a government that treads cautiously when dabbling in such costly and radical changes to the critical services of the health care marketplace.  And they definitely deserve a state-level press corps that exposes government inadequacies and the risks and costs that it incurs.

Press Release: Public vs. Private Sector Compensation in RI

Press Release
Public vs Private Sector Compensation in RI

High-Pay Government Workers Supported by Low-Pay Private Workers

FOR IMMEDIATE RELEASE

November 28, 2012

Government workers in the Ocean State collect significantly higher compensation than their private sector counterparts – across the board – according to data recently compiled as part of national study for the RI Center for Freedom & Prosperity, a non-partisan local think tank.
Among the findings in the report published today by the Center, Ocean State public sector employees enjoy compensation levels that are 26.5% higher than their private sector counterparts; a rate 41% higher than the New England average and 78% higher than the national norm. These results were calculated via a statistical regression analysis after controlling for factors such as education and experience. On average RI government workers receive 58% more in ‘benefits’ than private workers in RI.

Further, within the New England region, RI public employees: are unique in collecting a higher “base” pay than private employees; work the fewest total hours; receive a higher paid time off value than in the private sector; and benefit from a 41% higher total compensation premium than the regional average.
“Rhode Islanders want a government that works for all citizens. But it may not be so much that state and municipal employees are grossly overpaid, but more that our state’s private sector has such shockingly low compensation levels,” said Mike Stenhouse, CEO for the Center. “This is yet another clear indication of how public policy in the Ocean State has favored certain groups while severely harming our economy and our business sector.”
According to the study conducted by economists William Even, of Miami University, and David Macpherson, of Trinity University, government workers in RI, on average, collect $100,217 in total compensation as compared with $83,419 for private employees. Respectively, base-pay breaks out to $61,046 vs $58,664, with benefits at $39,171 vs $24,755. A preliminary review of the effects of the state’s 2011 pension reform showed its effect to be negligible on these comparisons.
The data raises serious questions about the sustainability of a system where a low-pay private sector is supporting a high-pay public sector. “Are we heading towards a Central Falls type situation where pension benefits have to be cut dramatically, or even worse, a Scranton, PA situation where city worker pay was cut to minimum wage”, inquired Stenhouse. “It is evident that new policies that promote economic growth and increase our tax base are the best way to ensure that we can afford to maintain current public employee compensation levels”, concluded Stenhouse.
The full report, with additional data, tables, analysis, and methodology can be found at http://www.rifreedom.org/2012/11/ri-public-and-private-sector-compensation-comparison/.
The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank, is the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.

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

Commentary: Sakonnet Bridge Toll – We All Sleep in the Beds we Make

December 6, 2012

We all sleep in the beds we make. Legislators and citizens alike.

After decades of negligence by the Political Class in mismanaging one of the appropriate roles of government – infrastructure development – Rhode Island ranks last or next to last in multiple major national highway, bridge and general infrastructure indexes.

And now, with tolls planned for the Sakonnet River Bride, the state faces a lose-lose situation; where local residents will face a punishing new ‘tax’ and where the local and state economy will continue to be harmed as a result. Are tolls the only course we should have considered? Will anyone even end up being held accountable for this debacle?

Our elected officials, including those few who are now speaking out against the toll, have systematically ignored our state’s bridges and highways and have continually prioritized spending in other areas where a more tangible political quid-pro-quo can be realized. This total failure of government has brought us to the point where the knee-jerk reaction to impose new taxes and fees on our people was sadly predictable.

But the blame does not reside solely on Smith Hill. Where were those people last spring when the budget and this toll were being contemplated? Where was the East Bay citizenry then that should have been pressuring their own locally elected officials to run around the state capitol to try to kill this toll? It may be too little, too late now.

These citizenship and legislative failures are yet more examples of what can happen when the great responsibility our Constitution places on citizens to remain vigilant and to control the workings of our government is abandoned, leaving a void for special interest groups to eagerly slop up any taxpayer dollars left in the trough.

When will we ever learn?

Back to the matter at hand, according to the Federal Highway Administration, more state and local governments are relying on tolls to build and repair roads, bridges and tunnels as traditional local revenue sources and one-time stimulus funds dry up. But is this the only practical approach? No.

There are alternative solutions we might have considered to fund these much needed upgrades. In order of preference, they are (were):

A) Re-allocation of existing funds: without raising taxes, fees, or tolls – this approach would force officials to make difficult funding priority decisions, and decrease tax and fee burdens on the Rhode Island economy. But who in the Political Class is brave enough to do this?

B) Cut taxes elsewhere, even as we implement the new tolls: this would lessen the negative economic impact on Rhode Island drivers who are tolled as well as on our overall economy. This we can still do.

C) Privatize the upgrades and maintenance: many states are contracting with private entities to maintain infrastructure, collect the tolls, and take the financial and legal risk. The private sector can manage projects such as these at a lower cost and can also provide maintenance and toll-collection services more efficiently. Privatization would also ensure that the tolls are never mingled with the state’s General Funds and re-allocated for whatever new emergency may arise. Further, a private entity can be sued if they fail to meet the terms of their contract in maintaining a bridge or highway. Under a government run system, who can be or will be held accountable? This is where we could have been.

D) Government-run upgrades and maintenance funded by tolls: the big government default mode, which would likely result in higher tolls than the privatization route. This is where we are.

E) Raise general taxes: this approach would affect a broader range of Rhode Island residents, and would have the largest impact on the state’s already fragile economy. Only the most radical socialists would think that this is feasible in Rhode Island at this time.

For failing in their duty to the people by not considering some of these other options, some legislators should lose their jobs.

For failing to remain vigilant in exercising their right of citizenship, it looks like many Rhode Islanders will now pay a dear price.

Mike Stenhouse is CEO for the Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank and the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.