RI Health Benefits Exchange Costs Exceeding Even Center’s Projections

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Implementation of the Affordable Care Act (ACA) in Rhode Island, with both the health benefits exchange (called HealthSource RI) and the expansion of Medicaid to cover able-bodied low-income adults, has been a lesson in government operation. The policies were put into place — and over $100 million in federal tax dollars were spent — without significant public discussion and with no plan to cover the costs, and we’re now learning that projections of costs were wrong in several critical aspects.

The total cost to the state in fiscal year 2015 (FY15) could be as much as $100 million.

Enrollment

When the General Assembly declined to create a health benefits exchange through legislation, now-Democrat Governor Lincoln Chafee did so by executive order. In the text of that order, issued September 2011, the governor explicitly decreed that “No state general revenues shall be used for purposes of the [exchange], and no liability incurred by the [exchange] or any of its employees may be satisfied using state general revenues.”

The order mentions the possibility that funds would come from “insurers or other entities,” so it’s probable that the governor’s office expected the exchange to be self-sustaining, as a government-run start-up company.

A grant application to the federal government in March 2011, by Deb Faulkner, the state’s Exchange Project Coordinator, projects that 2014 would find 127,000 Rhode Islanders enrolled in private health plans through the exchange, with 32,000 of them paying the full cost of their coverage, with no state or federal subsidies. Another 77,000 people were expected to be enrolled through the business-focused component of the exchange, called the Small Business Health Options Program (SHOP).

Under those circumstances, the governor may have expected small transaction fees to be sufficient to cover the cost of the exchange.

In May 2013, another grant application, this one from HealthSource RI director Christine Ferguson, cites a projection developed in cooperation with MIT economics professor Jonathan Gruber. Five months before the launch of the exchange, the state was still expecting 64,000 private enrollees, with 20,000 of them paying the full cost, plus 17,000 in SHOP.

Local news reports cite an “unofficial” memo from the U.S. Centers for Medicaid and Medicare to say that actual enrollment is “far above federal targets.” However, the results are well below the more-official expectations in the applications. As of March 8 of this year, the exchange had enrolled 19,690 people (17% of whom had not yet paid and arguably should not be included until they do), with only 2,284 paying the full cost, plus 795 in SHOP.

The following chart compares the May 2013 projections with HealthSource RI’s results thus far.

healthsourceri-enrollment-projectedvactual-011314

In total, the projection was almost four times higher than the results that the exchange had achieved by March 8. Looking at just the full-cost individual plans, the projections were overly optimistic almost by a factor of nine times. This leaves the exchange’s annual budget of nearly $25 million up in the air.

Medicaid

As if the failure of the exchange’s cost structure weren’t bad news enough, the results from the Medicaid portion of the ACA make matters worse.

According to a report by Philip Marcelo, in today’s Providence Journal, the state had expected 51,000 people to enroll in Medicaid within the first 18 months after the introduction of the Medicaid expansion and the health benefits exchange. In actuality, six months into that period, Medicaid enrollment is already up by 48,602.

The following chart shows the trends in each category of enrollee, as HealthSource RI has reported them (roughly month to month). The dark red area represents Medicaid recipients.

healthsourceri-enrollment-trends-011314

After an initial surge leading up to the deadline to receive coverage starting January 1st, enrollment in paid programs has tapered off considerably, while growth in the Medicaid population has remained strong.

The number of people enrolling in paid insurance plans may experience another boost during this month, as the open-enrollment period comes to a close at the end of the month. The flip side of that possibility, however, is that there is no enrollment deadline for Medicaid, so costs may continue to balloon beyond what the RI House Fiscal staff projects.

Multiple calls and emails to various parties for clarification of House Fiscal’s findings have received no reply, as of this writing, but the circumstances may be more dire than is being reported.

According to Marcelo, the House Fiscal staff expects the cost of the Medicaid expansion — which the state government appears to have accepted as an administrative decision, with no public debate at all — to affect the state’s general fund budget for the first time in fiscal year FY17, with an expense of $14.2 million (on a total cost of the expansion of $570 million that year). That amount grows each year, as the state’s contribution phases up to 10% of the $719 million total, or $71.9 million, in 2021.

That isn’t the whole story, however.

Secretary of Health and Human Services Steven Costantino credits the state’s taxpayer-funded public awareness campaign with the high number of Medicaid enrollees. As individuals visit the HealthSource RI Web site, the system tells them whether or not they are eligible for Medicaid. Many of them would have been eligible without the expansion.

According to a HealthSource spokesperson, 33.3% of all Medicaid enrollments through the exchange as of February 8 (or 11,916) would already have been eligible for the public welfare program without the expansion. The federal government only picks up 50-55% of the cost for these Medicaid recipients.

It isn’t clear how (or whether) these enrollees factored into the House Fiscal staff’s analysis, but their cost in FY15 — the budget under consideration right now — could be around $74 million.

In a press conference announcing the Medicaid expansion on the day the Supreme Court ruled the ACA constitutional, in 2012, Costantino estimated that the expansion would only apply to 6,000 to 7,000 people. Even less optimistic estimates made by the RI Center for Freedom & Prosperity at the time put the total cost of the ACA much lower than now appears probable.

As Costantino acknowledges, although insisting it’s an outcome of which to be “proud,” as the state engages in an aggressive campaign to bring in new paying customer’s, it’s not attracting them, but rather new recipients of government handouts.

The people of Rhode Island were never given a chance to fully debate, much less vote on, these changes to government policy. Even now the layers of government spin and incomplete reportage leave them — even their elected representatives — with little understanding of how significant the costs are going to be, especially in comparison with the program they were sold.

 

Featured image: Stephen Costantino, Lt. Gov. Elizabeth Roberts, and Christine Ferguson at the June 28, 2012, press conference concerning the exchange and the Medicaid expansion.

Fat Tuesday = Fat Rhode Island

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March 3, 2014
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RI one of only five “Fat Tuesday” states!

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Rhode Island ranks among the five worst “Fat Tuesday States” when it comes to bloated interest expenses on debt per person, according to  data released yesterday by Truth In Accounting, and commented on today by the Rhode Island Center for Freedom and Prosperity, a nonpartisan, state-based think tank. Taking on new bond projects would worsen this ranking.
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“Fat” states, according to the data, have high levels of interest payments per capital based on total debt, both state and local. Rhode Island suffers from a related debt burden of approximately $14,000 per person, about 50% higher than the 50-state average.
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According to data specially provided to the Center by Truth In Accounting, Rhode Island has seen a 60% increase in this ‘interest expense’ measure since 2006, more than twice the 28% average increase of the five fat states, and the largest increase of any state in the nation during this period, which, ironically, is a period that has seen interest rates dramatically decrease.
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“Not only do we spend-and-tax at levels significantly higher than our state can sustain, but we also pile massive debt burdens on the backs of our taxpayers,” said Mike Stenhouse, CEO for the Center. “These interest payments alone can crowd out spending on other critical budget areas such as education, infrastructure, and public assistance. Just another reason why a new repeal and roll back policy culture is needed in Rhode Island.”
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The Governor’s FY-2015 budget would add to this debt and interest expense with about $275 million in proposed new bond projects. This would mean that approximately $36 million in additional interest debt service payments would be imposed on the state’s budget, or another $36 per resident per year on top of an already worst “fat five” ranking.
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“With Lent beginning this week, perhaps the Ocean State should go on a leaner diet, instead of devouring even more fatty pork,” suggested Stenhouse.

Commentary: The Full Story, What the ProJo Did Not Tell You About Our Center

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Read the subsequent OpEd in the Providence Journal here … 

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 “Is it so unimaginable to our critics that there are indeed many people who volunteer their support to our Center, and who also believe that a limited, transparent government is the best interests of the average Rhode Islander?” …  Mike Stenhouse, CEO.

THE FULL STORY

In recent months, a national smear campaign was launched by left-leaning groups such as Progress Now and the Center for Media and Democracy to attempt to call into question the increasingly effective work of state-based think tanks like our RI Center for Freedom & Prosperity.

There have been dozens of unfounded allegations from the left, including our own U.S. Senator Sheldon Whitehouse, falsely claiming that the groups like ours are “phony” and engaged in “dirty business” and “dirty tricks” in advancing the agenda of out-of-state rich people who supposedly fund our operations and determine the issues we promote. Since then our Center has occasionally been asked about these baseless accusations.

Providence Journal article confirms that Center operates in a nonpartisan manner, and in full-compliance with federal law.

Providence Journal article confirms that Center operates in a nonpartisan manner, and in full-compliance with federal law.

The Providence Journal published a related front-page story this week, after recently requesting that our Center to respond to a number of questions regarding the funding sources of our Center, and whether or not our agenda is influenced by out of state interests. As a Cranston native, and founder and CEO for the Center, I welcome this opportunity to discuss the mission and operation of our organization, and to set the record straight.

As the ProJo article confirms, our Center works in a nonpartisan manner and maintains the privacy of our donors as provided by the IRS and federal law, and as affirmed by the U.S. Supreme Court. Other clarification points from the article:

  • Our Center never accepts public funds or taxpayer dollars. Unlike the Economic Progress Institute, one of the local groups compared to us, which has accepted funds from the state and is housed at RI College.
  • Senator Whitehouse’s spokesman was INCORRECT in asserting that our Center makes ‘efforts to influence elections …”. This against IRS rules and our Center has never engaged in such activity.

While our work is often viewed as disruptive to the ‘establishment’, it is an unfounded accusation and a typical ploy of those we challenge to aver that the work of our Center is influenced by any out-of-state interest. Our Center’s staff and Board are comprised of Rhode Island residents, who all believe in the power of free markets and the capacity of free people to create a healthy, prosperous Ocean State.

As supporters and friends of our Center, you deserve to know the full story, not just a portion of it. The ProJo article does not tell the whole story. All of the questions submitted to us by the Journal and all of the responses our Center provided to them are shown below. You can decide for yourself if they purposely omitted certain information.

We are not surprised that just as our Center is establishing itself as an alternative strong and consistent voice in the Ocean State, that our opponents predictably trot out such intellectually dishonest questions, in an attempt to discredit our work, and that certain members of the media oblige them.

Even a recent New York Times article confirms that such smear attacks stem from a national, partisan effort. In fact, in parroting the same false talking points across the nation, the left is once again creating myths: http://m.washingtonexaminer.com/it-turns-out-the-evil-koch-bros-are-only-the-59th-biggest-donors-in-american-politics.-can-you-guess-who-is-number-one/article/2544025?

Also note that our Center operates in stark contrast to groups like Progress Now and the Center for Media and Democracy who receive hefty gifts from unions, who in turn use coercive tactics to force their members to donate to political causes with which they may not agree.

PROJO QUESTIONS, RESPONSES by the Center

Below are the questions submitted to us by the Providence Journal, along with our complete replies. As you will see, the published story in the Providence Journal omitted most of our comments. 

*  (ProJo) Can you say how much the center received during 2013 in contributions and grants?

(Center) In accordance with IRS rules, our Center will make this information available when we file our annual 990 report in the coming months. Now in our third year of operation, our 2011 and 2012 reports are also publicly available.

* With regard to your donors, your stance is that you cannot reveal them?

 The Center – like almost all IRS designated 501-C-3 nonprofit organizations, including the Red Cross, the liberal Tides Foundation, and Rhode Island’s Economic Progress Institute, and as affirmed by the U.S. Supreme Court – respects the privacy wishes of its donors, who give freely and voluntarily to support our mission to enhance the lives of all Rhode Islanders. Should individuals choose to make known their gifts to our Center, our Center also respects their right to do so.

* What do you say about the center being an affiliate of the Franklin Center for Government and Public Integrity, which according to the Center for Public Integrity gets most of its money from Donors Trust. The Center for Public Integrity calls Donors Trust “a vehicle for tax-exempt giving from wealthy conservatives such as billionaire industrialist Charles Koch.” In light of this, is the center largely funded by the Koch brothers and other very wealthy individuals?

 The Center worked with the Franklin Center in identifying and securing a journalist for our online blog and journalism website, The Ocean State Current, in 2012. That employee relationship lasted for six months, ending in December of 2012. Our Center is not aware of the funding sources of the Franklin Center. The Ocean State Current remains in operation because of the voluntary work of a team of in-state bloggers.

 The concept of donor directed granting organizations such as Donors Trust are not endemic to conservatives or liberals, or billionaires or millionaires. They are numerous and diverse in nature, throughout the country, accepting charitable donations from individuals at virtually all income levels to support thousands of charitable causes and nonprofit groups. Organizations such as the United Way and the Rhode Island Foundation serve the same function for a diverse array of donors who wish to maintain their anonymity for any number of reasons.

 I can categorically answer “no” to the question about whether or not our Center is largely funded by Charles Koch, or any out-of-state wealthy individuals. Depending on how you define wealthy individuals, I can confirm that our Center does solicit and accept funding from individuals in Rhode Island who agree with our free-market principles and who have the means to support our mission to enhance the well-being and prosperity of the average Rhode Islander through responsible public policy reform.

 * Some people and groups say organizations such as the RI Center for Freedom and Prosperity are simply fronts for the very wealthy who want to avoid paying their share of taxes. What is your response to this?

 I can also categorically state that 100% of the policy decisions our Center makes are determined by our own Board and staff, based on Rhode Island’s unique circumstances, without any influence from any outside group or individual.

 Regarding our policy advocacy, consider the top three issues in which our Center is engaged:

 Our Sales Tax Repeal idea would eliminate a highly regressive tax that will most benefit low-income families, by keeping more of their hard-earned money in their own pockets and providing new job opportunities to enhance chances for upward mobility.

 Similarly, our School Choice campaign will benefit inner-city families most, especially those who have children who are condemned to attend failed schools simply because of their zip code

 Finally, the ideas in our Healthcare Freedom Act provide solutions to many Rhode Islanders who are concerned about access to affordable, quality care. As it is now obvious that tens of thousands of Rhode Islanders will remain uninsured, even after full implementation of the President’s healthcare law and our state’s exchange, our Center recommended multiple solutions that will make access to healthcare a more viable option for the average Rhode Islander.

 Clearly, this is not a tax-break-for-the-rich agenda, but rather, an agenda that will provide renewed opportunities for most Rhode Island families and also provide a boost to our state’s broken economy.

 * Is it appropriate for an advocacy group that won’t disclose its donors to be preparing testimony and research reports to a legislative commission that is considering major changes in state tax policy?

 It is entirely appropriate for our Center, and all similar state-based organizations, to advocate for policies that will help our state, as we best determine ourselves. Virtually all IRS approved C3 and C4 groups also choose to respect the privacy of their donors; there is nothing new or suspicious about this. 

Like virtually all nonprofits, our Center conducts multiple fundraising activities to support our activities, including direct mail solicitations, personal networking with citizens in our state, and competitive grant applications to national and local foundations. Our Center employs a full-time Development Director to manage these efforts. Currently, the Center has almost 300 distinct donors, almost all of whom are Rhode Island citizens who share our belief in economic and educational freedom.

 Is it so unimaginable to our critics that there are indeed many people who volunteer their support to our Center, and who also believe in a limited, transparent government?

* Any other comments welcome.

 It is obvious that those who defend the status quo are not at ease with the work of our Center, which challenges the policy culture that has created the unacceptable economic and educational conditions from which far too many Rhode Islanders are currently suffering.  It is important for Rhode Islanders to know that any implication that our Center’s work is influenced by outside sources is completely unfounded.

Has the Providence Journal asked the same questions of those groups who have raised questions about our Center?

* Is it fair/accurate to say that the center wanted to provide a different voice/perspective than people might have been hearing state policy debates? If yes, can you elaborate?

 Yes. In fact, it is the primary mission of our Center is to attempt to balance and stimulate public policy debates. Through research, analysis, and advocacy our Center provides new and alternative views on important issues for our state. In some cases our views challenge the entrenched status quo mindset, while at other times our ideas are in direct opposition to the highly restrictive progressive/union agenda, which has dominated our state – virtually unopposed – for recent decades.

 It is our opinion that “free market” policies are indeed in the best interest of all Rhode Islanders. Clearly, the big government, special interest approach has failed this state. Our recommended policies offer a fresh, new path forward, based on principles that have a proven record of prosperity and that served as the basis for the founding of our nation.

 * Did the center contact Rep. Malik about sponsoring the no sales tax bill last year, or did he contact the center?

 Representative Malik first approached the Center following testimony we provided at a 2012 House Finance Committee hearing: Around that time we had published our first sales tax report, and he expressed general interest in the issue to me. In November 2012, House Minority Leader Newberry publicly stated that sales tax reform would be one of his caucus’ platforms for 2013. I approached the Leader to offer access to our research, and he suggested that I contact Representative Malik who, as a retailer himself, had been interested in sales tax issues for years. It was following the Massachusetts’ State of the State address in January of 2013, when Governor Patrick proposed to lower his state’s sales tax, that I re-established contact with Representative Malik. He indicated that he was interested in submitting a bill to repeal the Rhode Island sales tax and inquired if our Center would further educate him on the issue, based on our prior reports, and if there was additional research that could be conducted to advance the public debate.

 This is precisely the role our Center is designed play: Injecting new ideas and research into the market and then aggressively supporting debate when related legislative or other advocacy efforts are initiated. We are happy to work with any interested lawmaker from any party.

 Our Center is not a lobbying entity, and had no part in securing any sponsors for the bill. I’m sure that Representative Malik would confirm these details, if you choose to contact him.

 * You mentioned that school choice will be the center’s next big issue. Can you say why the center chose that one?

 Economic and educational reforms are the two issues our board determined should be our Center’s top priorities. Without economic growth that brings new job and career opportunities, and without a properly educated citizenry to fill those positions, Rhode Island will not be able to break out of its stagnancy.

 In selecting major issues to advance, we look beyond policies that nibble around the edges of the massive problems facing our state, and seek to inject well-researched, game-changing ideas into the public policy debate; ideas that can provide immediate and broad benefits to Rhode Islanders. Also, we seek policy ideas that are not only needed, but which have a legitimate chance to advance, given our state’s unique and current political orientation.

 School choice reforms, whether through expanded charter school or tax credit programs, or through a voucher system, would provide immediate relief for families with children condemned to attend a failed school simply because of their zip code. Further, the competition created between public and private schools will likely lead to a higher educational achievement across our entire state. We are working in cooperation with Speaker Pro Tem Elaine Coderre and her son’s new organization, RI Families for School Choice. This organization approached our Center in late 2012 to ask if our Center was interested in helping to raise awareness on school choice. As this issue fit our mission, we have not only engaged, but have since decided to make it a priority for this year.

 Similarly, significant sales tax reform would immediately put money back in the pocket of every family and business in the state, create economic growth, and provide new job opportunities for tens of thousands of Rhode Islanders.

 There are dozens of additional reforms that our state must consider in the years ahead, many of which our Center will also attempt to advance. However, we believe that sales tax and school choice reforms are an important first step in putting our state on a new policy path.

Non-Essential Spending in RI: How to Pay for Tax Cuts

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Non-Essential Spending

in the Ocean State

Budget Savings vs Job Creation

February 24, 2014
Report Preview (check back in March for complete report)

With the state of Rhode Island in economic crisis, and with massive structural budget deficits projected for years to come, Ocean State lawmakers have the opportunity to both grow the economy and reduce deficits by trimming non-essential spending and cutting taxes in the FY2015 state budget.

Good government is about setting spending priorities, so that opportunities exist for those who wish to succeed. Creating jobs and savings for Rhode Island families while reducing the crushing tax burden on the state’s business sector must be weighed against the excessive and often wasteful spending for projects that produce little or no benefit to the average resident.

Developed in cooperation with the national Taxpayers Protection Alliance, the full Spotlight on Wasteful Spending report, which will be released in March by our Center, will outline over two-hundred million dollars in opportunities for savings without cutting budgets for essential services such as education, public assistance programs, aid to cities and towns, or infrastructure. Examples of pork spending projects that can be repealed or rolled-back in order to effect tax reform,  include:

With the Ocean State’s economy burning all around us, politicians just keep fiddling the same old spend-and-tax tune

With the Ocean State’s economy burning all around us, politicians just keep fiddling the same old spend-and-tax tune

  • $38 million to defund HealthsourceRI and transfer the exchange to the federal government
  • $26 million to privatize the money-losing Convention Center Authority
  • $14 million for higher education ‘capital’ projects
  • $12 million to forgo payment of the 38 Studios ‘moral obligation’ bond
  • $9 million in corporate welfare handouts
  • $8 million in often crony spending from the Governor’s Workforce Board
  • $8 million in Community Service Grants from the legislature
  • $5 million in waste and fraud from SNAP
  • $3 million from the Facilities Management budget
  • $2.5 million for a sailing center
  • $1 million in Legislative Grants

These items, plus an additional $100 million or so in dubious spending and other savings opportunities will be discussed in the upcoming March report. Other areas where non-essential budget savings can be realized include: state government operations and excessive overtime compensation; occupational licensing management costs; non-vital commissions and other bureaucratic entities; historical preservation projects; arts & culture subsidies and film incentives; and more.

It is a myth, often perpetuated by those who defend the status quo spending levels, that tax reform ideas that are non revenue-neutral would result in cuts to critical state services. This report clearly shows otherwise – that frivolous spending is rampant. In reality, tax and budget reforms can happen if proper spending priorities are considered.

To help ensure that unnecessary spending practices will not re-emerge, the Center’s full report will also recommend creation of a fully-empowered Office of the Inspector General. The Center also supports the concept of an “Office of the Repealer”, which would have  the sole responsibility of making recommendations to the legislature in areas of government waste, duplication and out-of-date regulations that should be removed from the state law. Related ‘repealer’ legislation is before the RI General Assembly in 2014.

When it comes to tax and budget reforms that will help Rhode Island families and businesses, public debate must ask the critical question:

Are keeping non-essential spending items worth denying renewed economic opportunities for Rhode Island families?

Governor’s Corporate Tax Cut Plan Not a Game Changer

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Based on analysis by the Rhode Island Center for Freedom & Prosperity, Governor Chafee’s proposed reduction in the corporate tax rate from 9% to 6%, if implemented as a stand-alone policy, would have a very modest positive impact on the Rhode Island economy, despite having a more notable effect on the state’s national rankings*. When this tax reform is then offset by an increase in a national internet tax, the results are likely to become negligible or even negative.

At face value, according the Center’s RI-STAMP tax modeling tool, the proposed corporate tax cut would result in a loss of $72 million in general revenues and produce only 240 private sector jobs. With the stated objective of paying for the corporate tax cut with revenues from a new internet sales tax**, which could mean up to an additional $70 million tax on Rhode Island shoppers, the combined effect means the state could actually lose jobs and still see a substantial revenue loss.

“The internet tax – a new tax on top of already burdensome tax levels in the Ocean State – is a highly regressive tax that will hit virtually all Rhode Islanders directly in their pockets, and is likely to reduce economic activity far more than a corporate tax cut might increase it. Do we want to simply improve our state ranking or do we want to provide real jobs for our residents,” questioned Mike Stenhouse, CEO for the Center. “This habit of taking a step forward only when we also take a step backward gets us nowhere. To produce game changing results for our state, revenue-neutral ideas will not get the job done; significant revenue and spending cuts must be implemented.”

The Center’s sales tax reform recommendations, conversely, could produce tens of thousands of new jobs with a lower budget impact.

* http://www.providencejournal.com/breaking-news/content/20140205-chafee-plan-to-reduce-states-corporate-tax-rate-gets-mixed-response.ece

** The RI-STAMP modeling tool does not directly allow for calculation of a national internet sales tax, therefor specific revenue and jobs projections were not included in this portion of the post. With the best simulation we could conduct, RI-STAMP projected a combined effect of these two tax reforms to produce a net loss of $56 million in state revenues and a loss of 879 private sector jobs. For reasons described below, our Center does not anticipate the negative effects to reach these levels, although it is highly probably that the positive effects of a reduction in the corporate tax could be more than offset by the negative effect of the new internet sales tax.

The high-end figure of $70 million in ‘new’ internet sales tax revenues for the state was used and, given that that money has to come from somewhere, that figure was “added” as an additional tax burden to the general state sales tax category in the RI-STAMP modeling tool. It was further assumed that the Internet sales taxes paid by Rhode Islanders to out-of-state retailers and those sales taxes paid by out-of-state shoppers to Rhode Island retailers would level out; meaning that the new revenues to the state would in essence be paid by Rhode Islanders. Also, given that a national internet sales tax would not provide Rhode Island with a competitive advantage or disadvantage, the negative impact on its economy would likely be less than the STAMP projection, which is designed to be  comparative modeling tool.

Economic Impact of Rhode Island’s Renewable Energy Standard

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Download report (PDF)

Executive Summary

In 2004, the State of Rhode Island enacted Renewable Energy Standards (RES) through legislation known as the Clean Energy Act. Many of the assumptions used to justify the Act turned out to be largely inaccurate, and implementation of its mandates will exact more costs to the Rhode Island economy, with only limited benefits, if any.

This study estimates the economic impact of maintaining RES mandates over the next six years in the Ocean State. Rhode Island’s energy prices are already among the highest in the nation, and the state’s poorly rated business climate hardly needs another factor to exacerbate it.[i]

The major findings of this study show:

  • The current energy mandates will raise the cost of electricity by almost $150 million for the state’s consumers through 2020.
  • RI’s electricity prices will unnecessarily rise by an additional 1.85% by 2020.

These increased energy prices will hurt Rhode Island’s residents and businesses and, consequently, inflict harm on the state’s economy. In 2020, the RES is expected to:

  • Increase unemployment in an already-weak
    jobs market.
  • Reduce real disposable income for families.
  • Decrease private investment in the state.
  • Increase the overall energy costs of households, businesses, and industries.

Rhode Island is not alone. Nationally, government mandates that require electric utilities companies to use wind and solar power instead of more-affordable hydrocarbons have left ratepayers with sticker shock in state after state, according to a recent Centennial Institute study.[ii] Average electric rates are 21% higher in the 30 states with mandates than in the 20 states without them, according to expert Kelly Sloan.

Faulty Assumptions

In 2004, at the height of the manmade global warming campaign, a number of assumptions were broadly promoted as reasons for states, our nation, and other countries to enact and implement strict energy guidelines that would limit carbon dioxide emissions into the atmosphere. Nine years later, there are strong arguments to suggest that most of the assumptions that were used as a basis for the energy mandates imposed in Rhode Island were off the mark. The following are among the assumptions that are now openly in dispute:

  • Renewable energy would be more cost-efficient. Renewable energy costs remain significantly higher than conventional sources, with few near-term expectations for change.[iii]
  • Renewable energy would be abundantly plentiful. The inconsistency of wind and solar sources creates significant periods of non-production, often requiring additional fossil-fuel plants to be built as “backup” systems.[iv]
  • Fossil fuel sources would become scarce in the near future. Technological advances, in procurement, transportation, and consumption, continue to expand available energy sources, especially for the United States, which is projected to enjoy an extended, energy-self-sufficient period as the lead producer of oil.[v]
  • Fossil fuels would become increasingly expensive. Coal and natural gas continue to be the least expensive sources of electricity and will continue to be the most cost-efficient sources in the coming decades. As America extracts and refines more and more of its vast reserves, oil prices could also see a significant decline.[vi]
  • Renewable energy would spur a boom in green jobs. There has been no such boom; many once-promising green companies have gone out of business because of low demand for high-priced energy sources. Some European countries that invested heavily in the “green revolution” suffered more job losses than gains.[vii]
  • Renewable energy is better for the environment. This may not be true in the near term. The need for backup power plants decreases environmental efficiency. Better air quality can be achieved via natural gas, which is significantly cleaner than coal.[viii]By contrast, “energy sprawl” has become a popular term among environmentalists to describe the massive amount of land or sea area required for wind or solar farms, which many consider eye pollution.[ix]Furthermore, the miles of transmission lines required for such technology often cut through pristine landscapes,[x]and windmills are a danger to birds and bats.[xi]
  • Global warming is an immediate danger to our Earth. With recent reports that global temperatures have flattened over the past 17 years, despite increasing overall carbon emissions, it is now much more of an open question as to whether or not restrictive and punitive energy mandates will actually make a decisive difference in global temperatures.[xii]

Specific Findings

  • Compliance costs for RI’s RES requirements is already millions of dollars per year and expected to continue climbing, with much of the burden passed on to energy consumers.
  • The intermittent nature of common renewable energy sources means that the standards may not even succeed in their intended purpose of reducing greenhouse gas and other emissions.
  • Rhode Island’s RES mandate will cost Rhode Island $21.4 million per year by 2020.
  • At the end of this decade, electricity prices will be 0.24 cents per kilowatt-hour (kWh) higher because of the RES.
  • These increases will cost the state 105 jobs and $4.6 million in investment dollars and lower the real disposable income by $33.0 million.

Deepwater Wind

The additional negative economic projections related to the implementation of the Deepwater Wind project are not included in these findings. The purpose of this report is to project the general adverse effects of continuing with existing RES mandates; the Deepwater project represents a specific choice to implement one or more of those mandates.

The RI Center for Freedom & Prosperity plans to run the estimated $350–500 million in additional costs to ratepayers through its RI-STAMP modeling tool and release those projections in the coming weeks. It is reasonable to expect the negative effect of this single, specific project to be significantly larger than the general effect of existing RES policies.

Policy Recommendations

Given the shifting landscape of the climate change debate and unchanging condition of Rhode Island’s economy, the question for Rhode Islanders is whether or not the state should loosen its energy mandate policies. This study shows that, if left unchanged, current policies will indeed cause further harm to our state’s already struggling economy.

Even if recent questions about the true global climate effect of carbon emissions prove unfounded, is it realistic to think that restrictive energy policies in the Ocean State will have any impact at all on the global climate, considering its small geographic and industrial footprint? Or should the state seek to roll back some of the burdens these mandates are projected to impose on families and businesses?

If the General Assembly is willing to consider reform of existing RES laws, our Center recommends:

  • Enact the Electricity Freedom Act, repealing the state’s renewable energy standards (see Appendix B for model legislation).

Require that the state investigate and utilize methods of predicting and tracing the economic effects of renewable energy standards on Rhode Island, prior to renewed implementation.

 

[i] RI Center for Freedom & Prosperity, “Report Card on Rhode Island Competitiveness,” on which Rhode Island receives a D+ for energy issues overall. <www.rifreedom.org/2013/03/second-year-report-card-lack-of-bold-action-lack-of-improvement/>

[ii] Sloan, Kelly. “Bad Bargain: How Renewable Energy Mandates Pick Your Pocket.” Centennial Institute. 2013. <www.ccu.edu/uploadedFiles/Pages/Centennial_Institute/Policy%20Brief%20No.%202013-3.pdf>

[iii] “Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013.” U.S. Energy Information Administration.  January 2013.  <www.eia.gov/forecasts/aeo/electricity_generation.cfm >

[iv] Vartabedian, Ralph. “Rise in renewable energy will require more use of fossil fuels.” Los Angeles Times. December 9, 2012. < articles.latimes.com/2012/dec/09/local/la-me-unreliable-power-20121210>

[v] Smith, Grant. “U.S. to Be Top Oil Producer by 2015 on Shale, IEA Says.” Bloomberg. November 12, 2013. http://www.bloomberg.com/news/2013-11-12/u-s-nears-energy-independence-by-2035-on-shale-boom-iea-says.html

[vi] Ibid at note 3.

[vii] Green, Kenneth P. “The Myth of Green Energy Jobs: The European Experience.” American Enterprise Institute Energy and Environment Outlook. February 2011. < www.aei.org/article/energy-and-the-environment/the-myth-of-green-energy-jobs-the-european-experience>

[viii] De Gouw, J.A., D. D. Parrish, G.J.Frost, and M. Trainer. “Reduced Emissions of CO2, NOx and SO2 from U.S. Power Plants Due to the Switch from Coal to Natural Gas with Combined Cycle Technology.” Earth’s Future. < onlinelibrary.wiley.com/doi/10.1002/2014EF000196/abstract>

[ix] Galbraith, Kate. “Study Warns of ‘Energy Sprawl’.” The New York Times. August 26, 2009. <green.blogs.nytimes.com/2009/08/26/study-warns-of-energy-sprawl/?_r=0>

[x] Wood, Daniel B. “Green power may ruin pristine land in California.” The Christian Science Monitor. April 24, 2007. <www.csmonitor.com/2007/0424/p02s01-wogi.html>

[xi] Irfan, Umair. “Bats and Birds Face Serious Threats From Growth of Wind Energy.” The New York Times. August 8, 2011. < www.nytimes.com/cwire/2011/08/08/08climatewire-bats-and-birds-face-serious-threats-from-gro-10511.html?pagewanted=all>

[xii] Hollingsworth, Barbara. “Climate Scientist: 73 UN Climate Models Wrong, No Global Warming in 17 Years.” CNS News. September 30, 2013. < www.cnsnews.com/news/article/barbara-hollingsworth/climate-scientist-73-un-climate-models-wrong-no-global-warming-17>

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Rhode Island Employment Snapshot, December 2013: RI Alone

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The bleakest aspect of the latest employment report from the national Bureau of Labor Statistics (BLS) is that Rhode Island is now all alone in last place.  Whereas the Ocean State moved from 9.0% unemployment to 9.1% unemployment, Nevada dropped from the same level to 8.8%.  Rhode Island is now 0.3 percentage points behind any other state in the country.

The next-bleakest aspect is that, had Rhode Island not lost so many people from its labor force — that is, if so many people had not decided to stop looking for work or had they been replaced in the workforce by somebody else — our unemployment rate would have ticked up to 13.2%

According to the statistics published by the BLS, 680 fewer Rhode Islanders reported being employed than did the month before, and 296 fewer people reported that they’re either working or looking for work.

As the first chart below illustrates, the downward drift of the labor force continues unabated, and November’s increase in employment now looks like the aberration.

The second chart gives a view of the state’s great distance from peak employment.  Both of our neighbors, Massachusetts and Connecticut have seen labor force increases since the beginning of the jobs recession, and both have maintained significantly higher employment

The third chart is new, this month, and compares Rhode Island’s unemployment rate with what it would have been if the state’s labor force had held steady.  The chart makes clear that the Ocean State’s unemployment rate would have been much higher, over the past few years, had people not given up looking for work… almost reaching 14% in 2011.  It also emphasizes the disturbing trend that the only reason the unemployment rate seems to have been stagnant, rather than increasing, throughout 2013 is that fewer Rhode Islanders are counted at all.

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Paying for Sales Tax Repeal

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[button url=”http://www.rifreedom.org/wp-content/uploads/RICFP-payingforit-012114.pdf” target=”_blank” size=”small” style=”royalblue” ]Download report (PDF)[/button]

Throughout the autumn and winter, the Special Joint Legislative Commission to Study the Sales Tax Repeal has been investigating several aspects of the proposal submitted as legislation last session by Representative Jan Malik (D, Barrington, Warren).  Having addressed pros and cons of eliminating the sales tax, as well as estimates of its effects and alternative approaches, the commission arrives at the question of how the state could adjust its budget in order to implement the plan.

Ultimately, bare numbers will have to be hashed out as the Rhode Island House and Senate Finance Committees piece together a budget for fiscal year 2015.  But with a view toward developing a framework within which those numbers can be fit, the Rhode Island Center for Freedom and Prosperity proposes a strategy for considering the reform.

In this new brief, the Center also highlights some areas of budget savings and uses its RI-STAMP model to compare Governor Chafee’s proposed corporate-tax reduction and business energy sales tax exemption with other possible tax reforms, including the elimination of the sales tax and reduction of the sales tax rate to 3%, among others.

The Center estimates that the governor’s plan would produce 540 new private-sector jobs, at a cost in state government revenue of $143,352 each.  By comparison, a 0.0% sales tax rate would produce 25,426 jobs, at a cost of $12,298 each, and a reduction of the sales tax rate to 3% would produce $13,735 jobs, at a cost of $3,500 each.

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Sales Tax Commission: Testimony Highlights

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Stenhouse testimony from January 23, 2014– the testimony that was shut-down by commission members who didn’t want to hear the truth.

The Center informally compiled highlights from the first six Sales Tax Commission Hearings. Overall, every grassroots person and business owner who testified was in support of repealing or dramatically rolling-back the sales tax. Only insiders from the political class were opposed.

See the document here, which also provides detailed projections of the 0.0% and the 3% scenarios.

QUESTION: who should our government serve? The insiders or the people?

Center Recommends Transfer of HealthSourceRI to Federal Government

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FOR IMMEDIATE RELEASE; January 16, 2014                              

Providence, RI – Following the Governor’s Wednesday night address and after initial review of his 2015 budget, where it is obvious that state funds will soon be needed to continue operation of the state’s healthcare exchange, the Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy think tank, today called on public officials to consider termination of the state’s operation of the HealthSourceRI exchange, and instead transfer its management to the federal government, which currently operates exchanges in dozens of other states.

The exchange was originally formed in Rhode Island by executive order by Governor Chafee as part of the implementation of President Obama’s Affordable Care Act, which made federal funds available for its construction through the end of 2014. It is anticipated that subsequent operation of HealthSourceRI could cost Ocean Staters over $20 million per year.

“The exchange is a federal mandate, it is very expensive to operate, and it is clear that we cannot afford it once federal funds expire. Our own General Assembly rejected operation of the exchange in the first place, so how can we justify burdening Rhode Island taxpayers with footing the bill,” asked Mike Stenhouse, CEO for the Center, which plans to conduct further research into exploring the feasibility of executing this transfer.
 
The Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy think tank, is the state’s leading free-enterprise advocacy organization. The Center works to make a profound, positive impact on the lives of every family and business in the state through the rigorous exchange of market-based ideas and reform solutions aimed at restoring economic competitiveness, educational opportunities and – ultimately – hope for a brighter future.