Policy Reform: Enact Changes to Civil Justice Laws

Legal Sharks in the Ocean State

Do state laws attract shark activity in the Ocean State?

An important part of creating a better and less risky business climate in Rhode Island is to lessen the threat of litigation for legitimate business practices. Doing so would lower the cost of liability insurance for most businesses, reduce consumer costs for many products and services, and free up businesses to become more creative and innovative in developing new concepts.

Specific Recommendations:

 A) Medical malpractice and product liability reform: Enact laws that limit the amount of non-economic and punitive damages that judges and juries may award to injured people (policy brief TBD).

 B) Implement “criminal intent” provision: Enact a law that protects citizens against prosecution for non-criminal or non-intentional activities … as dozens of other states have done.

See ‘Criminal Intent’ policy brief here …

 

 

 

 

 

 

Policy Reform: Give Rhode Islanders a “Right to Work”

Right To Work = Worker Freedom

Right to Work = FREEDOM for Ocean State workers!

All workers want full freedom to pursue a career of their choice.  Freedom of Association is a core American liberty that should be extended to all Rhode Islanders looking to negotiate their own workplace rules, have full incentives to perform at a high level, and determine whether or not pay union dues is in their best interests.

Enacting Right-To-Work (RTW) policies would give Rhode Island a major advantage over its neighbors by making it the only New England state with RTW protections for its workers — without costing the state a dime in budget expense.

Read our Center’s Right-To-Work policy brief here …

 

 

ricfp-hoursper100teens-2002-2011

Teen Employment Sinking in the Ocean State

Quick links: to download the printable PDF of this study click here.  See Media Release at end.

Related stories: Research Director Justin Katz discusses the issue on the Dan Yorke Show.

Abstract

Gainful employment is disappearing from the experience of the American teenager (ages 16 to 19), and increasing minimum wages are part of the problem. In Rhode Island, teen unemployment was 28.3% in 2011, more than double its 2007 low of 12.9%, and hours worked per week had fallen from 10.0 to 6.1.

Rhode Island’s minimum wage climb from $6.75 in 2004 to $7.75 for 2013 will have cost 597 teenage jobs. As teenagers’ employment has fallen and their average hours worked per week have decreased, the weekly working hours per 100 teens in the population has dropped 62% — and 79% for those without high school diplomas. Because 70% of working teens are in the retail or leisure/hospitality industries, a bold policy change such as eliminating the state sales tax would be especially beneficial to them.

Getting Teenagers Accustomed to Working

Chores and a lemonade stand become a newspaper route and a summer job in retail, then a professional trade following high school graduation. If college is in the picture, retail transitions to on-campus service work followed by some sort of internship, which lands the young adult at the entrance of a career path, degree in hand. Such is the classic progression of young Americans’ easing into the workforce, with the adventurous and innovative breaking off to build their own companies or invent new industries.

The United States’ extended jobs recession appears to have accelerated a disruption of this pattern. The change has been acutely felt in states that have trailed the nation’s meager recovery, such as Rhode Island. From 2003 to 2011, teenagers’ share of employment in all Ocean State industries fell from 5.7% to 4.3%, despite the fact that their overall percentage of the population held steady.

In 2011, states with minimum wages that exceeded the federal rate tended to have higher unemployment. High minimum wages disproportionately harm teenagers’ employment prospects.  So, not only are young adults in such states operating in dampened economies, but the jobs that they would typically seek are even harder to come by.

Policy Recommendation

With Rhode Island in desperate need of an economic turnaround, and because dedicated and well-rounded young adults will be critical toward that end, the state must reverse the working plight of its teenagers. The RI Center for Freedom & Prosperity recommends that the General Assembly and Governor Chafee:

  1. Set Rhode Island’s minimum wage at the federal rate of $7.25.
  2. Consider a bold economic policy, such as eliminating the state sales tax, that would jolt the overall economy forward with especially beneficial effects for the teenage population.

Minimum Wage & Teen Employment

The effect of minimum wages on unemployment rates is a contentious issue among economists. Until the 1990s, they broadly understood increased minimum wages to harm employment. Since then, various studies have muddied the waters.

Given the myriad variables involved in a modern economy, small-scale policy changes can disappear in the data, and incremental minimum wage hikes may not register. Consensus is still strong, however, that low-skill, low-pay groups like teens are adversely affected by such increases.

Of the 24 states with unemployment over 8.0% for 2011, 11 had set their minimum wages above the federal $7.25 per hour. Of the 26 states with 8.0% unemployment or lower, only six had elevated minimums.  The average unemployment rate for former was 9.0%, compared with 7.7% for those in which the federal rate applied.

That gap doubles for teenagers (16-19 years old).  In states where the $7.25 minimum applied, teens’ unemployment rate was 21.7%. In the elevated-rate states, it was 24.3%. Chart 1 illustrates the point, narrowing the focus to the eight states with minimum wages over $8.00 per hour.

United States Unemployment and Teen Unemployment by State Minimum Wage, 2011

Rhode Island

In 2011, the Ocean State’s teen unemployment was 28.3%, the worst in New England, and more than double its 2007 low of 12.9%. Meanwhile, the weekly hours of the average employed RI teen dropped from 10.0 to 6.1.

Putting Rhode Island in context requires an acknowledgment that it simultaneously has the most-sickly economy in New England and the second lowest minimum wage, in 2011. The $7.40 per hour the state mandated for the lowest-paid employees within its borders was higher than only New Hampshire’s rate, regionally. Increasing the rate to $7.75 this past legislative session pushed the Ocean State past Maine, as well.

At first glance, these comparisons would seem to contradict the notion that high minimum wages are associated with higher unemployment. As suggested above, however, minimum wage is a secondary factor and is not sufficient to save a state economy that is already failing.

In an update for the RI Center for Freedom & Prosperity of their 2010 study, “The Teen Unemployment Crisis,” economists David Macpherson (Trinity University) and William Even (Miami University) found that Rhode Island’s increase from $6.75 in 2005 to $7.40 cost the state’s teens 397 jobs in 2011. Of that total, 306 were lost to those without high school diplomas. As the Center reported in June, Macpherson and Even estimate that the additional hike, to $7.75 per hour, will cost Rhode Island’s teenagers another 200 job opportunities.

In total, that $1 raise will have cost about 2.7% of employed teens valuable work experience, increasing to about a 7.1% loss among those without high school diplomas.

Table 1 shows the dramatic drop in teen employment from 2002 to 2011. For perspective, the 2010 Census found 66,423 Rhode Islanders 16-19 years old — about 32,663 without high school diplomas.

 

Table 1
RI Teen Employment Trends by Age and High School Diploma
16-19, no diploma 16-19 18-20, diploma
Employment
2002 (%) 38 49 64.3
2011 (%) 19 32.4 49.2
Change (%) -50 -33.9 -23.5
Ave. hours/week
2002 6.7 10.7 19.3
2011 2.8 6.1 13.1
Change (%) -57.6 -43.1 -32.3
Hours/100 teens
2002 254.4 522.2 1,240.20
2011 54 196.5 642.2
Change (%) -78.8 -62.4 -48.2
Note:“Change” percentages may differ due to rounding.Source: Census Bureau & Bureau of Labor Statistics, Current Population Surve

 

Not only are fewer teens working, but those who have jobs are spending less time on them. The weekly hours worked per 100 teens in the total population captures the combined effects of these trends. Employment is evaporating from teens’ experience in Rhode Island.

Massachusetts shows that a high minimum wage doesn’t always correspond with high teen unemployment (see Chart 2). But if Rhode Island insists on imposing a high rate, it must take even more dramatic steps to improve its economy to counter-balance the downward pressure on employment.

U.S., Rhode Island, and Massachusetts Teen Unemployment, with Minimum Wage Changes, 2002-2011

One Solution: Eliminate Sales Tax

In early June, the RI Center for Freedom & Prosperity proposed its Zero.Zero plan to eliminate the state sales tax in Rhode Island.  Such a policy would be especially beneficial for teens.

The Center found that immediate elimination of Rhode Island’s sales tax would create 23,873 jobs. The data did not differentiate between industries or the demographic qualities of the newly hired workers, but it would be reasonable to predict that teenagers and other low-wage workers would benefit disproportionately and more immediately.

By far, Rhode Island teenagers are more active in the very industries that most feel the effects of the sales tax: retail and leisure and hospitality. Of teens who were working in 2011, 23.5% were in the retail industry, where they accounted for 8.8% of the workforce. Another 46.4% worked in the leisure and hospitality industry, accounting for 17.8% of all employees.

Altogether, 69.9% of working teens were in these two industries. Clearly, the healthier retail and leisure market in a zero percent sales tax environment would benefit the lowest-paid workers first, including Rhode Island’s young adults.

Conclusion

As with all of the challenges that it faces, Rhode Island has a choice between paths: the one we’ve been following and one that shifts decision-making back toward individuals working together in a less-regulated private economy. The first shifts resources under the control of government planners, and the second would allow Rhode Islanders to keep their money and make decisions in accordance with their own interests.

For all of the emphasis that the state has been placing on developing a “knowledge economy,” it has paid precious little attention to the need to foster work ethic and experience in its youth. Meanwhile, lavish public-school funding and special deals toward government-approved economic development have been requiring increasingly high tax burdens — in the form of the incrementally broadening sales tax, of ballooning property taxes, and of expanding licensing requirements and fees.

Instead, Rhode Island’s emphasis should be on getting people, especially young people, back to work, regardless of their field or pay scale.

***

MEDIA RELEASE: July 24, 2012

A 28.3% teen unemployment rate is sinking career building opportunities for Ocean State youth according to a report released today by the Rhode Island Center for Freedom and Prosperity. This unemployment rate has more than doubled in recent years to become the worst in New England, and demonstrating even further weakness in the teen sector, the report also highlights that the number of hours worked has dropped by over 40%.

“If our state is to rebound in the long term, we need our working-age youth to learn to become productive. As part of their transition into a career that fosters self-reliance, teens are looking for valuable workplace experience and resume building, in addition to a little pocket change”, said Mike Stenhouse, CEO for the Center. “Unfortunately our overly burdensome regulatory and tax structure, along with statewide minimum wage increases, are resulting in fewer opportunities for everyone and disproportionately harm our teens. This category would grade-out at yet another F for our state,” continued Stenhouse, referring to the Competitiveness Report Card published earlier this year by the Center.

According to the report, high minimum wage states had a 24.3% teen unemployment rate, compared with 21.7% for states at the federally mandated rate. Further, Rhode Island’s recent minimum wage hikes will cost almost 600 area teenagers a chance at an entry level job. Even for those young adults who were fortunate enough to find work, the average hours worked plummeted to 6.1 per week from 10.7.

As about 70% of working teens are hired in the retail or leisure/hospitality industries, the Center recommends two policy changes: lowering the state minimum wage rate to federal levels; and a phase-out the the state sales tax, which would not only reinvigorate the state’s economy, but would be especially favorable for the retail industry, creating new job opportunities for younger Rhode Islanders.

Today, July 24, is the National Day of Action to Raise the Minimum Wage. “The RI Center for Freedom & Prosperity categorically rejects this ill-informed policy push. A minimum wage hike is yet another regulation that strangles businesses; our report provides clear evidence of the negative, unintended consequences that meddling in complex economic issues can often bring about,” concluded Stenhouse.

The complete teen unemployment report can be downloaded from the Center’s website at www.RIFreedom.org .

Earlier this year, the Center published a policy brief detailing the negative effects of the state’s occupational licensing policies on opportunities for low income and entry level workers. Another report – Zero.Zero – detailed the positive economic effects of eliminating the state sales tax.

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.

EmployerMandate

Why RI Should Opt Out of Exchanges and Medicaid Expansion

Quick Links: download a printable PDF of this brief here;   go to our Healthcare home page here ; read our policy brief about a Healthcare Freedom Act here;   

News Coverage: GoLocalProv article – good discussion in the comments section

High Cost of State Implementation

The federal government’s healthcare law — the Patient Protection and Affordable Care Act (PPACA) — if fully implemented in Rhode Island, will impose a high cost for the Ocean State in terms of budgets, jobs, dependency, and privacy. In upholding the law as constitutional, the Supreme Court alleviated one very narrow area of uncertainty but did nothing to repair problems with the policy.

Rhode Island will experience multiple negative ramifications if a state-based exchange and the Medicaid expansion options are put into practice, including:

  • Unfunded budget costs that Rhode Island does not have the capacity to absorb
  • Job-killing employer mandates and penalties that would otherwise be avoided
  • Increased dependency on government for health care and other services
  • Government intrusion on privacy in the highly personal areas of healthcare and family finances

Despite its lofty claims, PPACA will not lower health care and insurance costs and will do nothing to increase the supply of quality healthcare services in our state. The law will also lead to new federal and state taxes and cost the economy even more jobs.

State officials are already envisioning the exchange as what might be termed a dependency portal. Using information that residents enter for the purpose of determining health program eligibility, the exchange will alert users to a menu of other benefits for which they qualify, expanding Rhode Island’s public welfare system to an unknowable degree.

Policy Recommendation

The RI Center for Freedom & Prosperity recommends that the state of Rhode Island halt its headlong lunge into expensive and intrusive policy changes concocted in Washington, D.C., and join with other states that have taken a more skeptical view of the promises of the poorly vetted health care reform.

  1. Repeal the executive order creating RI’s health benefit exchange and replace it with patient-centered, market-based reforms, as described in the Center’s Healthcare Freedom Act policy brief.
  2. Opt out of the Medicaid expansion program, declining partial federal funding that would increase dependency on publicly financed health care and lead to increased budget deficits.

The Health Care End Game

Within two hours of the Supreme Court’s determination that the Patient Protection and Affordable Care Act (PPACA) is constitutional, three Rhode Island public officials held a related press conference. Lieutenant Governor Elizabeth Roberts has made health care a focus of her time in office; Secretary Steven Costantino heads the Executive Office of Health & Human Services; and Christine Ferguson is the newly appointed director of the Rhode Island Health Benefits Exchange.

During the conference, the trio promoted the inchoate exchange as more than a Web site for comparing products. Rather, they described what small-government advocates might see as a dependency portal. Based on information that users provide in order to determine eligibility for health premium subsidies, the site would also offer other forms of public assistance and subsidies that they could claim.

The prudence of government’s promoting its services as if they were private-sector products is a matter of legitimate debate. But the idea of a dependency portal does highlight one critical fact: The exchange, and PPACA generally, will expand the size, cost, and scope of state government.

Compounding Government Costs

Much has been made of the federal government’s 100% coverage of direct expenses for expanding Medicaid under PPACA. All childless, able-bodied residents with household income below 133% of the federal poverty level (i.e., individuals below $14,856 in 2012) will for the first time be eligible for health care through Medicaid.

Under the assumption that the state and federal governments will be somewhat aggressive in promoting enrollment, the Kaiser Family Foundation estimates that these new Medicaid recipients in Rhode Island will cost an additional $1.8 billion from 2014 to 2019, or about $301 million per year. However, costs will not be evenly distributed across those years, with increasing participation as time goes on. In 2019, the total cost for these newly eligible Medicaid recipients will be approximately $414.0 million.

The federal aid covering the Medicaid expansion will have phased down from 100% in 2014 to 90% in 2020. Therefore, in the unlikely event that total Medicaid spending does not increase from 2019 to 2020, the annual cost to Rhode Island taxpayers that year will be about $41.4 million. (The RI Center for Freedom & Prosperity inferred this annual total using the ratio of total state and federal spending in 2019 to total state and federal spending for 2014-2019, as provided in Table 4 on page 38 of the Kaiser report.)

But that total doesn’t account for the “woodwork” effect, which suggests that people who are currently eligible for Medicaid but have not applied will do so as implementation of the reform draws attention to the program. In Rhode Island, this population includes:

  • All children under 19 and pregnant women in house-holds at 250% of the poverty level, as well as all parents with children under 18 and household income below 175% of the poverty level.
  • Seniors (over 65) and disabled adults who qualify for Supplemental Security Income (SSI) or have income below the federal poverty level and have limited resources.

The federal government will assist with this new spending at its standard rate, which Kaiser estimates at 53-1/8% for Rhode Island over the six years, leaving the state to cover $30 million of the $64 million tab. (Note that the latest RI Executive Office of Health and Human Services Annual Medicaid Expenditure Report puts the federal contribution “typically” at 52.47%.)

Again, this spending will not be evenly distributed by year. With the same assumptions for 2020 as above, the annual cost to the state at the end of the examined period will be $6.9 million. In total, therefore, the Medicaid expansion portion of PPACA will represent new annual service costs to the Rhode Island taxpayer in the neighborhood of $48.3 million.

A third cost component that must be added to the total is administration. A 2010 Heritage Foundation study found that “administrative expenses add an average of 5.5 percent in addition to total (federal and state) benefit costs, and that, on average, the federal government pays 55 percent of total administrative costs.”

Taking all of these factors into account, the push for expanded enrollment will result in around $452.3 million in annual Medicaid spending. Of that, the State of Rhode Island will be responsible for $58.9 million in 2020. At that time, about one in four Rhode Islanders will be directly dependent on the Medi-caid program for health care.

The good news, from the Supreme Court’s ruling, is that states cannot be forced to participate in the expansion through the threatened loss of all federal Medicaid assistance.

Exchanges: More Costs

Where Medicaid leaves off, at 133% of the federal poverty level, subsidized premiums through the health care exchange will pick up, providing public money to families up to 400% of the poverty level. That’s $92,200 for a family of four, in 2012. The subsidies will come via advance federal tax credits, but there are five major cost factors of concern at the state level.

First, federal assistance toward start-up and operation expenditures for exchanges will end after 2014. Stan Dorn, of the Urban Institute, notes that states will thereafter have to come up with some reliable funding source — perhaps “surcharging insurance premiums; assessing health plans, employers, or individuals; appropriating state General Fund dollars; or otherwise.”

In Massachusetts, as part of its recent state-based health care reform, the exchange charges participating insurers a fee equivalent to 3% of premiums. Writes Dorn, “The insurers then pass on this cost to purchasers of coverage.”

Second, Rhode Island taxpayers will have to subsidize costs, through the exchange, associated with benefits that the state requires plans to offer beyond federally designated “essential benefits.” According to the RI Center for Freedom & Prosperity, Rhode Island leads the nation in health care mandates.

Third, state-based exchanges will be the mechanism for imposing penalties against “large” businesses (those with 50 or more employees) that either do not offer health benefits or that require employees to share more than a federally designated maximum amount of their cost.

Consider a business with 50 employees who work at least 30 hours per week, but that is unable to provide health care benefits beyond its other compensation. If a single employee acquires a subsidy through a state-based health benefit exchange, the employer will be responsible for $40,000 in annual penalties. For many, that will be substantially higher than the costs of hiring an additional employee.

Fourth, PPACA imposes tighter “community rating” standards on the individual and small group markets, within and outside of exchanges. Broadly speaking, in the “small group” market (employers with 100 or fewer employees), Rhode Island’s already-restrictive statutes forbid insurers from varying their premium costs by more than four times. That is, one family plan covering a spouse and children cannot differ by more than four times another such plan. PPACA reduces the differential to three times and limits family types to “individual” and “family.”

Plainly put, community rating lowers prices for plan members who actuarially should pay higher premiums by increasing them on those who should pay lower premiums.

This relates to the exchanges because, if Rhode Island decides to open its exchange to large groups, then the community rating scheme will apply to all such plans in the state for the first time ever. This rule apparently applies even if no insurers utilize the exchange for this purpose.

Finally, state officials’ vision of an expanded dependency portal will produce an unknowable increase in recipients of food stamps, cash payments, and other forms of public welfare whom the exchanges rope in as a bonus feature. These costs will span multiple layers of government and will be compounded to the extent that they require additional expenses to administer and maintain.

None of these five cost drivers applies if the state does not initiate and maintain a health benefit exchange.*

Danger Cubed: More Regulation, Less Freedom, Lost Privacy

Arguably more substantial than the direct financial costs of the Medicaid expansion and health benefits exchange is the danger created through the new authority that PPACA grants to the state and federal governments.

That danger comes first through dependency. Under the Medicaid expansion, 25% of Rhode Islanders will be direct wards of the state, when it comes to health care. Under the state exchange, up to 57% of Rhode Islanders will be eligible for health care handouts. And the expanded menu of the dependency portal will deepen families’ reliance on the state.

The danger comes second through a new ease of regulation. As health benefit exchanges absorb a greater percentage of the industry, local and national bureaucrats will be able to introduce new mandates and requirements not as legislation passed by duly elected members of the General Assembly or Congress, but simply as new requirements in order for plans to qualify for the exchange. Alternatives will be increasingly diffi-cult to procure, and costs will be forced upwards.

The danger comes third through the loss of privacy and financial intrusion. In order to qualify for Medicaid coverage and health care subsidies, Rhode Islanders will regularly have to inform the state about minute details of their lives. Indeed, it is likely that even families that receive no assistance at all will be faced with the same standardized application process.

In this way, two of the most intimate aspects of a person’s life — finances and health — will be collected through a single agency in a single location for the great majority of Rhode Islanders.

Conclusion

For all of this expense and intrusion, the state will not likely experience any reduction in the overall cost of health care, and Rhode Islanders will likely see the quality and availability of the care that they receive worsening. A Beacon Hill Institute study of Massachusetts’ health care reform, after which much of PPACA was modeled, found cost increases across the board — in and out of government, in an out of public assistance programs, and across tiers of government.

The reason, according to the researchers, was that the reform increased the demand for health care services without increasing the supply. The most alarming manifestation of this dynamic appeared in the state’s emergency rooms.

Across the country, there has been a noticeable decline in enthusiasm for exchanges among states that had begun work on them shortly after PPACA passed Congress. North Dakota, New Hampshire, Idaho, and South Carolina are among the states resisting the federal timetable to implement these insurance “marketplaces.” Kaiser Health News reports that, by the end of June, “only 14 states and the District of Columbia have so far passed legislation authorizing the exchanges.”

At Rhode Island Lt. Governor Roberts’s June 28 press conference, the three public officials made the familiar point that the availability of preventative, regular care might reduce the utilization of more-expensive emergency services. To the contrary, with wait times likely to increase for family physicians, and with greater portions of the population accessing subsidies for premiums and other expenses, the savings for which Rhode Islanders are being asked to sacrifice privacy and self-reliance may never materialize.

 

* Whether employer penalties ultimately depend on state-initiated exchanges is likely to be the subject of political dispute and litigation. However, the penalties are triggered by employees’ receipt of premium assistance, and PPACA Sec. 1401, which creates those subsidies, refers to “an Exchange established by the State under 1311.” Sec. 1311 describes state-initiated exchanges, but not federally initiated exchanges. It is Sec. 1321 that empowers the Secretary of Health and Human Services to create a federal exchange for use in a state.

Minimum Wage Hike Will Cause Loss of 200 Teen Jobs in RI

Watch this video by LearnLiberty.org to see how increasing the minimum wage increases unemployment among low-skilled workers

On the heels of a national report that painted a bleak employment picture for teens, the Rhode Island Center for Freedom and Prosperity issued a policy note today that shows that the Rhode Island General Assembly has made the teen jobs situation even worse in the Ocean State when it raised the state minimum wage by 35 cents to $7.75.

 According to updated data made available to the Center from an earlier study(i) by nationally recognized economists, Rhode Island teens are projected to see 200 fewer jobs this year as a result of the minimum wage hike. This loss, 1% of teens employed in 2011, will hit especially hard on those who do not have high school degrees; this group is expected to suffer 75% of the anticipated loss.

Rhode Island’s teen unemployment rate in 2011 (28.3%) is already 3.4 percentage points higher than the national average of 24.9%. The minimum wage increase will make this discrepancy even worse.

The data, which will be part of a more comprehensive teen employment report the Center plans to release in July, is “yet another example of the death-by-a-thousand-cuts syndrome that is depressing our state’s growth,” said Mike Stenhouse, CEO for the Center. Continual small increases in taxes and regulations are often implemented for compassionate reasons, but it is the contention of the Center that the cumulative effect of these polices has been devastating for area businesses, for the state’s economy, and especially for those seeking work.

“Imagine that because of this minimum wage increase two hundred more Rhode Island teens are not going to have the chance to earn a paycheck, to learn important business skills, or to build their personal résumés,” concluded Stenhouse.

(i) “Update of Evan and Macpherson, 2010.” Economists David Macpherson (Trinity University) and William Even (Miami University) released a study in 2010 that examined the impact of the federal minimum wage increase between 2007 and 2009. 
 
Media Coverage:
6/19/2012: Prov. Business News, Minimum Wage Bump Will Cost 200 Jobs
6/19/2012: GoLocalProv, Minimum Wage Hike Will Cost 200 Teen Jobs, Group Says

RI Needs a Criminal Intent Rule to Protect Innocent Citizens

Criminal Penalties Should be Levied only on those with a Guilty Mind

 

Download the full Policy Brief here …

No person should be convicted of a crime without the government proving that he or she intended to violate a law or knew that his or her conduct was unlawful. Generally, criminal offenses under Rhode Island law include such specific standards, but if they don’t, then a default requirement should apply. The Rhode Island Center for Freedom & Prosperity supports state efforts to protect citizens from unjust punishment because of ambiguous and poorly-drafted criminal offenses.

There are myriad factors required to ensure a fair and just criminal justice system: both the United States’ and Rhode Island’s Constitutions protect the rights of the accused to counsel, speedy trials, and due process, among other guarantees. But those constitutional protections exclude one notable aspect of a fair criminal justice system, which may be so fundamental that it escaped constitutional inclusion in the heady days of constitution writing.

Our full Policy Brief discusses these issues in greater detail.

According the Report Card on Rhode Island Competitiveness, our state grades out at an “F” in the categories of State Lawsuit Climate and in Domestic Migration. Passage of the protections recommended in this Policy Brief would help ensure that a high profile legal case based on some obscure law might not further deter people and businesses from remaining in or moving to the Ocean State.

Our Policy Brief was published on the RIGHT ON CRIME website …

The quid-pro-quo cycle of Cronyism

Center for Freedom Calls for End to Corporate Welfare in RI

38 Studios–Type Cronyism Is Not Capitalism

Introduction

Put simply, crony capitalism is the transfer of public money to businesses and organizations through the peddling of influence. Cronyism gives free markets a bad name, since it can be difficult to determine whether true competition exists or the game has been rigged.

A more appropriate term might be “venture socialism” or the more familiar “corporate welfare.” Whatever its name, the concept involves a less efficient economy — making us all poorer and reducing economic opportunity for our citizens.

Download a PDF of the Policy Brief here.

Unfortunately, cronyism has defenders on both sides of the political aisle because its proponents are on the receiving end of the short-term benefits.  Politicians reward their “friends” with all kinds of publicly provided treasures, from subsidies to exemptions from regulations to loopholes in the tax code. In 2008, we witnessed hundreds of billions of dollars spent on the bailout of major Wall Street firms. A more-recent example of a half-billion dollar investment gone bad has given a name to politically correct green industry schemes: Solyndra.

Given its insulated political culture, Rhode Island is certainly not exempt from cronyist deals and boondoggles. Beginning in the 1990s, corporate giants CVS Caremark and Fidelity Investments have received a bevy of tax breaks and subsidies to build or expand national or regional headquarters.

During the last decade, debates raged about the $300-million-plus ratepayer-funded Deepwater Wind project, a Twin River casino bailout, and the $75 million loan guarantee to Curt Schilling’s 38 Studios. In the past week, Schilling’s video game company has offered a uniquely clear example of the risk that targeted public investments will never produce a positive return on investment for taxpayers.

Taxpayer or ratepayer dollars should not be randomly put at risk to finance politically connected corporate interests. It’s time to replace corporate welfare programs with a broad-based growth program.  It’s time to end the handouts and create a pro-job, pro-business structural environment for economic growth in Rhode Island.

Policy Recommendations

As just one step in reducing the size and scope of government in the Ocean State, the RI Center for Freedom & Prosperity recommends that the State of Rhode Island:

  1. End the practice of corporate welfare in the General Assembly
  2.  Defund the Economic Development Corp. (EDC), preventing it from spending or putting at risk any taxpayer dollars

One of the great mistakes to which policymakers often fall victim is judging public policy programs by their intent rather than their results. Such an approach minimizes the consideration that serious unintended consequences ought to carry in subsequent policy decisions.

Rhode Island should roll back many of its so-called economic development incentive programs, whether in the form of subsidies on the expenditures side of the ledger or loopholes on the tax side.  Any economic development program that cannot be objectively shown to create jobs that generate more in-state revenue than they cost should be repealed.

The savings from the ended programs should be used to enact across-the-board improvements of state competitiveness by reducing the Rhode Island’s stratospheric tax rates to more-competitive figures. For instance, Rhode Island’s corporate income tax rate and sales tax rate are the highest in New England, putting the state at a serious economic disadvantage.

Furthermore, ending the practice of cronyism will reduce the special interest and corporate lobbying that pervades Smith Hill and will send a message that taxpayer dollars can no longer be traded for political support and campaign contributions.

Background/Overview

A key critique of market capitalism often revolves around the undue relationship between powerful corporations and the government, resulting in policies, legislation, and regulations that appear to benefit the well-connected at the expense of the public.  This critique — though often labeled an inherent failure of capitalism — is a function of an outsized government.

The relationship is intuitive: A government with more power over the economy creates more opportunities and greater rewards for lobbying. In turn, influence over an entity with the power to regulate, tax, and police brings access to competitive weapons not available in a free market.

Indeed, the lion’s share of blame for the current economic crisis can be laid at the feet of connected business interests’ feeding on the fruits of the public commons while pushing the risk onto the public.  National examples are most prominent in our minds.

When the housing bubble popped in 2008, Washington-connected Wall Street firms won taxpayer bailouts and bonus checks while the working Americans who paid the bill received pink slips and empty promises. And by most measures, those same firms are now more profitable than ever; industry data shows that President Barack Obama’s first two and a half years in office have been more profitable for Wall Street than George W. Bush’s entire eight years in office.

This is not simply a crisis of bad banks run amok, but an unsettling symptom of cronyism. Cronyism, by its very definition, implies a situation in which the system (i.e., the government and the institutions it establishes), rather than the choices of consumers, picks the winners and losers.

While Rhode Island’s economic climate is demonstrably bad for business (Rhode Island ranks 45th in the Fraser Institute’s Economic Freedom of North America 2011 index), a number of tax credits, incentive packages, and corporate welfare programs benefit a few chosen firms while the rest are forced to languish within a suffocating structural environment.

Targeted incentives are sometimes viewed as legitimate instruments for economic development, but a genuine program for broader growth would allow the state to close many of these loopholes in favor of broader reforms that ease the economic burden across the board.

The Research

Every day, taxpayer money is being funneled to organizations and enterprises that someone in government has decided are worthy of patronage, whether they need it or not.  Worse, this kind of cronyism is not merely limited to a series of one-off deals, but is systematized on every level in the form of grants, tax credits, sweetheart loans, loan guarantees, and other preferential treatment.

According to GoodJobsFirst.org, a left-leaning economic development accountability resource, Rhode Island taxpayers paid out almost $50 million in related costs for fiscal year 2010, including:

  • Corporate income tax rate reduction for job creation
  • Enterprise zone tax credits
  • Job training tax credit
  • Manufacturing and high-performance manufacturing investment tax credit
  • Motion picture production tax credit

Worse, disclosure and reporting on these programs are well below what anyone would expect in return for $50 million.  In a series of transparency benchmarks measuring program outcomes, data availability, and accessibility, the average Rhode Island program produced a woeful score of only 36 out of a possible 100 points.

These are only a few of the higher-priced programs.  At present, a startling number of programs are on the books to divert taxpayer money to targeted businesses and industries, accounting for tens of millions in additional handouts with little or no objective standards or accountability. Some of the others include:

  • Distressed Areas Economic Revitalization Act and Enterprise Zone Program
  • Jobs Development Act
  • Rhode Island Public Rail Corporation
  • Child Day Care Facilities in Industrial Parks Grant Program
  • Jobs Training Tax Credit Act
  • Urban Infrastructure Commission
  • Mill Building and Economic Revitalization Program and Tax Credits
  • Jobs Growth Act
  • Petroleum stockpiling program
  • Small Business Advocacy Council
  • and many, many more.

While each carries a plausible justification and positive intended outcome (who could be against child care?), they are all simply variations on the crony-capitalism theme.

Discussion

John Stossel, the libertarian journalist of 20/20 fame and program host on Fox Business News, penned a provocative and compelling piece for Reason magazine in March 2004 titled “Confessions of a Welfare Queen.” Rather than documenting now-familiar stories of individual welfare abuse, as the allusion to Ronald Reagan’s famous “welfare queen” quip suggests, Stossel turned his sights on the multilayered fabric of lavish subsidies for the rich and cronyism.

From bizarre payouts to beachfront homeowners to abuses of eminent domain to unfair subsidies for agro-corporations, Stossel explains how these programs are not examples of market failure, but simply the symptoms of the increasing investiture of power into government, especially over ever-greater swaths of the economy.

Americans who decry cronyism as a betrayal of the social contract are correct: The iron triangle linking lobbyist-rich companies and organizations, campaign contributions, and government policy is a burden on our economy and a drag on our democracy. Too often missed, however, is that regulatory solutions just hand over new car keys and more drinkable money to the hooligans who repeatedly steer the economy into a ditch.

The only solution that can work is to limit the government’s ability to mismanage taxpayer funds; that means cutting back on the size, scope, and domain of government. The most vocal opponents of ending cronyism are, predictably, those who benefit most from the system. They, along with well-meaning but misguided allies, will generally contend that targeted systems of tax breaks and incentive programs are useful for directing policy mechanisms toward specific, concerted ends and that Rhode Island needs these incentive programs to be nationally competitive.

Two fallacious premises support these arguments: first, that public policy instruments are the best available means of achieving common ends and, second, that a labyrinth of programs is a suitable way to attract and develop economic activity. These fallacies, in tandem with the frenetic and sound-bite oriented nature of contemporary media, contribute to the idea that most problems have public sector solutions. This is particularly common in the realm of economics, precisely the area over which a market capitalist system would give the government the least control.

Again and again purported plans for “economic development” have been used to justify programs and incentives that ultimately do little to boost economic growth.  But because spending and special-project support create the illusion of forward movement, beneficiaries can brand the efforts as “doing something.”  What corporate welfare actually does, however, is to tip the scales toward the already rich at the direct expense of the poor and middle class.

Ultimately, government remains wedded to the language and practice of inputs — what it gives and does — because it has very little competence generating or measuring outcomes.  Advocates tend to point to inputs as measures of success — the dollars spent, the teachers hired, the police stations built. Then they trumpet or downplay economic trends, educational accomplishment, and as suits their needs.

Tax breaks and incentives may seem like positives from the input side, but their non-anecdotal outcomes show them to be generally a waste of money.

Conclusion

It’s hard to argue against economic development.  Who doesn’t want the economy to “develop”? But the sad truth is that sending public money to politically-connected organizations, interest groups, and companies on the basis of poorly measured and ill-defined goals is more of a handout than a strategy.  If Rhode Island is serious about promoting economic growth, this kind of piecemeal approach should be seen as expensive and insufficient.

Instead of using targeted tax breaks, incentive grants, and other wizards’ tools to trade away taxpayer funds, Rhode Island should focus on creating a growth-oriented structural environment.  That means replacing isolated pockets of preferential treatment with an across-the-board slate of policies to support growth:

  • Reduced tax rates
  • A more nimble and versatile education system to produce a highly trained workforce
  • Eliminated regulations, streamlined when they are absolutely necessary

Any economic development program that cannot be objectively shown to create jobs and generate more in-state revenue than they cost should be repealed. The savings should be allocated to more general improvements, especially lowering taxes.

Rhode Island’s corporate tax rate remains the highest in New England and is tied for third highest in the country, after Washington, D.C. and Illinois.

Rank in New England

Corporate Tax Rate (%)

Rhode Island

1

9.0

Maine

2

3.5–8.93

New Hampshire

3

8.5

Vermont

4

6.5–8.5

Massachusetts

5

8.25

Connecticut

6

7.5

 

Another area in which Rhode Island is uncompetitive is its state sales tax, which is the highest in the region and tied for second in the country. A study to be released shortly by the RI Center for Freedom & Prosperity will demonstrate that eliminating the sales tax would have the highest “bang for buck” of any reform, creating tens of thousands of jobs and paying for over half of its cost with the increased tax receipts of a larger economy.

Rank in New England

State Sales Tax Rate (%)

Rhode Island

1

7

Connecticut

2

6.35

Massachusetts

3

6.25

Vermont

4

6

Maine

5

5

New Hampshire

6

0

 

These are just a few of the low-threshold starting points for reform. If Rhode Island seeks to distinguish itself as a pro-growth state, it should depart from crony capitalism and unleash the true capitalistic forces in the state.  Fortunately, much of the government cost of the necessary policy changes can be borne by elimination of the special deals and crony-capitalism style programs that infest our state with false promises of a better tomorrow.

To the population more broadly — to the people of Rhode Island — there will be no cost, but rather the benefits of a thriving economy.

Occupational Licensing Policies Hurt Low Income Workers in RI

Cosmetologists require 10 times more training than Emergency Medical Technicians

The state of Rhode Island has earned yet another poor grade in a national study of an important business category, illustrating how the state makes it more difficult and costly for low-income earners to embark on new careers. The study, released last week by the Institute for Justice (1) , measures regulatory burdens in the form of licensing requirements and fees for “low-income” occupations.

According to the study, Rhode Island licenses 49 of the 102 “low-income” occupations, which ranks the Ocean State with the 13th most burdensome regulatory system in the nation in this category and the 2nd highest burden in New England.

“This burden is especially harmful to many people who would prefer to start new careers and earn paychecks instead of receiving welfare checks,” said Mike Stenhouse, CEO for the Rhode Island Center for Freedom and Prosperity. “In most cases, landing a job should simply entail proving to the employer that you’re talented and honest. In too many instances, Rhode Island applicants also have to also prove themselves worthy to the state, by conforming to its arbitrary standards. Who’s really in charge of our lives?” inquired Stenhouse.

An “occupational license” is government permission to work in a particular field. To earn the license, the aspiring worker must clear various hurdles: earn a certain degree or type of education, complete specialized training, pass an exam, attain a certain grade level, pay fees, and more.

In the 1950s, only one in 20 U.S. workers needed the government’s permission to pursue his or her chosen occupation. Today, that figure stands at almost one in three.

In Rhode Island, under the guise of public safety, the state government took $732,298 from taxpayers in FY 2011 to fund the Department of Business Regulation’s Commercial Licensing and Racing and Athletics program (2) . The program oversees the licensing and regulation of myriad professions and trades, slapping fees and regulations on thousands of Rhode Island employers and workers. In many cases, the Commercial Licensing program governs the requirements necessary for employment in a profession, inhibiting some Rhode Islanders from pursuing the careers of their choice.

The Commercial Licensing program regulates real estate agents and appraisers, auto body shops, salvage yards, glass installation, upholsterers, auctioneers, liquor wholesalers, breweries, wineries, sewer-line cleaners, mobile-home dealers, trailer park operators, and health club workers as well as other businesses and professions.

Supporters of the Commercial Licensing program may claim that the organization has a role in keeping customers safe. In truth, the program creates a disincentive for competent workers to begin new careers or for employers to hire them, while forcing companies to raise prices for consumers across the state.

On average, prospective workers and employers in Rhode Island pay $164 in fees, lose about 211 days — about seven months — to education and experience, and take one exam. A handful of Rhode Island occupations require excessive training requirements compared with other states. For example:

  • Rhode Island has the most burdensome laws for HVAC contractors, requiring over five years of experience. The average across licensed states is less than two-and-a-half years.
  • Rhode Island is one of only eight states to require that truck drivers and city/transit bus drivers possess driver’s licenses for a year or more prior to licensure. It is also one of 20 states with a similar requirement for school bus drivers, and Rhode Island’s is among the longest, at three years. Other states require only tests, fees, a minimum age and in some states a short course or training session for these occupations.

Some of Rhode Island’s requirements also appear overly burdensome compared to other occupations that the state licenses. For example, it takes only 37 days of training to become an emergency medical technician, but nearly twice that time to earn a manicurist license. Barbers, cosmetologists, skin-care specialists and massage therapists must undergo even more training.

Rhode Island could expand employment prospects for many job-seekers by reducing or removing overly burdensome or needless barriers to low- and moderate-income jobs. Per the Competitiveness Report Card release for Rhode Island earlier this year by the RI Center for Freedom & Prosperity, the Ocean State already grades an “F” for overall Business Climate, with five Fs and one C- in related subcategories. The D- grade in this subcategory would further deepen the problem.

The following table shows the study’s analysis for Rhode Island.

Institute for Justice Analysis of Rhode Island Licensing Requirements

The study also reveals the arbitrary and irrational nature of licensure across the nation:

  • Most of the 102 occupations are practiced somewhere without government permission and apparently without widespread harm: Only 15 are licensed in 40 states or more, and on average, the 102 occupations are licensed in just 22 states — fewer than half. This includes a number of occupations with no self-evident rationale for licensure, such as interior designer, shampooer, florist, home entertainment installer, and funeral attendant.
  • Licensure burdens often vary considerably across states, calling into question the need for severe burdens. For instance, while 10 states require four months or more of training for manicurists, Alaska demands only about three days and Iowa about nine days.
  • The difficulty of entering an occupation often does not line up with the public health or safety risk it poses. For example, 66 occupations have greater average licensure burdens than emergency medical technicians. The average cosmetologist spends 372 days in training; the average EMT only 33. Such inconsistencies give good reason to doubt that many licensing schemes are necessary. These inconsistencies may reflect not the relative public health and safety risks of occupations, but instead the lobbying prowess of practitioners in securing laws to shut out competition. State policymakers should review current and proposed licensure schemes to determine whether they truly serve the public or instead fence out competition. As millions of Americans struggle to find productive work, one of the quickest ways legislators could help would be to reduce or remove needless licensure burdens.

End Notes:

(1) “License to Work”, Institute for Justice , 2012, http://www.ij.org/images/pdf_folder/economic_liberty/occupational_licensing/licensetowork.pdf

(2) State of Rhode Island and Providence Plantations. “Budget Fiscal Year 2012.” p. 67

The Institute for Justice is a nonprofit, public interest law firm that litigates to secure economic liberty, school choice, private property rights, freedom of speech and other vital individual liberties and to restore constitutional limits on the power of government. Founded in 1991, IJ is the nation’s only libertarian public interest law firm, pursuing cutting edge litigation in the courts of law and in the court of public opinion on behalf of individuals whose most basic rights are denied by the government. The Institute’s strategic research program produces social science and policy research to inform public policy debates on issues central to IJ’s mission.