OceanStateCurrent.com

JUST LAUNCHED! The Ocean State Current is now live!

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Visit The Ocean State Current – our Center’s new News Bureau – at www.OceanStateCurrent.com

February 28, 2012

Providence, RI — The Rhode Island Center for Freedom and Prosperity today launched its independent, nonpartisan news bureau, The Ocean State Current, which can be accessed at www.OceanStateCurrent.com. “The Current seeks to integrate with the existing community of local news providers in all media in such a way as to find stories and convey perspectives that might otherwise be overlooked,” writes Managing Editor Justin Katz on the site’s “About the Current” page.

The Center anticipates that Katz will become a familiar face throughout Rhode Island, as he covers events, investigates government actions, analyzes policies, and interviews not only public figures, but also Rhode Islanders with interesting stories to tell.

“Justin’s experience finding innovative ways to use the Internet to disseminate and debate issues of public concern makes him the ideal person for this role,” said Center for Freedom CEO Mike Stenhouse.

Although their relationship is one of funding and mutual support, the Current will enjoy wide latitude for independence from the Center. “We look forward to co-operating with Justin as we seek to expand the information available to Rhode Islanders,” Stenhouse said. Added Katz, “I began by self-publishing and building my own forums, so I’m used to writing on my own terms. Happily, both the Center for Freedom and The Current advocate thinking for yourself and standing on principle.”

As one of the founding contributors to AnchorRising.com, Katz has grown a substantial audience for his policy analysis and political and social commentary. He has published regularly in such venues as the Providence Journal, National Review Online, and Rhode Island Catholic and was featured in Proud to Be Right: Voices of the Next Conservative Generation (HarperCollins, 2010), edited by Jonah Goldberg.

“I definitely have a point of view,” said Katz, “but for the core content of The Current, I intend to pull it back to where it will only enable me to ask questions and follow leads that others might not consider.”

Topics likely to be covered on The Ocean State Current include:

* Capitol Hill legislation and related issues

* State budget and spending

* Education reform

* Human interest and other public policy stories

The Current’s website can be found at http://www.oceanstatecurrent.com/ .

RELATED MEDIA COVERAGE:

The Providence Phoenix:  Conservative Think Tank to Launch Journalism Project

Providence Business News – Conservative think tank to launch website

Providence Journal – Anchor Rising blogger to head think-tank news website

GoLocalProv.org – Conservative Think Tank Launching Journalism Site

 

Tax the Rich Schemes Don't Work

Tax-the-Rich Proposal Contradicts Itself

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Income Tax Hike on Wealthy would Cost Jobs and Fall Short of its Goal

Download a PDF of the Policy Analysis here … 

Background: In February 2012, a bill was submitted in the Rhode Island House of Representatives that would raise income taxes on individuals making over $250,000 in order to raise $118 million for social safety net programs. The bill includes a provision that the income tax hikes on the wealthiest Rhode Islanders would be temporary, in that those taxes would be gradually reduced as the unemployment rate drops. This concept is a contradiction in itself. Additionally, the bill would be poor public policy for our state, and the bill would not achieve its stated goal.

Analysis: Given the Ocean State’s fragile economy, any rise in taxes will put downward pressure on economic activity and will tend to raise the unemployment rate. A tax plan that is contingent on a decrease in the unemployment rate, but which itself serves to increase the unemployment rate, is contradictory and counter-productive.

An analysis by RI-STAMP (an economic modeling tool utilized by our RI Center for Freedom & Prosperity) of this proposal to raise income taxes by 4% on Rhode Islanders with the highest incomes, is projected to yield the following results and unintended consequences [1]:

• $13 million less than the $118 million in state tax receipts anticipated (or $105 million net)

• Loss of 1,372 jobs, increasing the unemployment rate by about ? of 1% (see Report Card reference)

• Loss of about 1,000 residents (0.09%, see Report Card reference)

Explanation: As with the laws of physics, economic laws are not easily changed by public policy. When something is taxed, it costs more, and the result will be less of it.

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

In summary, this tax hike plan will not reach its intended goal, as lower revenues will be realized and the state’s tax base will be reduced, while at the same time increasing the number of people who will qualify for or request aid.

Rhode Island’s Competitive Status: Other proposals to tax the rich have also been floated in the state, most with the aim of raising enough new revenues to fund planned spending levels.

The stated position of the RI Center for Freedom is that balancing the budget is the wrong goal for the Ocean State.

Seeking to balance the budget tacitly approves the current budget, and signifies that current spending and tax levels are effective for our state … they are not. The Competitiveness Report Card recently published by our Center illustrates how broadly non-competitive Rhode Island has become as compared with our New England neighbors and nationally.

The Ocean State’s tax burden and overall business climate already grade out at “F” … any increase in the income tax, would make this dire situation even worse.

In fact, in the area of ‘Personal Income Tax Rates’, Rhode Island currently grades a “C”; one of only two areas in the entire Tax Burden category that is not an “F”. By raising the income tax as proposed, this area would itself become an “F”, worsening our already dismal competitive standing … and imposing yet another stigma on Rhode Island as an excessively high tax state, even by New England standards.

In the sub-categories of Population Growth and Net Domestic Migration, Rhode Island also grades “F”. Our state cannot afford to lose more population by driving or keeping people out due to a higher income tax.

This kind of incremental tax-hike thinking, repeatedly over the recent decades, is what has steadily degraded the Ocean State’s ability to compete for the human and capital resources that are required to reinvigorate and grow our economy.

The message from this tax increase would be clear to businesses and individuals who have the mobility to move to or settle in other states … Rhode Island imposes a hostile level of taxes.

Alternative Recommendation: If instead, we would prefer to hang a “welcome” sign, the State must find the courage to cut taxes … and to cut spending. This is the best way to improve our standing in New England. This alternative line of thinking can help reverse the outflow of people and money from our state, and will help us attract the new investment in our state that is necessary to see our business sector expand so as to provide good jobs for our citizens.

Conclusion: A policy of tax “reduction” is consistent with an unemployment rate decrease. This proposed policy of tax “increase” is contradictory to it.

WHAT IS RI-STAMP?

Developed by the Beacon Hill Institute at Suffolk University, RI-STAMP is a customized, comprehensive model of the RI state economy, designed to capture the principal effects of city tax changes on that economy. In general STAMP is a five-year dynamic computable general equilibrium (CGE) tax model. As such, it provides a mathematical description of the economic relationships among producers, households, government and the rest of the world. It is general in the sense that it takes all the important markets and flows into account. It is an equilibrium model because it assumes that demand equals supply in every market (goods and services, labor and capital); this is achieved by allowing prices to adjust within the model (i.e., prices are endogenous). The model is computable because it can be used to generate numeric solutions to concrete policy and tax changes, with the help of a computer. And it is a tax model because it pays particular attention to identifying the role played by different taxes [2].

End Notes

 [1] The RI-STAMP model does not break out incomes at the “$250,000 and higher” level. We determined it would be a more accurate simulation to project the impact of a general $118 million income tax increase, in lieu of a 4% raise on the model’s “$125,000 and higher” level.

[2]  The Beacon Hill Institute, What Is STAMP?; http://www.beaconhill.org/STAMP-Method/STAMP.pdf

Media Event: Report Cards passed out today at Statehouse

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MEDIA EVENT

WHAT:    State Report Cards Handed Out
WHEN:    Thursday, February 16, 3pm-4pm
WHERE:  RI Statehouse Rotunda

Providence, RI — Legislators, staffers, and passers-by will have their competitiveness report cards handed out to them this afternoon at the Statehouse, but it is doubtful that many will want to take them home, as the Ocean State has graded 28 Fs, 11 Ds, 9 Cs, and just 1 A.

The Rhode Island Center for Freedom and Prosperity, which released the Report Card on Rhode Island Competitiveness on Tuesday, will be at the Capitol from 3pm-4pm this afternoon (Thursday) handing out hard-copies. The media is invited to attend to talk to citizens as they receive their report cards, or to ask questions of the Center’s CEO, Mike Stenhouse. The public is also welcome to attend and receive a copy.

 “This dismal report card represents a general failure, both on behalf of legislators who have allowed our tax and regulatory structure to become so utterly non-competitive with our neighboring states, and on behalf of voters who have been asleep at the switch”, said Stenhouse. “There has been a very strong response to the report card from citizens, advocacy groups, and even from the RI-GOP, which chose to include our report card at their recent press conference as evidence of the decrepit state our economy. I think it will be interesting to see how some of our citizens react.”

The complete report card, with data sources and notes, can be downloaded from the Center’s website at http://www.rifreedom.org/2012/02/rhody-fails-report-card/  .

***

The Rhode Island Center for Freedom and Prosperity is the state’s leading free-enterprise public policy think tank. Non-partisan, yet firm in its belief that freedom is indispensable to citizens’ well-being and prosperity, the Center for Freedom’s mission is to restore competitiveness to Rhode Island through the advancement of market-based reform solutions.

The Report Card was reviewed and edited by nationally renowned economist, Scott Moody, who will not be on hand at today’s event.

 

Right To Work

Right To Work = Freedom for RI Workers

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Freedom of Association for Ocean State Workers

Introduction

Today, in 23 states in America, workers have the freedom under “Right-to-Work” (RTW) laws to decide whether or not to pay union dues. Indiana became the twenty-third state on that list in February of 2012, bringing the workers of the Hoosier State renewed hope in an economy that has seen few glimmers of light.

Rhode Islanders are suffering from a severely weak economy and our state needs to seek every competitive opportunity it can in order to attract and grow jobs. As demonstrated by the Report Card on Rhode Island Competitiveness[1], by many measures, Rhode Island is excessively uncompetitive in both New England and nationally, when it comes to growing and attracting business and high-paying, sustainable jobs.

One of the single most effective ways to provide the Ocean State with a new competitive edge is passing Right-To-Work legislation. Indiana earned itself a major competitive advantage by becoming the only state in the Rust Belt to enact a Right-To-Work law.

Policy Recommendation

Rhode Island should become the 24th Right-To-Work state as part of a larger agenda to re-invigorate the state economy. RTW would give the Ocean State a major advantage over its neighbors by making it the only New England state with RTW protections for its citizens–without costing the state a dime in revenue.

Rhode Island must act now – while there is still an advantage to gain. New Hampshire is actively considering RTW legislation and the debate has begun in other New England states as well.The Ocean State cannot afford to also lag behind in this vital policy area, which can be a catalyst for job growth… nor can Rhode Island workers wait.

Background

Compared to the rest of New England, notwithstanding the rest of the country, the Rhode Island economy is not competitive. According to our Center’s recently released Competitiveness Report Card, Rhode Island scores an F in five out of ten major categories, including “Tax Burden” and “Business Climate.” The Ocean State can rebound from this extended economic slump, and should begin its recovery by undoing one of the greatest impediments to both progress and liberty: compulsory unionism.

Right To Work States as of Feb. 2012

Despite the anti-worker propaganda from the union leadership who depend on mandatory dues to fund their own multi-million dollar enterprises, passing RTW legislation in Rhode Island will not suddenly ban unions or allow unsafe or exploitative business practices. On the contrary, RTW legislation is not an attack on organized labor, but rather provides a framework that restores the rights of workers to choose whether or not they wish to be in a union.

Simply stated, it allows workers the choice to either affiliate with a union and pay dues, or to opt out of the union system.

RTW legislation typically includes eliminating onerous laws and regulations that pressure workers — overtly or otherwise — to join unions whether or not they feel it is within their best interests. Under a RTW measure, workers would be protected from being fired or harassed if they choose not to pay union dues.

According to Mike Brownfield of the Heritage Foundation:

“It’s understandable that states would want the benefits that Right-to-Work brings, but it’s also understandable why unions oppose it so strongly. When Idaho and Oklahoma passed Right-to-Work laws, union membership fell 15 percent. Likewise, the forced dues payments the unions collected plummeted right along with their membership. Right-to-Work would put money directly into the pockets of private-sector workers.”[2]

RTW is only a danger to unionism as an industry of ‘political’ machinery, not to the idea of unionism itself. And in the process of restoring the basic civil liberties of Rhode Island workers and allowing them to decide for themselves about union membership …

… RTW would make Rhode Island far more economically competitive and will increase economic freedom for its citizens.

Freedom and Prosperity

Most importantly, RTW is about individual freedom. Robert Barro, a professor of economics at Harvard University and a senior fellow at Stanford University’s Hoover Institution, notes that while unions were originally subject to antitrust legislation in the late 19th century, savvy politicking by organized labor was able to obtain exemptions in the early 20th century. And subsequently, unions were able to use this exemption to negotiate “union shop” laws, which essentially forced workers to join unions.

“From the standpoint of civil liberties,” notes Barro in a Wall Street Journal Op-Ed, “the individual right to work—without being forced to join a union or pay dues—has a much better claim than collective bargaining.”[3]

Depriving workers of their right of association is both undemocratic and economically ruinous. The ability of unions to use their unique and virtually unassailable leverage in states where unionism is mandatory has — as the devastation of the automotive and railroad industries well-underline[4] — extracted such concessions from private industries (and, in some cases, the public) to handicap economic growth, raise unemployment, and stultify necessary technological innovation.

In times of massive capital investments in factories and machinery, these negative effects were small compared to the cost of factory relocation, but in this global and post-industrial economy such assets are essentially portable, and a shift to a lower cost labor environment is viewed as a sound business practice rather than an insurmountable hurdle. That means slower growth and lost jobs.

Multiple studies have confirmed the relationship between forced unionism and negative growth and, conversely, the relationship between right to work and positive economic growth:

Manufacturing Growth: One study found that “cumulative growth of employment in manufacturing (the traditional area of union strength prior to the rise of public-employee unions) in the right-to-work states was 26 percentage points greater than that in the non-right-to-work states.”[5]

New Business Growth: Another study, published by the Office of Senator Jim DeMint (R), clearly shows that despite representing only 40.3 percent of the U.S. population, Right-to-Work states can claim almost 60 percent of new business growth between 1993 and 2009.[6]

Gross State Product Growth: Arthur B. Laffer and Stephen Moore noted in the Wall Street Journal last year, “[o]ver the past decade (2000-09) the right-to-work states grew faster in nearly every respect than their union-shop counterparts: 54.6% versus 41.1% in gross state product, 53.3% versus 40.6% in personal income, 11.9% versus 6.1% in population, and 4.1% versus -0.6% in payrolls.”[7]

Job Growth: James Sherk of the Heritage Foundation found RTW is good for jobs: “Right-to-work states are much more attractive for businesses investment. Unionized firms earn lower profits, invest less, and create fewer jobs than comparable nonunion firms . . . of neighboring counties on state borders with and without right-to-work laws . . . manufacturing jobs in counties in right-to-work states is one-third higher than in adjacent counties in non–right-to-work states. Right-to-work laws attract jobs.”[8]

Migration Gains: Richard Vedder, the Edwin and Ruth Kennedy Distinguished Professor of Economics at Ohio University, examines the national movement of people and economic growth toward RTW states and concludes: “The proportion of Americans living in right-to-work states has risen noticeably over the years, and only a small part of that is driven by new states adopting such laws. People move in extraordinary numbers to right-to-work states from states where union pressure has prevented the adoption of such laws. Moreover, the greater flexibility for workers and employers offered where right-to-work exists has contributed to higher rates of economic growth rates in the right-to-work environment.”[9]

Wage Growth: W. Robert Reed have found that RTW leads to both greater employment and higher wage growth.[10] [11]

Finally, RTW creates higher wages. According to Paul Kersey at the Mackinac Institute: “Then there is the cost of living, which tends to be lower in right-to-work states. A study by the Missouri Economic Research and Information Center found that in 2009, after adjusting for the cost of living, annual per-capita disposable income was $35,543 in right-to-work states, compared to $33,389 in non-right-to-work states. That equates to a $2,154 premium each year for those living in right-to-work states.”[12]

There is no question that Rhode Island could certainly use the clear competitive advantage that RTW would bring–a much needed economic shot in the arm.

Reduces Corruption of the Political Process

Disproportionate union power is not only troubling from the standpoint of individual liberty and economic prosperity, but also when considering the integrity of the political system. Union dues, which are often collected via intrusive anti-worker forced unionization laws, are often recycled through a system that has essentially allowed Big Labor to throw its institutional and financial support to the candidates they choose: inevitably, those that endorse or at least comply with their monopolistic tendencies.[13]

For Rhode Island, which continues to suffer from the extended doldrums of the economic crisis, the business-as-usual approach to public policy needs to come to an end. Making the Ocean State a Right-To-Work state is an excellent way to begin and to improve competitiveness immediately while making great strides for civil liberty and political integrity.

A longstanding majority (in fact, a super-majority for many decades now) of Americans support a worker’s right to choose whether to join a union[14], a fact that is perhaps reinforced by the dwindling numbers of private sector unions. It is illustrative of the money and power at stake in this political debate when we consider that less than half of U.S. states are RTW despite the clear preferences of the public.

Conclusion

Rhode Island desperately needs to initiate comprehensive and fundamental public policy reform if it hopes to regain its competitive status. One of the furthest-reaching and simplest reforms that would not cost the state a dime would be to pass Right-To-Work legislation.

With Right-To-Work comes significant and demonstrable economic benefits — a shot in the arm that the Ocean State economy badly needs — but also the restoration of what is a fundamental civil right of workers … freedom of association.

By nearly every measure shown in our Report Card on Rhode Island Competitiveness, the Ocean State is not competitive nationally and within New England. However, passing RTW legislation would allow the state the chance to be immediately competitive and worthy of a strong look by businesses and investors looking at the northeast.

The positive impact of worker choice in other states has been clearly demonstrated, and 23 states now see the benefit of worker freedom to their economies. For Rhode Island, the benefits and the urgency is clear: now is the time to do the ‘right’ thing.

* * *

This Policy Brief was jointly developed and co-edited by Giovanni Cicione (Senior Policy Advisor to the Center) and J. Scott Moody (Adjunct Scholar to the Center), with research by Michael Cecire (Policy Analyst for the Center).

Download a printable version of this Policy Brief here …

End Notes

[1] RI Center for Freedom and Prosperity, “Report Card on Rhode Island Competitiveness, http://www.rifreedom.org/2012/02/rhody-fails-report-card/

[2] Brownfield, Mike, “Morning Bell: Right to Work Head to Indiana,” The Foundry, January 30, 2012. http://blog.heritage.org/2012/01/30/morning-bell-right-to-work-heads-to-indiana/?utm_source=Newsletter&utm_medium=Email&utm_campaign=Morning%2BBell

 [3] Barro, Robert, “Unions vs. the Right to Work,” The Wall Street Journal, February, 28, 2011. http://online.wsj.com/article/SB10001424052748704150604576166011983939364.html .

 [4] Holcombe, Randall G. and Gwartney, James D., “Unions, Economic Freedom, and Growth,” CATO Journal, Vol. 30, No. 1, Winter 2010. http://www.cato.org/pubs/journal/cj30n1/cj30n1-1.pdf

 [5] See: “The Location of Industry: Do States’ Policies Matter? Regulation, Vol. 23, No. 1, 2000,47-50 . http://www.cato.org/pubs/regulation/regv23n1/holmes.pdf

 [6] Report from U.S. Senator Jim DeMint, “Right-to-Work States are Winning the Future,” May 2011. http://demint.senate.gov/public/?a=Files.Serve&File_id=88760fc5-0ac6-4e6c-91b5-6ba8b17fd06e .

 [7] Laffer, Arthur B. and Moore, Stephan, “Boeing and the Union Berlin Wall,” The Wall Street Journal, May 13, 2011. http://online.wsj.com/article/SB10001424052748703730804576317140858893466.html?mod=WSJ_Opinion_LEADTop

 [8] Sherk, James, “Right to Work Increases Jobs and Choices,” WebMemo #3411, November 9, 2011. http://www.heritage.org/research/reports/2011/11/right-to-work-increases-jobs-and-choices#_ftn6

 [9] Vedder, Richard, “Right-To-Work Laws: Liberty, Prosperity, and Quality of Life,” Cato Journal, Vol. 30, No. 1, Winter 2010, pp. 171-180. http://www.cato.org/pubs/journal/cj30n1/cj30n1-9.pdf

 [10] Reed, W. Robert and Wilbanks, James R., “The Impact of Right-To-Work on State Economic Development: Evidence from Ohio,” Presented at the Western Economic Association Meetings, San Francisco, CA, 2001.

 [11] Reed, W. Robert, “How Right-To-Work Laws Affect Wages,” Journal of Labor Research. http://www.econ.canterbury.ac.nz/personal_pages/bob_reed/Papers/RTW_Wages_Paper.pdf

 [12] Kersey, Paul, “What a Right-to-Work Law Will Mean for Indiana,” Mackinac Center for Public Policy, January 19, 2012. http://www.mackinac.org/16333

 [13] “Organized Labor’s Forced Dues-Funded ‘In Kind’ Campaign Contributions Undermine Representative Government,” Fact Sheet, National Right to Work Committee, March 18, 2003. http://www.nrtwc.org/FactSheets/UnionSpendingFactSheet.pdf .

 [14] “74% Favor Right-to-Work Law Eliminating Mandatory Union Dues,” Rasmussen Reports, January 31, 2012. http://www.rasmussenreports.com/public_content/business/jobs_employment/january_2012/74_favor_right_to_work_law_eliminating_mandatory_union_dues

 

Rhody FAILS Report Card

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Related Links: Progress Report: 2013 budget fails to improve Report Card

Providence, RI — The state of Rhode Island suffers from failing grades in an overwhelming number of indexes, according to the first-ever state Competitiveness Report Card, published today by the Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank.

Download 2-page Report Card PDF handout version, here …. (right click to save as PDF)

Download 3-page  Report Card PDF version w/ data sources, here … (right click to save as PDF)

Click image to see complete report card

The report card, which measures the Ocean State’s regional and national rankings in 49 sub-categories, shows how non-competitive the state has become as compared with its New England neighbors and among all states.

“This number of “F”s is appalling”, said the Center’s CEO, Mike Stenhouse. “We’ve all seen the depressing headlines over the years, but when compiled into a single report, the report card shows how utterly incompetent our policymakers have been over the past decades. With so many of our citizens suffering as a consequence, it should be painfully clear that an entirely new approach to public policy must be considered to save our state.”

The Competitiveness Report Card organizes the sub-categories into 10 major categories, such as Tax Burden, Business Climate, Education, Energy, and Infrastructure. In the major categories, the Ocean State graded “F” in five, and “D” in five others. Of the 49 sub-categories, the state graded 28 “F”s, 11 “D”s, 9 “C”s, and 1 “A”.

“The most troubling aspect about the report card is that Rhode Island is not even in the ball-game when it comes to economically competing against the other 49 states with Fs in both the Tax Burden Index and Business Climate Index”, said Scott Moody, a nationally recognized economist who reviewed and edited the report card, and who serves as an adjunct scholar to the RI Center for Freedom. “The good news, however, is that the report card also shows that by lowering or eliminating some of the major taxes, Rhode Island can quickly move to the head-of-the class regionally; this would be a bold step toward getting the Ocean State’s economic competitiveness back on track“, added Moody.

“While other states are making bold moves to reduce taxes and regulations so as to make themselves more attractive to businesses, capital investment, and migration, our state scores “F” in overall tax burden, “F” in business climate, “F” in population growth and does nothing to improve its standing”, continued Stenhouse. “Our Center for Freedom hopes that this report card will serve as a wake-up call that we need to abandon the big government, special interest agenda that has failed us so miserably, and instead implement bold reforms that will unleash the great potential that for too long has been squashed in our state.”

Download 2-page Report Card handout version, here ….

Download 3-page  Report Card PDF version w/ data sources, here … (right click to save as PDF)

Bridge Tolls may be best of the worst options

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Center recommends use of existing funds or privatizing upgrades as preferred options

Rhode Island ranks last or next to last in three major national highway, bridge and general infrastructure indexes. And so, there seems to be an inevitable push to repair some of the state’s most important bridges and highways by exacting new tolls on auto traffic in or through the Ocean State.

While there are multiple paths available to upgrade our bridge and highway infrastructure, our state’s knee-jerk reaction in turning to the big government approach – government can do it best and we need to raise more taxpayer money – is sadly predictable. According to the Federal Highway Administration, more state and local governments are relying on tolls to build and repair roads, bridges and tunnels as traditional revenue sources and one-time stimulus funds dry up. But is this the only practical approach?

No. The alternative solutions to fund these much needed upgrades, in order of preference are:

A. Re-allocation of existing funds: without raising taxes, fees, or tolls – this approach would force officials make difficult funding priority decisions, and decrease the tax/fee burdens on the Rhode Island economy.

B. Implement new tolls and cut taxes elsewhere: this would lessen the negative economic impact on Rhode Island drivers who are tolled.

C. Privatize the upgrades and maintenance: many states are contracting with private entities to conduct the work, collect the tolls, and take the financial risk. It is generally accepted that the private sector can complete projects at a lower cost and can also provide maintenance and toll-collection services more efficiently. Privatization would also ensure that the tolls are never mingled with the state’s General Funds and re-allocated for whatever new emergency may arise.

D. Government-run upgrades and maintenance: the big government default mode, which would likely result in higher tolls than the Privatization route.

E. Raise general taxes: this approach would affect a broader range of Rhode Island residents, and would have the largest impact on the state’s already fragile economy.

Given the mindset of the current leadership in Rhode Island, options A, B, and C are likely off-the-table. So that leaves us, practically and unfortunately, with the two least preferable options; D and E. Given these two choices, it is worth considering which may be most popular or effective.

Last year, Georgia and Virginia added new highway tolls; Maryland, New York and New Jersey significantly raised existing tolls; and California, Indiana, Texas and Washington made it easier to impose tolls on state and local roads. Only ten states have no toll facilities.

Samuel Staley at the Reason Foundation pointed out a few months back that a meta-study by the National Cooperative Highway Research Program shows Americans as generally in favor of tolling roads and bridges when that option is juxtaposed against more general tax hikes. (see: http://onlinepubs.trb.org/onlinepubs/nchrp/nchrp_syn_377.pdf )

Given the recent outcry against proposals by the Rhode Island Turnpike and Bridge Authority to toll the Mt. Hope Bridge, and the Rhode Island Department of Transportation’s interest in exploring a toll on Route 95, one would think that Rhode Island bucks that national trend. But a closer look might give David Darlington and Michael Lewis (the respective heads of those two agencies) some guidance on how to approach this public relations challenge.

As always, the details matter. While a majority of Americans consistently support tolling and road pricing over higher taxes, their support is conditional. Seven considerations are identified:

1. Not surprisingly, the public needs to see the value of the infrastructure investment.

2. The public wants to be given a choice, not a mandate. How much of a tax hike will the toll offset?

3. Are the revenues for a specific use? User fees should be spent on the infrastructure they are using, not just tossed into the bottomless pit of state revenues.

4. Building support for tolls is a long-term, continuous process. The agencies should consistently talk about the use of the tolls once implemented – it’s like reporting back to an investor.

5. More detail about the mechanics of tolling is good – if we were wasting the money we collected when we stopped tolling the Mt. Hope Bridge a few years back, why would it be any different today? How will toll booths affect traffic flow on Route 95?

6. The equity inherent in user fees makes sense to the public, but fairness matters too. Are there alternate routes for those who prefer to avoid the toll? Options for drivers increase support.

7. And finally (and again, not surprisingly) simplicity is good. Opposition is lowest for the simplest tolling proposals.

The public favors tolls over taxes. The concept of linking user fees such as gas taxes and tolls to highway budgets, when properly presented, will be accepted by taxpayers. More importantly, as Staley points out, tolling adds a fine component of free choice to revenue collection schemes; only users pay … by choice.

Of course, the public really favors responsible budgeting over tolls OR taxes. In the long term, a structural shift to “pay-as-you-go” infrastructure is reasonable to most people, particularly given that the feds historically have covered 80% of our costs on large projects. However, given the partisanship and budget battles in Washington, future federal funding is very much in doubt.

As mentioned above, a more intriguing approach would be a strategy to privatize major infrastructure and give the best bidder strong incentives to manage those assets efficiently (while shifting some risk away from taxpayers as well.)

In the meantime, however, tolling is a likely the best option remaining, being a publically palatable stop-gap method to make public and quasi-public economies more efficient. If revenues are clearly restricted in use, it may prevent legislatures from dipping their fingers into a pot to fund other priorities. If you don’t think that’s a problem for the Ocean State, perhaps you don’t drive.

At the same time, other productive capitol is not being diverted from non-users to users of the infrastructure projects – in other words, one citizen is not being forced to contribute their hard earned money for the mere convenience of another.

It is always a concern that using general revenues to fund repairs will lead to even higher taxes rather than the hard decisions needed to reprioritize existing state dollars. Absent unexpected leadership with some new proposal along the lines of options A, B, and C above, the Turnpike and Bridge Authority will likely be allowed to raise the tolls to adequately fund needed repairs; however, they must be held responsible for doing so efficiently and effectively. And if they don’t do it efficiently or effectively, we will be forced to consider letting private operators run those toll roads … we just hope it won’t be too late.

***

Giovanni Cicione is a Senior Policy Advisor to the RI Center for Freedom and Transparency

Cranston Pensions to be focus of Task Force organized by the Center for Freedom

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Providence, RI – Representatives of several major policy organizations today announced the formation of a collaborative effort to provide research and analysis that may be useful to local officials as they work to design pension reform options for Rhode Island’s underfunded municipal retirement systems.

New! Cranston Police & Fire Retiree Data Posted @ www.RIOpenGov.org

RI's Open Government website

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For Immediate Release; February 13, 2012

Providence, RI – Representatives of several major policy organizations today announced the formation of a collaborative effort to provide research and analysis that may be useful to local officials as they work to design pension reform options for Rhode Island’s underfunded municipal retirement systems. Cranston is the first municipal pension plan that the team will analyze. Cranston, one of many localities in Rhode Island which has an independent pension plan, has a pension funding level below 25 percent and reported unfunded liabilities of $245 million, placing it among the worst-funded in the state.

Following the successful task force assembled last fall regarding statewide pensions, the collaboration is organized by the Rhode Island Center for Freedom and Prosperity’s Special Pension Task Force. Task force members will provide transparency data, research, and policy analysis, including for Cranston’s actuarial report and funding plan, both of which are required of all independently managed municipal retirement systems by the Rhode Island General Assembly this year.

The Task Force also announced that pension data for some 1714 Cranston retirees, both in the local and state administered plans for teacher, police, fire, and other retired personnel, is now available to view via interactive displays on the RI Center for Freedom’s transparency website, www.RIOpenGov.org. This website will serve as the home page for all future work published by the Task Force.

Central Falls, Rhode Island recently filed for bankruptcy, and its retirees have agreed to sharp pension cuts as part of the reorganization. The state of Rhode Island in November passed comprehensive pension reform legislation implementing the defined contribution model of compensation and canceling cost of living allowances for state-run plans. The task force members hope to provide useful information that may guide other municipalities to make preemptive adjustments to their pension fund management to avoid the difficult consequences that Central Falls is currently experiencing.

The Task Force members, who will provide commentary and analysis and who may participate in statewide forums or committee hearings in the General Assembly, include Eileen Norcross of the Mercatus Center, Rich Danker of American Principles Project, Bob Williams of State Budget Solutions), and Mike Stenhouse from the RI Center for Freedom & Prosperity.

“This task force is set up to get the best economic, legal, and policy analysis on how to deal with a pension shortfall at the local level,” Rhode Island Center for Freedom and Prosperity chief executive officer Mike Stenhouse said. “This is a national crisis that must be solved from the ground up through the principles of fiscal federalism.”

“This collaboration is a great opportunity to advance best practices in pension reform at the local level,” Rich Danker, project director for economics at American Principles Project said. “We hope that the task force’s transparent pension fund analysis will foster responsible decision-making.”

“The Mercatus Center is pleased to offer its analysis on public pensions to Cranston as it has to other cities and states,” senior research fellow Eileen Norcross said. “Fixing the structural problems embedded in these retirement systems is crucial to our nation’s fiscal health.” Norcross has done leading research on public pension deficits in Rhode Island, Illinois and New Jersey as part of the Mercatus Center at George Mason University’s State and Local Policy Project.

 Additional bio information for Task Force members can be found on the Center’s website at www.RIFreedom.org/pension-reform.

 For over 25 years, the Mercatus Center at George Mason University has been the world’s premier university source for market-oriented ideas-bridging the gap between academic ideas and real world problems. A 501(c)(3) tax-exempt organization located on George Mason University’s Arlington campus, Mercatus works to advance knowledge about how markets work to improve our lives by training graduate students, conducting research, and applying sound economics to offer solutions to society’s most pressing problems.

American Principles Project is a Washington-based 501(c)3 organization. Founded by Princeton Professor Robert George in 2009, last year it became the first public policy organization to sponsor a presidential debate, which was shown on CNN. APP works across three areas: economic policy, education, and Hispanic outreach. It’s economic initiatives are public employee pension reform and monetary policy reform. It has worked to promote awareness of the public pension crisis and proactive reform ideas.

State Budget Solutions, a non-partisan organization advocating for fundamental reform and REAL solutions to the state budget crises, is a non-partisan, positive, pro-reform, proactive organization that is anchored in fundamental-systemic solutions.

 The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy organization, is the state’s leading free-enterprise think tank. Firm in its belief that freedom is indispensable to citizens’ well-being and prosperity, the Center for Freedom’s mission is to restore competitiveness to Rhode Island through the advancement of market-based reform solutions.

Media Coverage:

GoLocalProv: NEW: Pension Task Force to Focus on Cranston

Cranston Patch: Pension Task Force Sets Sights on Cranston’s $245 Million Black Hole

Cranston Police & Fire Pensions 80% More Generous than MERS Peers

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The RI Center for Freedom & Prosperity’s release of pension data for Cranston makes comparisons possible with retirees in the state system, whose records the Center posted in the fall.  When it comes to the average annual pension payment given to its retirees in the state Employees’ Retirement System (ERSRI), Cranston pays only a few percentage points more than the average for all cities and towns; its local fire and police retirement plans, however, are dramatically more generous.  (Note that none of the following comparisons include retirees from the state police.)

Municipal and non-teacher school employees receive an average of $13,628 per year in Cranston, but $13,285 in the state system overall, leaving Cranston 2.58% higher.  For teachers, the difference is greater, with $44,425 for Cranston and $43,027 overall — or 3.25%. The premium paid to Cranston retirees explodes for police and fire: Combining Cranston’s local system with its handful of retirees in the state plan yields an average payment of $50,654 for the city, compared with $28,057 for the state system overall, or an 80.54% difference.  The generosity gap becomes greater still if only widows and other beneficiaries are considered; for Cranston the annual average is $31,529, while for the state fire and police category, it’s $11,876 (a 165.49% difference).

A look at the average age of retirement suggests that Cranston employees are not receiving more because they are working later into their lifetimes; they’re not.

Although Cranston employees work until slightly older ages, municipal and non-teacher school employees work to age 61, and teachers work until just a little before their 57th birthdays.  When it comes to fire and police personnel, however, Cranston employees work almost a full year less, to 47.6 years old, versus 48.5 for the state PF system overall.

Even removing Cranston police and fire retirees in the local plan from consideration shows the city to be out of sync with other municipalities.  The 548 police and fire retirees in ERSRI receive an average of $28,057 per year, having retired at 48.5 years old.  For Cranston’s 13 police and fire retirees covered by the state, the numbers are $40,893 and 44 years old.

An additional layer of comparison is possible by dividing up pensioners by “benefit structure.”  Only Cranston and South Kingstown have retirees listed separately from the more general PF20 and PF25 groups (police and fire 20 and 25 year, respectively).  Viewed separately, South Kingstown’s plan is more generous than the state overall, but still nowhere near Cranston’s.  The average pension payment is $31,510, with the average age at retirement of 50.3.  So, while that town’s police and fire retirees do receive a bit more than their counterparts in the more generic state plans, they also worked until they were two years older.

Of course, there are likely to be specific explanations for every difference to be found in such data sets, some of them substantial.  But when a particular city or town consistently falls on one side of the state average, those explanations will probably point to a need for change.

Tax hikes will cause a loss in jobs

Governor’s proposed Tax Hikes will Harm already Fragile Economy

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Tax Increases Will Cost Jobs and Return Far Less than expected

Tax Plan Analysis

Download the entire Policy Analysis here … including detailed tables and additional information.

In late January 2012,Rhode Island’s Governor proposed a new budget that included a number of tax and fee increases, with the goal of balancing the state’s chronic budget deficits. In order to properly assess the impact of such hikes on the state’s economy, the RI Center for Freedom & Prosperity conducted a detailed, economic analysis, utilizing the Center’s dynamic tax modeling tool, RI-STAMP.

The Governor’s plan attempts to address the perpetual budget deficit by cutting some spending and raising some taxes. As demonstrated by RI-STAMP, this path will produce negative consequences.

 Analysis

To best simulate the Governor’s tax proposal, the following revenue targets were entered into RI-STAMP.

  •  $69.7 million increase in Sales Tax revenues via expansion of the base, with tax increases in some sectors
  • * $13.6 million increase in motor vehicle registration fees was input as a Fuel Tax increase
  • $7 million increase in revenues from smoking products and other items entered as a Cigarette Tax
  • $3.8 million in other misc. taxes & fees were not included in the projection

After running these inputs through the RI-STAMP algorithm, the negative economic consequences of the proposed tax and fee increases become clear. Full details can be found in the table on the following page, but in summary:

  •  The expected total revenue increases of $95 million are not attained, as tax increases depress overall economic activity … the state will see only a $35 million increase in revenues.
  • Over 1400 private sector jobs will be lost
  • Municipalities will lose $9.75 million in revenues due to lower commercial property taxes, as a consequence of lower overall economic activity
  • The State will lose almost 1% in overall Gross State Product
  • Investment in the State will drop by $27 Million

Because a sales tax increase would makeRhode Islandeven less competitive with its regional neighbors, and nationally overall, consumer and entrepreneurial behavior would be significantly altered, resulting in lower economic activity and actually worsening the state’s economic plight. Municipalities, all too often overlooked, will also suffer a loss in revenues from this unintended consequence.

 Balancing the budget is the wrong goal; and tax increases are precisely the wrong solution!

 Recommendation:

Conversely, if the OceanStatewas to cut its sales tax to 5%, a very different scenario is projected to occur, because our state would suddenly become a more attractive place to purchase goods and services, meaning economic activity would increase. (See the Policy Brief, Dynamic Effects of Tax Policy)

 If instead,Rhode Islandwants to address the larger economic picture, by looking to produce more jobs and a brighter economic future for our citizens …

 … cutting taxes and cutting spending will produce a more vigorous economy!

Download the entire Policy Analysis here … including detailed tables and additional information.

Media Coverage of this Analysis:

Warwick Beacon: Chewing over a 10% meal tax

Providence Business News – URI Professor Lardaro supports RI-STAMP economic modeling tool

630WPRO – Conservative think tank says new taxes will hurt RI

Boston.com – Think tank criticizes RI Gov.’s tax plan