FOR IMMEDIATE RELEASE
September 3, 2015
Economic Modeling Theory Central to Analysis
As an existing state vendor, REMI’s objectivity questioned
Providence, RI — Regional Economic Models, Inc. (REMI), the firm selected by Governor Raimondo to evaluate the economic impact of her proposed truck toll plan, will likely provide an analysis that reflects only one view of economic theory, according to the Rhode Island Center for Freedom & Prosperity.
As part of the special 2013 Sales Tax Commission hearings, the Center met in Boston with staff from REMI, to compare their Keynesian economic modeling assumptions with the market-based assumptions of STAMP, an alternative modeling tool created by the Beacon Hill Institute (BHI). After the meeting and after consultation with BHI, it was the conclusion of the Center that the REMI model places too high a premium on the economic impact of government spending: This runs counter to traditional free-market theory, which holds that there is higher economic value to private sector vs public sector spending.
With regard to the trucker toll plan, which would take money out of the private sector in order to fund a half a billion dollar construction bond plus another half a billion or so in financing fees, the REMI model will undoubtedly show a net economic benefit for the state. Alternative models, such as STAMP, would likely show a different result.
The economic multiplier that REMI apparently utilizes when it comes to government spending is far too optimistic according to the Center and other economists who believe the true government multiplier effect is less than one-to-one; meaning that for every dollar taken out of the private sector and spent by the government, there will be less than a one dollar return, resulting in a net economic loss.
“In addition to the vast differences in economic theory, when there is no firewall between the state government as customer and REMI as vendor – necessary to ensure an objective analysis – lawmakers should not view the REMI report as gospel,” commented Mike Stenhouse, CEO for the Center. “In hiring REMI, the Governor pretty much knows what she’s going to get.”
According to RIOpenGov.org, the Center’s government transparency portal, REMI is an existing vendor to the RI Department of Revenue and has previously received payments totaling over $35,000 from the state since 2010.
The Center believes that Rhode Islanders can enjoy the benefits of an improved infrastructure and the jobs that go along with it, without a toll, without a corresponding economic loss, and without enriching Wall Street insiders. This can be accomplished without double-taxing the private sector if the highly needed construction projects were to be paid out of existing general revenue funds. This would require lawmakers to exercise the budget discipline necessary to prioritize infrastructure spending over other, non-essential spending programs.
The Center urges the Raimondo administration to direct REMI to conduct analysis of a second scenario – one that pays for infrastructure upgrades out of existing general funds – then compare the results. The Center further suggests that a STAMP analysis by BHI would be helpful in providing alternative perspective.
Mike Stenhouse, CEO
401.429.6115 | firstname.lastname@example.org
About the Center
The nonpartisan RI Center for Freedom & Prosperity is Rhode Island’s premiere free-enterprise research and advocacy organization. The mission of the 501-C-3 nonprofit organization is to return government to the people by opposing special-interest politics and advancing proven free-market solutions that can transform lives by restoring economic competitiveness, increasing educational opportunities, and protecting individual freedoms.