RI Public and Private Sector Compensation Comparison

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Related Media: Report Finds RI Government Workers Out-Earn Private Sector (GoLocalProv), Guest opinion: Public employees would benefit from pro-growth policies (The Herald News), Tie the Public to the Private  (GoLocalProv), Mike Stenhouse on the Helen Glover show (920 WHJJ);  RI Owes $81 Million in Unused Sick, Vacation Time (GoLocalProv)

Download: Executive summary; full report with methodology (PDF)

Executive Summary

State and local government workers enjoy significantly higher compensation levels than their private sector counterparts, according to data compiled for Rhode Island as part of a national study conducted by economists William Even, of Miami University, and David Macpherson, of Trinity University.

Even and Macpherson apply the most complete controls for such variables as education, experience, and broad job category and the most accurate accounting of benefits to date. They find that state and local government workers across the country receive a “premium” above their private-sector neighbors, but Rhode Island amplifies the difference:

  • Rhode Island: 26.5% higher total compensation
  • New England: 18.8% higher total compensation
  • United States: 14.9% higher total compensation

Furthermore, a preliminary review of the effects of Rhode Island’s pension reform suggests that the changes to their retirement benefits did not appreciably reduce government workers’ advantage, only reducing the premium for government work to 26.24%.

Looking at base pay alone shows that job security and better benefits in government do not correspond with lower salaries, at least in Rhode Island and New England, where state and local workers receive:

  • Rhode Island: 10.4% higher base pay
  • New England: 2.8% higher base pay
  • United States: 1.5% lower base pay

Averaging all jobs at every level, total public-sector pay and benefits in Rhode Island are competitive with Massachusetts and Connecticut, but private-sector workers earn nearly 25% less than their peers across state borders. Consequently, comparing averages within Rhode Island yields the following results:

  • Total compensation: 20% higher for government workers
  • Pay (base salary): 4% higher for government workers
  • Benefits: 58% higher for government workers
  • Hours worked: 5% less for government workers
  • Value of paid time off: 5% higher for government workers

Compared with the New England region, Rhode Island’s government employees are unique in having a higher average base salary than the private sector as well as a higher value for paid time off. They also enjoy a total compensation premium well above the regional average, even as they work the fewest total hours.

If there is to be any hope of keeping current compensation levels and benefit promises to government workers, the state must experience an immediate boom in the private-sector economy. Without rapid economic growth and a boost to their prosperity, taxpayers’ tolerance and capacity to pay for government beyond their means will continue to wane.

Data Analysis

Overall Averages

Rhode Island’s state and local government employees receive higher compensation than their private-sector neighbors by every measure, according a study comparing public-sector and private-sector compensation that the RI Center for Freedom & Prosperity requested from economists William Even, of Miami University, and David Macpherson, of Trinity University.

Chart 1 shows the average real earnings and benefits (in 2010 dollars) for state and local workers versus private-sector Rhode Islanders. Benefits take into account pensions, health insurance (including post-employment/retiree), other insurance, legally required benefits, like Social Security payments, and paid time off. The total compensation for the average public-sector employee in Rhode Island was $100,217, which was more than 20% higher than the private-sector average of $83,419.

Rhode Island Average Pay and Benefits for Public and Private Sector Workers, 2010

Rhode Island is inarguably in a high-cost, public-labor-friendly region, but even so, it is unique within New England. Chart 2 shows that Rhode Island is the only New England state in which the average wage earnings (base salary) of all state and local workers, on its own, was greater than that for all private-sector workers.

The most conspicuous reason for Rhode Island’s poor showing, here, is the huge gap between its economy and that of the two states that envelop it. While the Ocean State’s public sector is competitive with Connecticut and Massachusetts (with earnings only $4,294, or 6.6%, below the region-leading Bay State), its private sector has a $15,398 (23.3%) deficit.

New England Average Pay for Public and Private Sector Workers by State, 2010

Even when benefits are factored in, the private sectors in Massachusetts and Connecticut outstrip government employees. In contrast, Table 1 shows that Rhode Island adds a relatively large amount of compensation via benefits in its public sector and a relatively low amount in its private sector.

Another significant perk to working in Rhode Island’s public sector is time off. According to the data collected by Even and Macpherson, Rhode Island is the only New England state in which the value of the public sector’s paid time off ($7,208) is greater than the private sector’s ($6,857). (These numbers are included in the total for benefits.)

And while government workers in all New England states put in fewer hours than their private-sector neighbors, Rhode Island’s public employees put in the fewest. Moreover, only in Vermont is the gap between the sectors larger. (Note: Annual hours are calculated from weekly-hour responses on employee surveys.

Variable-Controlled Premiums

A common objection to such comparisons of average pay is that the types of jobs available within the public sector lend themselves to more-highly educated employees. Therefore, the argument goes, it is entirely appropriate for them to make more than the average of all private-sector jobs, because they skew toward the higher end of the workforce.

To investigate this explanation, Even and Macpherson performed a regression analysis for Rhode Island, the New England Census division, and the United States in order to compare similarly situated employees. Chart 3 shows a summary of the results.

The percentage shown is the premium for working in the public sector — that is, the percentage advantage in compensation from working in the public sector, taking into account employee characteristics (such as education and experience) as well as broad job category (such as management versus office and administrative support). (See Table 2.)

On salary alone, state and local employees enjoy a 10.4% premium in Rhode Island, even when controlling for other variables like education, experience, and broad job category. For New England overall, the premium is 2.8%. Nationwide, the public-sector actually has a salary penalty of 1.5% below the private sector.

Rhode Island, New England, and U.S. Premium for State and Local Public Workers in Pay and Total Compensation, 2010

Adding in the total value of benefits (before pension reform), Rhode Island’s state and local workers receive a premium of 26.5% over their similarly situated private-sector counterparts. That compares with 18.8% for New England as a whole and 14.9% nationwide.

A significant consideration that Even and Macpherson were unable to quantify due to a lack of data is job security. Given higher rates of unionization and the ability to affect their employers through political activities, government workers are generally understood to face less volatility than do private-sector employees. In theory, economists could apply a monetary value to that intangible benefit, but such an investigation would be beyond the scope of this study.

 

Pensions & Pension Reform

One important adjustment that Even and Macpherson have made to the raw compensation data is to determine the current value of pension benefits using a 4% discount rate. In a defined-benefit system, actuaries value the guaranteed level of income that employees will receive during retirement by assuming that investments will produce a certain return.

Rhode Island currently assumes a 7.5% return. Prior to the adjustment that spurred the 2011 pension reform at the state level, the assumption was 8.25%. Because this study uses data from 2010, that is the starting point for this data. By comparison, the average private-sector assumption is 6%.

In all cases, therefore, Even and Macpherson had to mark up benefit values to account for the likelihood that investment profits will fall short of predictions. It may seem counterintuitive that a benefit is worth more when invested money receives less profit. However, in the case of guaranteed pensions, the benefit is defined in the future, not the present.

Therefore, lower profits from investments would require greater payments by the employer, making the benefit of greater value to the employee now. In effect, the employer is promising a greater return to the worker than he or she would be able to achieve by investing on his or her own.

Because pensions make up 10-20% of the typical government employee’s total compensation, compared with 4-6% in the private sector, large reforms can greatly affect the premium that public-sector workers receive over the private market-place. For this study to be complete, therefore, some accounting of the effect of the Ocean State’s pension reform on the value of state employees’ benefit packages had to be included.

However, the imposing complexity of pension calculations is such that an accurate estimate of the reform’s effects would be well beyond Even and Macpherson’s scope. In particular, during the transition from the defined benefits pension to the newly developed hybrid plan, each individual employee’s benefit will be different, and results vary from job to job and across state and local governments. It will be a matter of years before accurate data is available.

Consequently, the public-sector premium given above can be considered the outcome if the lawsuit currently pending on behalf of the relevant labor unions succeeds in overturning the reform. For some sense of the result if the state prevails in its defense of the reform, the Center for Freedom & Prosperity asked Even and Macpherson to provide a rough calculation.

It’s important to note, here, that the pension data throughout this study assumes that all municipal employees are receiving the same weighted average contribution as those in the state’s two largest plans — state workers and teachers — with and without 2011’s reform.

Be that as it may, the effect of the reform on this study was relatively minor. The guaranteed payments provided through the defined-benefit portion of the state’s new hybrid pension system have gone down. But the state has increased the percentage of payroll that it must contribute each year, to make up for the 5% of their pay that employees are putting toward their defined-contribution plans. The state has added a 1%-of-payroll contribution to those plans, as well.

Consequently, the annual value of government employees’ pension benefit has only decreased from $10,692 to an estimated $10,476. In terms of the “premium” that state and local workers receive over similarly situated private-sector Rhode Islanders, the percentage advantage has decreased from 26.49% to 26.24%.

Policy Analysis

Living Beyond Our Means

When a family comes to a decision about purchasing any product or service, it doesn’t merely accept the seller’s sense of what’s reasonable. In addition to the market rate, consumers must take into account the quality of the thing they’re buying as well as their own ability to afford it.

With deteriorating infrastructure, doubts about the quality of government services, and the high-profile specter of unfunded municipal and state retirement liabilities looming over the state during this current period of economic stagnation, the compensation of public-sector employees has become a subject of heated debate about fairness and affordability.

Rhode Island is the only state in New England in which public employees have higher base salaries than the private sector. At the same time, state and local workers in the Ocean State work the fewest hours in the region. When benefits are factored in, Rhode Island has the highest premium for public-sector workers over private-sector workers, even if pension reform survives the lawsuit that unions have filed to overthrow it.

Meanwhile, the state’s economy is reeling, with arguably the worst employment picture in the United States, certainly the region. With dwindling taxable incomes and general economic activity, the state and its cities and towns will not long be able to continue to squeeze more revenue from a population that is losing ground economically and seeing many of its productive residents and college graduates flee to states with healthier economies.

Adjustments around the edges that do not take on the significant public policy issues we face will not be sufficient to turn the state around. Without rapid economic growth and a boost to their prosperity, taxpayers’ tolerance and capacity to pay for government beyond their means will continue to wane. Painful struggles between powerful insiders and the average citizen will worsen. Even more taxpayers may decide that the battle is not worth the benefits of living within the Ocean State’s borders.

Economic Growth Benefits Public and Private Sectors

With all of the emphasis on improving economic development in Rhode Island, there have been two conspicuous omissions.

The first is the need for a complete change in the way that state and local governments treat taxpayers and businesses — as a matter of regulation, as a matter of spending, and as a matter of taxation.

The second, as emphasized in the data revealed in this study, is the fact that government workers should be out in front of the crowd advocating for change — not for tax-the-rich schemes that will never produce sufficient revenue, but for precisely the policies founded in economic liberty that will close the gap between private-sector Rhode Island’s earnings and those of its nearest neighbors.

If there is to be any hope of keeping current compensation levels and benefit promises to government workers, the state must experience an immediate boom in the private-sector economy.

Even the dramatic pension reform that sent unions to their lawyers and made state Treasurer Gina Raimondo a national policy star barely nudged Rhode Island’s public sector toward the national ratio of public-to-private workers. It hardly even brought the tiny Ocean State nearer to the average for the union-stronghold region of New England.

While additional compensation cuts and even deeper benefit reforms will be necessary in the public sector, the more significant factor in the public-private imbalance, locally, comes from the substandard economic conditions in which the Rhode Island taxpayer in the private sector is forced to survive. That is where dramatic improvement is most necessary, and most attainable, if public policy can be properly aligned.

Central Falls retirees discovered all too painfully that unsustainable compensation arrangements, whether salaries or benefits, are by no means guaranteed if obvious warning signs are not acted upon responsibly. The comparison of the public sector and the private sector in Rhode Island is one such sign of unsustainable compensation levels.

The people of Rhode Island depend upon government workers for the appropriate and necessary functions of government, but those workers depend upon the private sector to maintain a healthy economy and, in turn, sufficient government revenue. The top priority for employees on both sides of Rhode Island’s taxing and spending, therefore, should be reasonable reform that makes public-employee compensation sustain-able combined with the elimination of policies that restrain economic growth in the Ocean State.

Methodology

Download the PDF version of this report for Even and Macpherson’s full methodology.

“Get Government Out of the Way”: a free-market solution for the RI economy

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Related Links: Oct 11 Press Conference Event & CEO Stenhouse Extended Remarks, Prosperity Agenda for RI,
Podcast: ALEC's Jonathan Williams discusses with Dan Yorke on 630WPRO
Video: Mike Stenhouse remarks at Press Conference

Adherence to  Free-Enterprise Principles can Revive the Ocean State’s Economy

The state of Rhode Island requires significant public policy reform to unleash a private-sector economic engine fueled by the creativity, investment, and energy of businesses and individuals. What is not needed are more of the same subjective and politicized tactics that benefit chosen business sectors, favored political constituencies, limited geographical regions, or specific business ventures.

Rhode Island does not have to reinvent the wheel. Three proven steps are required to embark on a new path to improve Rhode Island’s economic fortunes:

1. Embrace the free-enterprise system as the means to restore prosperity

2. Follow and learn from successful economic policies implemented in other states

3. Design and implement public policy reforms reflective of the above, applied evenly and universally

In seeking to provide assistance to too many people, in caving to special-interest-group concerns, and by doling out special favors to the well connected, the state of Rhode Island has created dozens upon dozens of legislative barriers to success. These barriers have restricted economic and individual opportunities and incentives, resulting in the worst business climate in the country, loss of out-migrating taxpayers, a slew of Fs and Ds on the state’s Competitiveness Report Card, and the most dismal jobs outlook of any state in the nation. Prosperity can only be achieved if those barriers are systematically torn down and we move decisively on a new economic path.

That proven economic path is the free-enterprise system. Even President Obama calls it the ‘genius of America’, yet Rhode Island has sharply departed from its principles. Free-market concepts must be re-embraced and recognized as the economic engine that has proven to be the most effective machine ever devised to raise people out of economic misery and into a higher standard of living. This means our state must enact policies that lower taxes, reduce regulations, and cut spending. The benefit will be increased economic activity, more jobs, and positive state-to-state net migration. In contrast, government redistribution polices have failed the very citizens they intend to help.

Before we undertake the task of implementing specific policy reforms that dramatically roll back laws that hinder economic growth, a long-term commitment to economic freedom must be established. Removing certain barriers while erecting others will get us nowhere. Adherence to free-market principles is required. But, as a state, we must also be willing to work through our political and cultural differences.

Contrary to our popular notion of polarized politics, the free-enterprise system is not a political philosophy. It is a well-delineated economic philosophy predicated on a culture of success. As a people, we must overcome our disdain of the successful and resist the temptation for government to serve as referee in tilting calls to favor groups it perceives to be in need. This is not the proper role of our uniquely American form of government; it interferes with the efficient mechanics of the free-market system and it provides disincentives to achieve and prosper.

We must accept that a paycheck is better than a welfare check and recognize that a growing economy that provides job opportunities is far more desirable than a stagnant economy that breeds dependency on government services and impedes upward mobility. We cannot have it both ways. We must also understand that it is a morally preferable that free people should strive to be self-sufficient and maintain the rewards of their own hard work. Government policies should create incentives for the pursuit of individual happiness, not hinder that pursuit.

The main strategy to unleash Rhode Island’s economic revival should be to learn from and follow the successful policy reforms enacted in other states; namely, creating an attractive business climate, with free competition, so that all laborers, entrepreneurs, and businesses can have more opportunities to work, to innovate, to grow, and to prosper.

Our RI Center for Freedom & Prosperity has researched and developed an initial set of policy reforms that are consistent with these goals – our Prosperity Agenda for Rhode Island: a set of taxpayer-friendly, worker-friendly, and business-friendly reforms that reduce burdens on employers and provide more freedom of choice for individuals; proven reforms, successfully implemented in other states, that will start to move the Ocean State down a new path towards economic growth.

MEDIA

Cranston Herald: Study shows free-market enterprise is path to prosperity in RI

RI General Assembly Freedom Index

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Download: Freedom Index 2012 Scorecard; legislator votes, bill explanations, and rankings ; Click here for the Media Release

Radio:  Stenhouse discusses Index on Dan Yorke radio show ; and on the Helen Glover show (@ the 13:00 minute mark)

Click Here For The Main Freedom Index Page

The first-annual General Assembly Freedom Index by the RI Center for Freedom & Prosperity scores Ocean State lawmakers on their level of support for principles of freedom as proven by their votes on the floors of the House and Senate.

The index examines legislators’ votes in terms of their likely effect on the free market, the size and scope of government, the balance of residents’ interests against those of public employees and beneficiaries, and the constitutional structure of a divided government with limited power over the people whom it represents. The Center reviewed every bill that received a roll-call vote by the full membership of either chamber and selected 96 that fit its understanding of these criteria. (Companion bills only count once.)

The resulting scores give a detailed sense of each legislator’s priorities beyond a few high-profile issues.

The Center further divided the bills into five categories:

  • Tax & budget:  bills that affect the tax structure in Rhode Island and/or that relate to government expenditures, just driving or relieving the pressure on taxation
  • Regulatory environment: bills that make it more or less difficult to live and do business in the state by imposing regulations
  • Constitutional government: bills that affect the structure of the government, as well as the scope of government in its authority over residents’ lives
  • Public sector labor: bills related to the relationship between its employees and itself and the electorate
  • Education reform: bills that advance or impede the reform of the state’s public education system, in terms of both cost and quality

Most legislation has implications for more than one of these categories.  For the purposes of this index, we applied our subjective sense of the area of core effect and sorted the bills accordingly.  If, for example, a bill having to do with education seemed to us intended to secure the role of public employees, we classified that bill as Public Sector Labor, not Education Reform.

Download: Freedom Index 2012 Scorecard; legislator votes, bill explanations, and rankings

2012 Freedom Index Findings

Ninety-six (96) different pieces of legislation (counting companion bills once) were evaluated.  The Center judged 70 of them as having a negative effect on freedom.

The average legislator index score of -25.4 indicates that the General Assembly moved Rhode Island in the wrong direction, and that Rhode Islanders are less free than they were in 2011. This index underscores our Center’s view that the 2012 RI General Assembly did not positively address the dire business climate of our state.

Top and Bottom 10

House Senate
Top 10 Bottom 10 Top 10 Bottom 10
1 Costa 59.2 113 Bennett -46.0 1 Kettle 15.5 113 Tassoni -44.8
2 Gordon 58.7 112 Fox -45.3 2 Shibley 14.0 112 Lanzi -44.8
3 Newberry 42.0 111 Ajello -45.3 3 Moura 8.6 111 DaPonte -43.1
4 Chippendale 41.7 110 McNamara -45.3 4 Hodgson 5.2 110 Miller -42.0
5 Watson 33.5 109 Valencia -45.3 5 Maher 4.1 109 Lynch -42.0
6 Trillo 28.8 108 Blazejewski -45.3 6 Algiere -7.8 108 Perry -41.6
7 Morgan 15.3 107 Cimini -45.3 7 Pinga -12.1 107 Ruggerio -41.4
8 Ehrhardt 15.1 106 Silva -45.3 8 Bates -14.7 106 Goodwin -41.4
9 Reilly 13.2 105 Mattiello -44.6 9 Ottiano -17.0 105 McCaffrey -41.4
10 Palumbo 0.5 104 Ucci -44.6 10 Cote -17.7 104 Fogarty -41.4

 

General Assembly Freedom Index 2012 by Party

 

Other findings include;

  • Average House index of -24.1
  • Average Senate index of -27.9
  • Average Democrat index of -33.5
  • Average Republican index of 16.5
  • Average Regulatory Environment index of -49.0
  • Average Tax & Budget index of -26.0
  • Average Constitutional Government index of -9.1
  • Average Public Sector Labor index of 16.7
  • No bills directly related to Education Reform were scored in this index

 

General Assembly Freedom Index 2012 and Category by Chamber and Party

 

Tax & Budget Category, Top and Bottom 10

House Senate
Top 10 Bottom 10 Top 10 Bottom 10
1 Newberry 68.8 75 Silva -67.2 1 Kettle 44.8 38 Pichardo -59.5
2 Chippendale 68.8 74 Bennett -62.5 2 Shibley 44.8 37 Lynch -54.3
3 Watson 68.0 73 Fox -62.5 3 Hodgson 44.8 36 Crowley -54.3
4 Trillo 67.2 72 Ajello -62.5 4 Moura 31.0 35 Tassoni -51.7
5 Costa 66.4 71 McNamara -62.5 5 Maher 24.1 34 Lanzi -51.7
6 Gordon 66.4 70 Valencia -62.5 6 Algiere 17.2 33 DaPonte -51.7
7 DaSilva 54.7 69 Blazejewski -62.5 7 Felag 10.3 32 Miller -51.7
8 Morgan 43.8 68 Cimini -62.5 8 Pinga 10.3 31 Perry -51.7
9 Reilly 43.8 67 Mattiello -62.5 9 Bates 10.3 30 Ruggerio -51.7
10 Lima 43.8 66 Ucci -62.5 10 Ottiano 10.3 29 Goodwin -51.7

 

Regulatory Environment Category, Top and Bottom 10

House Senate
Top 10 Bottom 10 Top 10 Bottom 10
1 Gordon 66.9 75 Mattiello -66.9 1 Hodgson -18.0 38 Miller -76.3
2 Costa 55.2 74 Tarro -66.9 2 Kettle -23.1 37 Tassoni -74.4
3 Watson 52.2 73 Naughton -66.9 3 Shibley  -23.1 36 Lanzi -74.4
4 Chippendale 27.2 72 Corvese -66.9 4 Moura   -23.1 35 Lynch -74.4
5 Newberry 23.5 71 Bennett -64.7 5 Maher -31.4 34 Perry -74.4
6 Trillo 17.6 70 Fox -64.7 6 Bates -33.3 33 Ruggerio -74.4
7 Ehrhardt  15.4 69 Ajello -64.7 7 Algiere  -35.9 32 Goodwin -74.4
8 Reilly 0.0 68 McNamara -64.7 8 Pinga -41.7 31 McCaffrey -74.4
9 Morgan -7.4 67 Valencia -64.7 9 Lombardo -43.0 30 Fogarty -74.4
10 MacBeth   -7.4 66 Blazejewski -64.7 10 Cote -43.6 29 Sosnowski -74.4

 

Constitutional Government Category, Top and Bottom 10

House Senate
Top 10 Bottom 10 Top 10 Bottom 10
1 Costa 61.2 75 Hearn -31.0 1 Kettle 29.7 38 DaPonte -29.1
2 Gordon 38.8 74 Jacquard -25.0 2 Shibley 24.3 37 Perry -19.6
3 Chippendale 36.2 73 MacBeth -22.4 3 Moura 18.9 36 Tassoni -18.9
4 Newberry 32.8 72 Bennett -19.8 4 Maher 18.9 35 Lanzi -18.9
5 Morgan 12.9 71 Hull -19.0 5 Pinga 6.1 34 Miller -18.9
6 Palumbo 6.0 70 Fox -17.2 6 Cote 6.1 33 Lynch -18.9
7 Flaherty 6.0 69 Ajello -17.2 7 Sheehan -2.0 32 Ruggerio -18.9
8 DeSimone 5.2 68 McNamara -17.2 8 Ottiano -4.1 31 Goodwin -18.9
9 Trillo 4.3 67 Valencia -17.2 9 Hodgson -8.1 30 McCaffrey -18.9
10 Schadone 3.5 66 Blazejewski -17.2 10 Algiere -8.1 29 Fogarty -18.9
(Note: Insufficient votes were cast in the Education Reform and Public Sector Labor categories for meaningful comparisons.)

Index Overview

The Center selected legislative bills for inclusion in the Freedom Index if they were deemed to have an effect on free-market, small-government, or constitutional principles, with each bill assigned a positive or negative weighting based on the criteria listed below. Weighted points for each bill were given to each legislator based on his or her roll-call vote on it.

Each legislator’s final Freedom Index was calculated as his or her score’s percentage of the total possible points. A positive score indicates a 2012 voting record that generally protected individual and economic freedoms, while a negative score reflects the opposite.

Disclaimer: It should be noted that the total Freedom Index score generated for each legislator is a direct reflection of the perspective of the RI Center for Freedom & Prosperity when it comes to the weighting of each bill. The Freedom Index is not an absolute measure of a legislator’s merit and does not constitute any endorsement or individual criticism. The Freedom Index is a tool designed for general research and for accountability, giving voters some quantitative metrics for their own assessments as to their elected legislators’ performance. 

Methodology

1) Determine weighting: Each selected bill received a weight ranging from +3 to -3, as determined by the RI Center for Freedom & Prosperity. Negative weights indicate legislation that creates or expands an agency, government program/function, or tax; creates new regulatory burdens; is hostile to constitutional principles; or otherwise conflicts with the principles that guide the Center. Positive factors were assigned to bills in line with those principles. Companion bills in the House and Senate were weighted identically. To determine the weightings, the Center requested reviews of all chosen legislation from a half dozen engaged Rhode Islanders with similar principles and combined the range of results for a final weighting.

2) Determine vote: Each legislator received a +1 or -1 vote factor, depending on whether he or she voted FOR or AGAINST a particular bill, respectively. If a legislator did not vote on a bill, he or she received a +0.25 if the bill passed or a -0.25 if the bill failed. Legislators who abstained from voting received a +0.75 or a -0.75 vote factor depending on if the bill passed or failed.

3) Calculate weighted vote: Multiplying the weighting factor and the vote factor produced a weighted vote score for each legislator for each bill.

4) Calculate the legislator score:  The cumulative score for all bills for each legislator determined that legislator’s overall score.

5) Calculate Freedom Index: Dividing each legislator’s total score by the maximum possible for the appropriate chamber provided his or her Freedom Index, or a percentage of the best possible score he or she could have achieved. In 2012, the “perfect” scores are 106 for the House and 116 for the Senate.

For example, consider a bill that would increase the regulatory burden significantly in Rhode Island and that the Center therefore weighted as a -2. Legislator A voted for the bill. His or her weighted vote would be calculated as follows: -2 x 1 = -2. Conversely, the weighted vote for Legislator B, who voted against the bill, would be: -2 x -1 = 2.

If Legislator A, in the House chamber, earned a total legislator score of -33, his or her Freedom Index would be calculated as: -33 ÷ 106 x 100 =  -31.1.  If Legislator B in the Senate had a total score of +23, his or her Freedom Index would be calculated as: 23 ÷ 116 x 100 = 19.8.

To rank the legislators, the Center sorted them by their Freedom Index scores and then, in the cases of ties, by their scores in each category, in the following order: Regulatory Environment, Tax & Budget, Constitutional Government, Public Sector Labor, and Education Reform. When legislators’ results were still identical, the Center adjusted them in order of their apparent stature and power within their chambers.

Criteria

In determining each bill’s weighting, the following questions were considered:

  • Does the bill create or eliminate an agency, program, or function of government?
  • Does it give the government new or expanded power to prohibit or restrict activities in the free market? Examples may include licensure and other restrictions on legal business practices.
  • Is it unconstitutional or does it do violence to our concepts of federalism or separation of powers? Does it restrict property, speech, gun, or other constitutionally recognized rights or freedoms? Conversely, does it restore balance between the state and federal government, resume state authority over an issue under the 10th Amendment, or remove restrictions on constitutionally protected rights?

Other considerations were also brought into question:

  • Does the bill redistribute wealth or use tax policy or other incentives to reward specific interest groups with special favors or perks? Conversely, does it eliminate special favors and perks in the tax code or public policy?
  • Does it perform a function that can and should be performed by the private sector or restore functions to the private sector?
  • Does it grow or shrink the regulatory scope of an agency?
  • Does it directly or indirectly create/reduce taxes, fees, or other assessments?
  • Does it increase or decrease control of the private sector through rules, regulation, or statute?
  • Does it increase or decrease long-term debt or override or restore statutory or constitutional protections against long-term debt?
  • Does it give or reduce special benefits for government employees or politicians?
  • Does it promote government transparency and openness or does it restrict access to information that should be in the public domain?

It should be noted that the complexity not only of the law but of political theory in general can make assessments of the sort described above subjective and very difficult. People reviewing the index should consider the results to be the best judgment of the Center, given our collected experience and expertise.

Download: Freedom Index 2012 Scorecard; legislator votes, bill explanations, and rankings

Prosperity Agenda for Rhode Island

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Vision

Imagine route I-95 as freeway where human and capital resources start flowing into our state instead of out. Imagine Rhode Island as the most dramatic turnaround state in the USA, with restored economic competitiveness and renewed pride for our citizens. Imagine a reinvigorated economy, new jobs, a world-class educational system, and a return to statewide prosperity.

Unleashing Rhode Island by Tearing Down the Barriers to Success

Rhode Island’s jobs outlook is uniquely dismal in the nation. Further, our state’s failing Report Card demonstrates that a bold, new policy path must be blazed, one that leads us to renewed opportunity and economic growth. In order to enhance the Ocean State’s business climate and to become more competitive with our regional and national neighbors,  we must exit from our current public policy direction.

A handful of major policy reforms and numerous other policy reforms can provide a catalyst for systemic change. For too long, policymakers have focused on providing more government services for more people, attempting to present a balanced budget, but in the end, unwittingly creating even more barriers to economic prosperity. Instead a new public policy course should focus on economic growth and enhancing our capacity to attract and maintain people, investment capital, and businesses.

The recommendations below are merely a starting point. There are dozens of other reforms that are also needed. Over the coming months and years, our Center will add new policy recommendations to this Prosperity Agenda.

High-Impact Policy Reforms:

Among the handful of  “game changing” reforms that would result significant near-term gains for the Ocean State, our Center recommends that Rhode Island:

1) Eliminate the State Sales Tax:  the centerpiece of our Prosperity Agenda; would create over 20,000 new jobs.

2) Establish RI as a “Right to Work” state:  would provide increased worker freedom and would be a major competitive advantage in attracting new businesses to our state.

3) Implement Market-based reforms within Obamacare and Health Insurance Exchange Laws:  As Rhode Island and the nation move forward with implementation of the Affordable Care Act, significant challenges remain regarding access to affordable, quality care while many other issues will be left un-addressed … solution? A  Health Care Freedom Act.

(click on an item above or below to learn more) 

Other Policy Reforms

Rhode Island also suffers from “death by a thousand cuts” syndrome, where dozens upon dozens of laws create barriers to economic growth in our state. Tearing down some of the barriers suggested below are a good start:

4) Bright Today Educational Reforms: would increase the educational opportunities and freedom of Rhode Island’s students, especially the disadvantaged.

  1. School Voucher program: would provide special-needs students with a scholarship to attend the school of their choice.
  2. Real Grading of Schools: would grade all public schools in straightforward, universally understood method: A, B, C, D, F.

5) Eliminate Corporate Welfare: would reduce cronyism and corruption, maintain a level playing field, and defund the EDC’s capacity to risk taxpayer dollars on private sector businesses.

6) Implement Tort Reform: would include medical malpractice reforms and a criminal intent provision that protects the innocent.

7) Repeal the Estate Tax: would help keep more wealthy taxpayers in our state, expanding our tax base.

8 ) Lower the Minimum Wage to the Federal Level: would create more jobs, especially for teens, and would reduce the cost of doing business in Rhode Island for many businesses.

9) Reduce Occupational Licensing Mandates: includes five ideas that would open career opportunities and reduce the costs of services without sacrificing consumer safety.

10)  Reform or Repeal Renewable Energy Mandates: would reduce cost of energy for households and businesses, now artificially raised by unreasonable green energy portfolio mandates.

11) Require “Truth in Pension Accounting”: would require municipal and state governments to utilize more realistic accounting assumptions in evaluating and reporting pension liabilities.

12) Enact Collective Bargaining Reforms for Public Employees: would encourage public versus private sector compensation parity, limit the scope of labor contracts, and reduce monopolistic negotiating advantages, potentially saving over $250 million per year for Rhode Island.

PODCAST: 790AM 9-6-12 Stenhouse Podcast ; Mike Stenhouse discusses the PROSPERITY AGENDA on “Positively RI”

R.I. Creating an Expressway to Dependency

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The Issue. Rhode Island is leading the nation in the advancement of a larger entitlement culture via its planned expansion of social services through a health benefits exchange, a component of the controversial federal healthcare law. When collecting detailed personal financial and household information from individuals seeking health insurance support, the state intends to proactively enroll participants in other state programs for which they are eligible. Will this create and expanded culture of dependency?

Statement from CEO, Mike Stenhouse. “This is an extreme case of misguided public policy. The expansion of government and special interest control over our personal healthcare decisions, along with the culture of dependency being freely advocated by this administration, should be viewed as an assault on our deeply held American value of self-reliance.

“Imagine turning to the RI health benefits portal because your employer cancelled your insurance and finding yourself on a government-created expressway to a life of dependency. Wouldn’t we all be better off, instead, if the state encouraged residents to become independent, productive members of society?”

Related Links: Mike Stenhouse discusses the ‘Dependency Portal’ on the Helen Glover radio show … click here; Dependency Portal Pieces in Place;

What the Center is calling a “dependency portal.”  The dependency portal is a not-so-hidden goal of Rhode Island’s version of the health benefits exchanges described in the Patient Protection and Affordable Care Act (PPACA, commonly known as ObamaCare).

Although the final design has not been developed in specific detail, the idea of the exchanges is to enable healthcare consumers to use a government Web site to review their available options for insurance and to determine their eligibility for public subsidies.  Most likely, a series of Web-based forms will ask the user for a variety of highly personal information regarding health, income, and family circumstances in order to determine what health plans and public assistance amounts he or she is eligible for.

Whether such information will be requested of all residents who seek to use the site or only of those explicitly seeking subsidies remains an open question.

The exchange will become a dependency portal when other forms of public assistance — from food stamps to cash-payment welfare to child-care subsidies — are integrated into the system and promoted to the exchange user based on information that he or she provides while seeking health coverage — perhaps automatically enrolling people with the merest expression of consent.

At a recent press conference, Rhode Island Health and Human Services Secretary Steven Costantino referred to this “hidden element” of the exchanges as “one-stop shopping.”

Why is that bad? As a free market think tank, the Center is certainly not opposed to practices that encourage efficiency and the use of technology to improve the access that customers and clients have to services. Information technology, in particular, has empowered individuals to accomplish easily and inexpensively tasks that once required expert consultants.

From a business perspective, the Internet and the proliferating technologies that use it, now including smartphones and tablets, smooth the path from a potential customer’s initial interest all the way to final purchase.  Technology enhances businesses’ ability to market and sell their products and services, and they seek to accomplish those ends in order to grow their revenue and expand their market share.

That model is not appropriate to government in dispensing taxpayer-funded services.

In the private sector, bundling of services has become commonplace, and it is easy to understand why companies would pursue the strategy.  Think of the merging technologies of television, Internet, and telephone; it makes sense for a company with an advantage in, say, television, to use various marketing techniques, such as reduced-price packages, cross advertising, and one-stop shopping, to gain an edge in other markets.

However, the public clearly has a sense that these methods can go too far.  Indeed, at the turn of the millennium, the federal government sued Microsoft on the grounds that it was hindering competition by using its operating system dominance (with Windows) to gain an insurmountable advantage in the Web browser market (with Internet Explorer).

In the case of government, all of the same incentives exist for the organization to expand its reach.  The difference is that government has three inherent competitive advantages:

  1. In its ability to simply confiscate money to pay for, or at least subsidize, its services
  2. In the fact that the people whom it entices to its services are not paying their full cost
  3. In its control of the marketplace by means of regulation

Over time, government programs are therefore less and less “public services” that taxpayers agree to support through the people whom they elect and more and more bureaucratic offerings that use the enrollment of some citizens as justification for claiming more authority and confiscating more money from others.

One can see evidence of this intention in the process by which Rhode Island’s exchange was initiated.  In the face of (to be mild) public uncertainty about the PPACA, the Democrat president and Congress pushed it through.  It creates financial incentive for states to build the exchanges (by making taxpayers from other states pay for it), and it hands an astonishing amount of policy discretion to the unelected Secretary of Health and Human Services.

In Rhode Island, Governor Lincoln Chafee broke with common understanding of separation of powers in order to create the exchange by means of executive order, committing the state to pay for the site’s maintenance once it is operational.  Similarly, the state executive branch has simply determined to agree to a related Medicaid waiver, expanding free healthcare services in the state and adding to its expenses.  No legislative input; no public hearings; in short, no public statement of agreement with the programs being developed in the people’s name.

As the government exchanges claim increasing shares of the market nationally, unelected state and federal officers will be authorized to determine everything from minimum benefits to price controls to payment schedules.  The board that Governor Chafee appointed to initiate the exchange illustrates that special interests will have an outsized role, as well.

With the addition of other welfare programs to the mix, it will be even more difficult for the people of the state to change course.

What it means for you. Losing control of activities done in the public’s name may not be the most dire consequence of the dependency portal approach.  Rather, the fatal part of the trap is the fast lane to a culture of universal reliance on government and a pervasive sense of entitlement.

Whenever the topic of welfare arises, conversation turns toward those who “know how to work the system” and thus become the fabled “welfare queens.”  For them, incentives toward good behavior have been reduced or reversed, and democracy has devolved into an exchange of political power for handouts.

The real danger of the dependency portal is that it sets up a chute so that previously self-reliant Rhode Islanders will increasingly fall into an entitlement existence.  Why else would the exchanges offer health care subsidies to a family of four with income of $92,200?

Just as technology has simplified tasks that once required expert consultants, the dependency portal will make “working the system” a simple matter of clicking a few buttons.

Tracing the progress of the portal in Rhode Island. RI Health & Human Services Secretary Steven Costantino, Health Benefits Exchange Director Christine Ferguson, and Lt. Governor Elizabeth Roberts describe Rhode Island’s nation-leading steps toward the dependency portal (June 28, 2012):

 

Elaboration on why Rhode Island and the United States should resist the pull toward dependency portals:

RI Center for Freedom & Prosperity first identifies the dependency-portal dynamic as one reason to reject the health benefit exchange and the Medicaid expansion:

The pieces needed to turn the exchange into a dependency portal are being put into place:

RI officials acknowledge intention to implement Medicaid expansion, without any indication of legislative or public input:

Documents related to the dependency portal begin to reveal the direct connection between those pushing the concept and those involved with Rhode Island’s health benefits exchange:

The dependency portal in concert with eliminated work requirements for welfare may mark the return of the “welfare queen” and a “majority coalition” for big-government activists:

Documents. The federal government and national non-profits describe the dependency portal and the related “express lane eligibility”:

RI out-Migration to border Counties in MA and CT

County Out-Migration Should Be Alarm to Municipalities

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For nearly a decade, taxpayers have been leaving Rhode Island. With cities and towns facing wave after wave of difficult decisions, a change of policy course is critical. Between 2003 and 2010, the net migration out of the state has left Rhode Island with 24,455 fewer income-tax-paying households with a total of $1.2 billion of annual income.

Read more

Occupational Licensing Policies Hurt Low Income Workers in RI

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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.

NEW! Pension Open Government website: RIOpenGov.org

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Go to RIOpenGov.org – our new, interactive website with searchable & sortable data displays for 26,500+ RI pensioners

Go to our Pension Reform page – pension reform updates, meet our nationally recognized special pension “task force”

Media Release

October 27, 2011, Providence, RI – The Rhode Island Center for Freedom and Prosperity today launched a new ‘open government’ website that adds new information to the current pension reform debate in the Ocean State.

The website, www.riopengov.org  , is an interactive online database of state public employee pension data for current retirees. The data, which can be viewed in both table and graph modes, was provided by ERSRI (the Employees’ Retirement System of Rhode Island) through an open records request.

The information for 26,500+ pensioners can be sorted or searched by employee name, retirement year, benefit type, benefit structure (group), state of residence, and disability type. The website shows base annual pension as well as the COLA benefits for individuals or groups of individuals. The website was created by Visible Government Online, a 3rd party vendor to the RI Center for Freedom …

Read the full Media Release here

More Municipal Pension Systems Soon to be Included on RIOpenGov.org

The following municipal pension systems are not included in our current RIOpenGov.org website. An ‘Open Records’ request has been sent to each city and town. Check back for status updates regarding receipt of the requested records.

WARWICK: Warwick Police and Fire Pension Plan I, Warwick Police Pension Plan II, Warwick Municipal Pension Plan, Warwick Public Schools Employees Pension Plan, Warwick Fire Pension Plan II – limited manpower, may only be able to provide limited data without charging major fees (no other state or municipal entity has suggested fees for this inromation).

NEWPORT: Newport Police and Firemen’s Pension Funds – received only some of the data we requested. Determining now how to incorporate with more complete data.

CENTRAL FALLS: Central Falls Police Pension Fund – no response

CRANSTON: Cranston Police and Fire Employees Pension Fund – has requested a 20-day extension. Data expected in mid-November.

PROVIDENCE: Providence Employees Retirement System – initial internal confusion as to who to direct the request to.

EAST PROVIDENCE: East Providence Firemen and Police Pension Fund –  has requested 20 day extension. Data expected in mid-November.

WEST WARWICK: West Warwick Town Pension Plan – no response

WESTERLY: Westerly Police Pension Fund – data expected by early November.