Every Rhode Island vote should count

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By Mike Stenhouse – as appeared in Providence Journal June 28th, 2013

‘Every vote should count.”

That was the mantra that echoed through the chambers of the Rhode Island General Assembly this month as our legislators debated, then passed, the National Popular Vote bill, which would change the way states elect the president of the United States.

The legislators were referring to votes by citizens in national elections. What about votes by legislators on local bills? Shouldn’t every legislator be held accountable for each vote they take? Shouldn’t those votes count too?

Would you be surprised to know that, in passing the NPV bill, our General Assembly just voted to diminish our voice in national elections, as Rhode Islanders, by over 50 percent?

And why should we be surprised? After all, over the past few years, even with the Ocean State floundering near last place in an alarmingly high number of categories, our elected officials continue to pursue policies that further diminish our state’s competitiveness, that encroach more severely upon our individual freedoms, that reduce our opportunities for increased prosperity, and now that would take away over half of what voice we have when it comes to electing our president.

Under the current Electoral College system, thanks to the wisdom of the Founding Fathers to protect small states like ours, Rhode Island enjoys a greater proportion of electors than our population level would otherwise dictate. However, under the NPV compact, Rhode Island’s popular vote impact would be lessened to be directly proportional to its national share of the population.

Here’s the math: The Ocean State’s population of 1 million represents just 0.316 percent of the nation’s 316 million people. Our state’s electoral weight of 4 electors represents 0.743 percent of the 538 national electors.

So, our General Assembly just voted to reduce our state’s collective clout from one-in-134 to one-in-316 — a loss of over 57 percent of our voice!

This same sort of illogic is how our state government has continually voted to keep Rhode Islanders from realizing their fullest potential. Recently, the Rhode Island Center for Freedom and Prosperity released snapshots of our General Assembly Freedom Index that scores both bills and legislator votes in terms of how they preserve or infringe upon our freedoms, which we believe have a direct effect on our chances of achieving prosperity.

To date, we are tracking 551 bills in the 2013 session. Over two-thirds of those bills we marked as “red,” in that they diminish our liberties; with a total negative score of minus 285. Clearly, the wrong direction.

As for individual legislators, not a single state representative or senator scored in the “green,” or with an overall positive score, on our Legislator Scorecard as of the posting of the snapshot.

Think about that. Not one elected official so far in 2013 has an overall voting record that works to your advantage. Your legislature as a whole has put forth a collection of 551 bills that will further diminish your chance to succeed — death by 551 cuts, if you will.

And now, to top it all off, they have just voted to diminish our state’s political standing when it comes to electing the leader of our nation.

Indeed, it appears that the more government tries to do, the more it harms our freedom and prosperity, as well as our ability to determine our own futures and to pursue our own paths to happiness — whether we are individuals, businesses, municipalities or, now, as a state. Once upon a time we called this tyranny. What do we call it today?

When will we learn that as citizens it is our civic responsibility to ensure that every legislator’s vote counts, too, and hold them accountable for their actions?

Mike Stenhouse is a lifelong Rhode Island resident and chief executive officer of the Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think-tank.

Rhode Island Employment Snapshot, May 2013: Steady Lack of Motion

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Rhode Island’s unemployment rate notched back up a tenth of a percent, to 8.9%. As the charts below illustrate, it’s mainly an indication of stagnation. Some slight encouragement can be taken from the fact that it was a larger increase in the labor force than in employment that spurred the change, possibly meaning that people are a little more optimistic than they were.

The first chart below shows that the employment situation’s mild gyrations are pretty much sticking to a horizontal line of no improvement.

The second chart shows that the Ocean State still has a long way to go to reach its January 2007 level of employment, and once again remains well behind Massachusetts and Connecticut.  Connecticut has paused its free fall, however, and has at least secured a one-month reprieve from its plummet to a Rhode Island-like condition.

RI-laborforceandemp-0107-0513

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General Assembly Freedom Index – Bill Watchlist (Updated 6/21)

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The RI Center for Freedom & Prosperity reviewed all legislation submitted this session (as of June 21), scoring each one with regard to its effect on freedom and, particularly, whether it would further contribute to or would begin to alleviate Rhode Island’s state of decline. In total, we are tracking 592 bills, with a total weighted score of -323, meaning that if all of the legislation were to pass, the overall effect on the state would be a negative one.

Note that this is a preliminary list. Upon the end of the legislative session, the Center will review all of the legislation for the accuracy of the descriptions (with and without amendments). We will also present all bills that receive floor votes to a review panel for final judgment concerning whether each bill is positive, negative, or neutral and what its weighting ought to be.

After opening the PDF, press ctrl-F to search for a bill. For vote tallies and bill travel, see RhodeIslandVotes.org.

Download: General Assembly Freedom Index 2013 Preliminary Scored Bills (06/21)

Click here to see how legislators were scoring on floor votes as of May 22.

Will Rhode Islanders Purchase Insurance Under Obamacare?

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June 10, 2013

Download: PDF version of this report

Read the Part-3 report, Moving Forward with Healthcare in RI

Summary

There will be a broad financial disincentive in Rhode Island for a significant number of individuals and families to obtain private health insurance coverage under the President’s Affordable Care Act. As a result, Rhode Island should be prepared to see enrollment through the Rhode Island Health Benefits Exchange that is significantly below current expectations.

Based on proposed insurance rates in the Ocean State, and given the individual mandate penalties specified in the national law, for most income and age categories earning more than 200% of the federal poverty level for individuals, and 250% for families and couples, there are often substantial pocket-book reasons not to purchase insurance, even when subsidized via the state’s pending health benefits exchange.

This perverse economic incentive runs contrary to the stated goal of Obamacare to significantly decrease the number of uninsured Americans and will likely leave tens of thousands of Ocean State residents without adequate insurance coverage. This financial disincentive could also lead some people actually to drop insurance altogether, resulting in an increased number of uninsured as well as a rise in uncompensated hospital and emergency room costs.

At Issue

On October 1, 2013, Rhode Island’s health benefits exchange will open to the public, allowing residents to purchase health insurance that becomes effective January 1, 2014. The purpose of the exchanges, and the federal Patient Protection and Affordable Care Act (PPACA) that created them, is to expand health insurance coverage and substantially decrease the number of uninsured.

For many Rhode Islanders the premiums for insurance will be capped under PPACA and the federal government will pay the premiums in excess of the capped amount. Subsidized coverage will be available to those between 100 and 400% of the federal poverty level (FPL) who do not have access to “affordable” coverage through work.

The subsidies are supposed to work in tandem with the so-called “individual mandate,” which requires most citizens to obtain health insurance or pay a tax as a penalty. By offering subsides to low- and moderate-income individuals and families while imposing a penalty for failure to buy insurance, PPACA is essentially trying a “carrot and stick” strategy to expanding coverage.

Key to the success of this strategy will be how individuals and families perceive the pocketbook tradeoffs between obtaining coverage or paying a tax. The question boils down to: Will the stick be large enough and swung hard enough to get most people to buy the carrot? This healthcare brief attempts to provide insights into the economic incentives that may serve as the basis for the answer to that question.

The Data

The following table depicts the financial tradeoff between the expected after-subsidy out-of-pocket cost of obtaining insurance through the exchange and the cost of not purchasing insurance and instead paying the tax. Positive numbers (in green bold) indicate that, from a strictly financial perspective, individuals and families can save money by paying the tax penalty rather than purchasing insurance. Negative numbers (in blue italics) indicate that it would be less expensive to purchase insurance than pay the tax.[1]

Healthcare Premiums vs. Individual Mandate Penalty Tax in RI

Proposed insurance rates in RI will generally increase by 18% over last year, with younger individuals seeing increases of up to 50% in their premiums while older persons see lower premiums as a result of the implementation of the Affordable Care Act’s requirements and the operation of the exchange.

Discussion

As the table demonstrates, at most income levels and ages the financial incentive is to avoid purchasing insurance and to instead pay the penalty. This suggests that the Rhode Island Health Benefits Exchange may have substantial difficulty in attracting a significant number of customers.

That said, the age groups and income levels for which the incentive is to purchase insurance (or at least the disincentive is not large), the young and those with low incomes, are the populations most likely to be uninsured.[3] Many of these are likely to be eligible for Medicaid, however, reducing the number that might decide to purchase insurance through the Exchange.

Additionally, the table only looks at the financial incentives and does not consider two other factors that might lead an individual or family to purchase health insurance despite these incentives. In the first instance, Rhode Islanders who tend to be risk-averse and concerned about the possible need to pay for expensive and unexpected health care needs might overlook the pure financial incentives and obtain insurance. In the second instance, Rhode Islanders who already have substantial health needs such as diabetics, heart disease sufferers, or other chronically ill persons will generally find it to their financial advantage to buy insurance because the after-tax savings for not buying insurance are still less than their out-of-pocket costs for needed care.

Unfortunately, if individuals with greater health needs than average are more inclined to purchase insurance, it will lead to adverse selection in the health insurance market and set off a “death spiral” causing premiums for non-subsidized (and some subsidized) individuals to rise, leading even more individuals and families to drop coverage, until only those with extremely high medical bills are left paying extremely high premiums.[4]

Another factor not included in the financial analysis is the impact that social expectations might have. It is possible that even though it may not be seen to make financial sense to purchase insurance through the exchange, the fact that there is a penalty for not doing so will lead some to decide that purchasing insurance is the responsible thing to do, and that not purchasing insurance is an act of poor citizenship.

On the negative side, the disincentive to purchase insurance may be even greater in many people’s view because of the nature of the insurance. The Blue Solutions for HSA Direct 5000 plan, which is the plan used here for most of the analysis, features a $5,000 deductible for an individual and $10,000 for a family.

The least expensive Silver plan, Blue Solutions for HSA 2600, features a $2,600 deductible for an individual and $5,200 for a family, and costs nearly 30 percent more than the Blue Solutions for HSA Direct 5000 policy.

This means individuals and families considering whether to purchase insurance or pay the tax will also be looking at the benefits they might get from being insured. In the case of a family of four with two adults age 34 earning $82,425 (350% of FPL), they would not only consider whether it’s worthwhile to spend about $3,000 more on insurance than they would pay in taxes for being uninsured but also recognize that they would still need to pay $10,000 out of their own pockets before getting benefits from their policy in the event of a catastrophic illness or injury.

Because very few individuals and families will see medical expenses approaching $13,000 (adding the $3,000 difference between the tax and out-of-pocket premiums to the $10,000 deductible),[5] it is highly likely that many individuals and families will see little value in insurance that is expensive while still exposing them to substantial financial risk, and will choose to remain uninsured, paying for their relatively few medical expenses out-of-pocket and saving a substantial amount of money.

An additional factor to consider is the “moral hazard” created by requiring that insurers accept all applicants at standard rates, with no exclusions or limits on care for pre-existing medical conditions. This effectively tells Rhode Islanders weighing whether to buy costly insurance or pay a relatively modest tax if they choose to remain uninsured that they can delay purchasing insurance and still be able to obtain coverage at a later date to pay future medical expenses in the unlikely event of a catastrophic injury or illness.

This has the potential to further tip the decision towards remaining uninsured, although the limited open-enrollment period may mitigate this impact somewhat (the rate filings by Blue Cross/Blue Shield of Rhode Island indicates an annual open enrollment period between October 15 and December 7).

This “moral hazard” could also manifest itself if many of the currently insured in the individual market as well as some receiving insurance through their employer respond to the incentives embedded in PPACA and the exchange and elect to drop coverage.

Finally, the analysis here uses the tax amounts for 2016, and assumes the tax will be collectable by the IRS. In 2014, the tax for remaining uninsured will be the larger of $95 per person or 1% of taxable income, rising in 2015 to $395 or 2%, making the incentive to remain uninsured for at least these two years substantially more than the table above indicates.

There is also some doubt about the ability of the IRS to actually collect the tax, given that they are prohibited from pursuing civil or criminal charges for nonpayment, and are not able to garnish wages, seize assets, or levy additional penalties or interest for nonpayment. The only mechanism available to the IRS for collecting the tax for being uninsured is to take it out of tax refunds, which can be easily avoided by adjusting how much tax is withheld.

Methodology & Sources

The financial incentives to obtain health insurance coverage (subsidized or unsubsidized) or be uninsured and pay the tax depend on several factors: age and how much an individual or family earns as a percentage of the federal poverty level (FPL) in adjusted gross income; what the Bronze and Silver level premium for their age/family composition would be; what their premium subsidy would be; and what their tax for being uninsured would be. Once this information is known, it is fairly easy to calculate how much any particular individual or family would have to pay to obtain health insurance as well as what their tax would be for being uninsured.

Age levels for the purposes of this analysis were set at 24, 34, 44, 54, and 64 years old. Income levels for this analysis were selected to be 150, 200, 250, 300, 350, 400, 401, 600, and 800 percent of FPL, using 2013 poverty guidelines.[6]

Bronze level premiums were assumed to be the lowest-cost Bronze plan submitted to the Rhode Island Office of Health Insurance Commissioner on April 15, 2013, in this case the Blue Solutions for HSA Direct 5000.[7] The Silver premium cost used was VantageBlue Direct 3000. Premiums for a couple of the same age are calculated to be two times the individual premium, and the family premium assumes two adults of the same age and two children under age 21.

The premium subsidy was determined by subtracting the maximum out-of-pocket amount (as determined by PPACA’s guidelines)[8] from the Silver premium. This amount was then subtracted from the Bronze level premium, with the remainder being what individuals, couples, and families are expected to pay for coverage through the exchange. In some cases, the result was negative, in which case “zero” was substituted for the subsidy.

The premium for the Catastrophic plan was used where it was less than the subsidized Bronze premium for those eligible to purchase it, defined in PPACA as those age 30 and under and those for whom out-of-pocket premium costs would exceed 8% of income.

The tax levied on being uninsured was calculated using the 2016 tax rate, the time at which penalties under PPACA for being uninsured will first be in full force. Income subject to the tax equals income minus the tax filing threshold ($9,750 for an individual in 2012, $19,500 for a married couple) multiplied by 0.025 in 2016, or $695 per uninsured adult and half that amount for each uninsured child, whichever is larger.[9] Individuals and families for whom purchasing insurance would cost more than 8% of income are exempt from the tax if they elect not to purchase insurance.

Once this information was obtained and calculated, a simple analysis was performed subtracting the tax for being uninsured from the out-of-pocket premium. The difference represents the financial incentive or disincentive for purchasing insurance under PPACA.

Conclusion

While advocates of the Rhode Island Health Benefits Exchange are optimistic about its ability to substantially reduce the unacceptably high number of uninsured in the state (along with the Medicaid expansion), there is substantial reason to be concerned that it will not attract large numbers of individuals and families.

As demonstrated here, for many age and income levels, the clear financial incentive is to not buy insurance and instead pay (or possibly avoid altogether) the tax. In some instances this incentive is relatively weak, only several hundred dollars. But for many more the incentive is thousands of dollars in difference between buying insurance or remaining uninsured, and more than $10,000 for many who are older, have children, and are in higher income brackets.

This strongly suggests that public officials and community leaders in Rhode Island should be prepared to see enrollment through the Rhode Island Health Benefits Exchange that is significantly below current expectations, leaving a substantial number of Ocean State residents uninsured.

Future Related Papers

The Rhode Island Center for Freedom & Prosperity will continue to contribute to this important and highly personal public discussion by publishing two related papers in the coming months.

First, identifying and quantifying the groups of people who are likely to remain uninsured after the PPACA takes effect.

Second, to propose free-market public policy solutions, as well as private strategies, that can be pursued to address this shortcoming, without requiring any additional taxpayer funding.

About the Author

Sean Parnell, an adjunct scholar to the RI Center for Freedom & Prosperity, is president of Impact Policy Management (IPM), a Washington, D.C., area full-service public policy firm, and manages political advocacy projects for free market and limited government causes. Before founding IPM he was president of the Center for Competitive Politics (CCP), a nonprofit advocacy organization focused on defending the First Amendment. Prior to joining IPM Parnell was Vice President of External Affairs at the Heartland Institute.

 

[1] Technically the penalty for being uninsured cannot exceed the cost of the national average for a Bronze plan, meaning that in cases where the tax is greater than the Bronze premium (a negative number), the actual difference between the maximum out-of-pocket premium and the tax is close to zero. In order to demonstrate how close or far each income level is from this point, we have kept the originally calculated number.

[2] The table here presents only final findings, based on the data and calculations described in the Methodology and Sources section. The full spreadsheet including all data and formulas used is available to anyone who requests it, please contact info@rifreedom.org

[3] For a more complete discussion of the composition and characteristics of the uninsured in Rhode Island, see Karen Bogen’s Who Are The Uninsured in Rhode Island: Demographic Trends 1990 – 2004, Access to Care, and Health Status for the Under 65 Population prepared for the Rhode Island Department of Human Services in 2006, available at: http://www.dhs.ri.gov/Portals/0/Uploads/Documents/Public/Who%20are%20the%20uninsured.pdf

[4] For a full discussion of the ‘death spiral’ phenomenon, see: Destroying Insurance Markets by Conrad Meier, published by the Council for Affordable Health Insurance and The Heartland Institute, 2005. Full text available at: http://www.cahi.org/cahi_contents/resources/pdf/destroyinginsmrkts05.pdf.

[5] A review of data available from the results of the Medical Expenditure Panel Survey (MEPS) conducted by the Agency for Healthcare Research & Quality shows that in 2010 the median healthcare expense was $875 for persons age 18 – 44 and $2,124 for those age 45 – 64. Mean expenditure for these age groups were $3,230 and $6,429, respectively. MEPS has repeatedly found that medical expenditures are highly concentrated among a small percentage of the population, typically older and Medicare-enrolled. See reports available at: http://www.ahrq.gov/research/data/meps/index.html

[6] 2013 Poverty Guidelines, U.S Department of Health & Human Services, available at: http://aspe.hhs.gov/poverty/13poverty.cfm

[7] BCBSRI Individual Market Submission to Rhode Island Office of Health Insurance Commissioner, p. 93 4/15/2013, available at: http://www.ohic.ri.gov/documents/2013%20Rate%20Review%20Process/2013%20Rate%20Review%20Submissions/1_2013%20BCBSRI%20Individual%20Market%20Submission%2041513%20Final.pdf

[8] Health Reform Subsidy Calculator, Henry J. Kaiser Family Foundation, available at: http://healthreform.kff.org/subsidycalculator.aspx

[9] “Payments of Penalties for Being Uninsured Under the Affordable Care Act,” Congressional Budget Office, September 2012, available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-19-12-Indiv_Mandate_Penalty.pdf

House Economic Development Bills and the General Assembly Freedom Index

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In light of the RI Center for Freedom & Prosperity’s release of its 2013 General Assembly Freedom Index Snapshot the day after the Rhode Island House of Representatives passed its leadership’s economic development package, a note joining the two may edify the public.

In short, we believe that the six bills that passed the House (now to proceed to the Senate) will have an overall negative effect on Rhode Island’s economic and civic well-being. The three negative bills are:

  • 6063-SubA: to create an Executive Office of Economic Development to oversee multiple state governments, including Business Regulation, Labor and Training, and others, and coordinate all government activities affecting the state’s economy. The office would be run by a new Secretary of Economic Development appointed by the governor.
  • 6071: to change the Economic Development Corp. into the Commerce Corp. and increase its reporting requirements to the General Assembly. The legislation would also add a layer of supervision, with a new Secretary of Commerce appointed by the governor having final authority and a chief operating officer running the day-to-day operations.
  • 6068-SubA: to create a “Rapid Rhody lending program” within the proposed commerce corporation to offer fast financing to small businesses that have been operating in the state for a year and promise to remain for another two years.

All of these bills would consolidate economic authority — increasing power to dictate the direction of the state’s economic activity — within the hands of a small group of largely unelected government officials. The third of the bills would do so by providing taxpayer resources to government agents to hand out to select businesses, which would both socialize the risk of those businesses’ not succeeding and interfere with the market forces that allow an economy to move its resources where they can do the most good.

The three other bills in the package, we view as likely to be inconsequential:

  • 6069-SubA: to require each new gubernatorial administration to create an Economic Development Planning Council with at least 15 members chosen from inside and outside of government to plan economic policy for the state.
  • 6070-SubAaa: to create a Council of Economic Advisors with nine members appointed by the governor to advise him or her on matters related to economic policy and to publish reports and analysis.
  • 6067: to create a state business development center within the proposed commerce corporation that would “provide a concierge-level of call service” to walk businesses through government requirements and possibly offer business-to-business services.

A handful of legislators did vote against some of these six bills, and it did have an effect on their rankings, with the top and bottom 10 now as follows:

House
Top 10 Bottom 10
1 Chippendale -19.4 75 Edwards -83.1
2 Trillo -29.0 74 Williams -80.7
3 Newberry -29.0 73 Valencia -80.7
4 Costa -41.9 72 Slater -80.7
5 Giarrusso -41.9 71 Silva -80.7
6 O’Neill -42.7 70 Shekarchi -80.7
7 Dickinson -47.6 69 Serpa -80.7
8 Morgan -50.0 68 Palangio -80.7
9 San Bento -52.4 67 O’Grady -80.7
10 Nunes -54.8 66 Messier -80.7

 

For bill tracking and descriptions, see Rhode Island Votes.

2013 Rhode Island General Assembly Freedom Index Snapshot

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Download: Freedom Index 2013 Scorecard Snapshot

Rhode Island families can expect further downward pressure on their prosperity this year as a result of the actions of their own elected officials, based on a snapshot scoring of 55 tracked bills already voted on through May 22 of 2013.

Overall, the RI General Assembly has garnered a negative (-54.7) rating on its overall “Freedom Index”.  Further, not a single state legislator rated in positive figures.

The 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. This preliminary scorecard provides a snapshot of the scores as of May 22, 2013, so that voters and legislators can develop a better-informed evaluation of their progress and priorities as the General Assembly approaches its final push.

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 submitted in either chamber and collected votes tallies for those that received roll-call votes on either floor. (Companion bills only count once.)

The resulting scores give a detailed sense of each legislator’s priorities beyond a few high-profile issues. Each legislator’s votes can be found on RhodeIslandVotes.org, and full vote tallies and bill weightings will be published with the final index as described below.

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 2013 Scorecard Snapshot

2013 Freedom Index Findings

Fifty-five (55) different pieces of legislation (counting companion bills once) were evaluated. The Center judged 41 of them as having a negative effect on freedom.

The average legislator index score of -54.7 indicates that the General Assembly has been moving Rhode Island in the wrong direction, and that Rhode Islanders will be less free than they were in 2012. By comparison, last year’s average index score was -25.4, so this legislative session has so far been more destructive than the previous. This index underscores our Center’s view that the 2013 RI General Assembly is not positively addressing the dire business and living climate of our state.

Top and Bottom 10

House Senate
Top 10 Bottom 10 Top 10 Bottom 10
1 Chippendale -14.8 75 Edwards -80.6 1 O’Neill -30.9 38 Goldin -49.1
2 Giarrusso -33.3 74 Williams -77.8 2 Hodgson -33.8 37 Cool Rumsey -49.1
3 Trillo -33.3 73 Valencia -77.8 3 Picard -33.6 36 Goodwin -48.2
4 Newberry -40.7 72 Slater -77.8 4 Bates -34.6 35 Satchell -47.7
5 Costa -40.7 71 Silva -77.8 5 Kettle -34.6 34 Crowley -46.8
6 Morgan -42.6 70 Shekarchi -77.8 6 Cote -34.6 33 Pearson -46.8
7 San Bento -45.4 69 Serpa -77.8 7 Algiere -35.0 32 Lombardo -46.8
8 Nunes -48.2 68 Palangio -77.8 8 Raptakis -35.9 31 Archambault -45.5
9 Corvese -54.6 67 O’Grady -77.8 9 Ciccone -36.4 30 Jabour -45.5
10 Carnevale -56.5 66 Messier -77.8 10 Ruggerio -37.7 29 Sosnowski -45.5

 

Other findings include;

  • Average House index of -68.0 (from 2012 average of -24.1)
  • Average Senate index of -41.8 (from 2012 average of -27.9)
  • Average Democrat index of -62.1 (from 2012 average of -33.5)
  • Average Republican index of -35.0 (from 2012 average of 16.5)
  • Average Regulatory Environment index of -78.3 (from 2012 average of -49.0)
  • Average Tax & Budget index of -44.3 (from 2012 average of-26.0)
  • Average Constitutional Government index of -17.6 (from 2012 average of -9.1)

Download: Freedom Index 2013 Scorecard Snapshot

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 2013 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.

For more detailed notes and methodology, download the PDF:  Freedom Index 2013 Scorecard Snapshot

Individual Property Rights in the Cross Hairs in the Ocean State

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Homeowners, businesses, and other property owners should be aware that a series of bills under consideration in the Rhode Island General Assembly would undermine or erode their individual property rights — the foundation of the U.S. Constitution and the free-enterprise system.

In the name of vague environmental resource benefits, three bills in particular would systematically give the state, or new state and local agencies, authority to infringe upon the rights and freedoms of local property owners.

It appears that the state is seeking a larger role in centrally planning, mandating, or influencing how local land or property may or may not be utilized. The plans are so invasive that Rhode Islanders may be left wondering whether they own their land or merely lease it temporarily from the government.

1) House Bill 6099 would create a new, quasi-public statewide Ocean State Regional Water Authority, with a board consisting of a majority of members appointed by the mayors of Providence, Cranston, and North Providence, ostensibly with the goal of ensuring that enough water is available to communities throughout the state.

Perhaps most egregiously, the new Water Authority would have the power to enter without permission onto any property in Rhode Island to examine the land and drill and dig into the ground. It would also have powers of eminent domain, to take land that the board determines it needs for current or future use. It would also set rates for water and have authority to place liens on properties of delinquent customers, as well as to shut off their water.

The bill further allows the state to purchase or lease from the Providence water system or other local organizations that currently operate such systems and to bring in water from out of state. The purchase or lease price would not be not subject to Public Utilities Commission (PUC) or Division of Public Utilities and Carriers (DPUC) approval or proceedings, and the costs would be passed on to water customers via increased rates.

“(c) Notwithstanding anything in the general laws to the contrary, and without limiting the provisions of section 46-32-11 set forth above, neither the Rhode Island public utilities commission nor the Rhode Island division of public utilities and carriers shall have any jurisdiction, authority, or other power to approve, reject, review, or in any way affect any acquisition or the terms of any purchase and sale agreement or lease agreement.”

Going even farther, the legislation explicitly prohibits the PUC and DPUC from requiring that the water authority’s purchase or lease payments “benefit, directly or indirectly… the water ratepayers.” In this case, the question of ownership is broader: In publicly held water districts, the taxpayers and ratepayers are responsible for the liabilities of their systems, but under this legislation, they would not likewise be recipients of any of the benefits of ownership.

2) House Bill 5633 and Senate Bill 696 would use state grants and matching funds to pressure cities and towns to create “community preservation committees” (with a majority vote from residents), which would research and implement land purchase and development deals in keeping with ideals of sustainable development. The legislation would allow cities and towns to impose up to an additional 3% tax (renamed as a “surcharge”) on local property that would not be counted in any calculations or limits on the property tax levy.

The state would provide matching funds up to 100% of the additional surcharge, with the money coming from (among other places) an additional $20 fee on all real estate recording instruments (e.g., deeds).

In creating these new local committees, these bills would provide a new path for “affordable housing” or other “green” projects to be approved and funded locally. This presents two potential issues for existing property owners.

First, it is not unusual that the resulting subsidized developments are taxed at lower rates than most others — while existing property owners are subject to higher rights, even surpassing existing caps. This tax level disparity would make it significantly more expensive to live in unsubsidized areas.

Second, these committees, in furthering their preferred land purchase and development deals, may exempt projects from local zoning ordinances.  In contrast, the way the legislation is constructed, the state government could impose requirements that the towns would have to follow. (One example already in the bill is a ban on “artificial turf.”)

While existing local governments would technically have to pass related projects and mandates, it isn’t clear whether the legislation permits them not to do so.

Unelected officials, coordinated and trained via a statewide infrastructure with its own agenda, would have new powers to determine local land use that would create disparate and inequitable tax structures. That all Rhode Island property owners would be forced fund this questionable activity via fees on standard transactions and new, renamed property taxes is clearly a program that infringes on property rights.

3) House Bill 5801 would require any “greenhouse gas emissions source” (as defined by the state Dept. of Environmental Management) in or doing business in Rhode Island to increase its tracking and reporting to the state, as well as impose direct fees on them for use of the DEM. The legislation would also make greenhouse gas emissions a focus of state economic development activities.

By charging commercial property and business owners additional fees or causing them to incur unnecessary expenses for conducting or reporting normal business activities, the state would be infringing on the rights of those owners.

Further, the idea that restricting or charging for greenhouse gas emissions can somehow be considered a serious part of an economic development activity is preposterous. Such fees would only be a further detriment to an already weak state economy that has been hampered by similar dubious statutes in the first place.

Center Assembles Expert Panel for Sales Tax Hearing

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FOR IMMEDIATE RELEASE:  May 13, 2013 

Providence, RI — Hailed as the largest tax cut and economic stimulus plan the state of Rhode Island has ever considered, an expert panel has been assembled by the RI Center for Freedom & Prosperity to testify at Wednesday’s hearing of the “Sales Tax Repeal Act of 2013” (H-5365) in front of the RI House Finance Committee on May 15, at 1:00 pm in Room 35 at the RI State House.

The panel is comprised of: Scott Moody, the national economist who authored the original Zero.Zero Sales Tax report in 2012, which inspired the bill sponsored by Rep. Jan Mailik (D-67); Paul Bachman, from the Beacon Hill Institute, which developed the STAMP modeling program that produced the job and revenue projections used in the Zero.Zero reports; the Center’s CEO, Mike Stenhouse; and the Center’s research director, Justin Katz.

The updated 2013 Zero.Zero report showed that as little as $105 million in budget savings could put the Ocean State on the path towards 25,000 new jobs and a re-invigorated economy, if the state were to repeal its onerous sales and meals tax.

“This is the only game-changing reform idea out there for a state economy that desperately needs a game-changing idea”, said Stenhouse. “This is a reform that would immediately save money for every family and business, and that would attract out-of-state shoppers to our state. Because of the regressive nature of the sales tax – and eliminating it would help low-income families most – we are seeing support from across the political spectrum. We invite all members of the public to attend the hearing and see how this plan can put Rhode Islanders back to work.”

The Rhode Island Center for Freedom and Prosperity, a non-partisan public policy think tank, is the state’s leading free-enterprise advocacy organization. With a credo that freedom is indispensable to citizens’ well-being and prosperity, the Center’s mission is to stimulate a rigorous exchange of ideas with the goal of restoring competitiveness to Rhode Island through the advancement of market-based reform solutions.

38 Questions on the Superman Building

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Would Saving Superman be Kryptonite to RI’s Economy?

Opinion

Local developer Arnold “Buff” Chace of Cornish Associates and a Massachusetts real estate investment fund, High Rock Development, recently released a “redevelopment plan” for the property at 111 Westminster Street in Providence’s Financial District popularly referred to as “The Superman Building.”  As the Providence Journal reports, the plan requires state-taxpayer-funded public subsidies of $39 million, $21 million in federal-taxpayer-supported tax credits, and up to $15 million in city-taxpayer-supplanted tax forgiveness in order convert a 441,000 square foot building from office use to primarily residential use.

$75 million … sound familiar? Given the disastrous track record of Rhode Island’s “public-private partnerships” of late, the Rhode Island Center for Freedom & Prosperity thought it might be appropriate to pose certain questions relating to the request.  38 questions, in fact.

38 Questions

1.    Did we learn nothing from 38 Studios?  With many multi-million-dollar years ahead of us to cover a failed gamble on subsidized video games, one would think that the state’s ability to adequately analyze this sort of massive investment and its risks would be a matter of suspicion.

2.    Is this a priority for the state?  Have we solved enough of our education, social services, and infrastructure problems to justify applying our treasure and attention to a massive, risky, and speculative real estate investment?

3.    If we do have budget dollars to spare, why wouldn’t we invest them in infrastructure improvements that benefit all economic drivers?  We can think of at least one bridge that could lose its looming tolls faster than a speeding bullet.

4.    Do the voters responsible for this big check get a say as to whether they want to be in the apartment building investment business?  Does their Constitution require their approval of such expenditures, or at least a legislative supermajority? (Should it?)

5.    If you call it a tax credit, but you then let the developer sell it to other taxpayers, isn’t it just a really inefficient way of handing out a multi-million-dollar corporate welfare check?

6.    Why do we need to involve tax credit brokers, anyway?  It would be a lot easier to keep track of all the people who stand to profit if the money flowed out of the state check book? Or would transparency be like Kryptonite to the superpowers of the deal makers?

7.    How about a tax-credit lottery? Tens of thousands of small businesses would love not to pay their full tax liabilities for a year or two.

8.    According to the developer, 775 office buildings are in the City of Providence, representing over 15 million square feet of space.  Do subsidies to one disadvantage the other 774?

9.    For that matter, why not redirect the $75 million in subsidies to pay most of the first-year cost of the proposed elimination of the state sales tax?  The Center’s Zero.Zero plan, currently before the General Assembly, would put that money in the pockets of every individual Rhode Islander and every business.  That would spark new economic activity, not just moving dollars from one neighborhood or town to another.

10.    Why can’t the developer phase in the conversion over time, using profits for additional remodeling?  They project that “stabilization” of the downtown Providence office market will take 12 to 15 years, saying it would take 24 to 30 years if we don’t give them piles of taxpayer money (Advisors Inc. Economic and Fiscal Impact Study dated April 25, 2013 [HR&A], page 26).  Cautious, phased-in funding over 5 to 10 years would achieve the same goal without the up-front risk.

11.    For that matter, its own market study says that the Class A office market in Providence is seeing its lowest vacancy rate in 10 years and that midsize office suites could generate $25 per square foot in rent.  Is that really not viable, or is it just harder to hide previous losses in smaller projects?

12.    And while we’re at it, how can the HR&A report (page 30) claim that the “magnitude” of the project implies that the spending is “net new”?  They seem to be arguing that 95% of the spending is “new to the region” because a project of this size “would not have otherwise taken place” without the taxpayer subsides.  If Rhode Islanders have that much money lying around doing nothing, perhaps the developers should just take up a collection.  Or maybe there’s a reason the project can’t gather funding without involving politics and taxes.

13.    Why does the developer get to retain $15 million in declared value while arguing functional obsolescence at the same time?  If you need this bailout to keep the lights on (literally), isn’t the building really worth nothing?

14.    Is it somehow our problem that the owners paid too much for the building in the first place?  In the nation’s 46th worst (of 51) real estate market, there are probably a lot of bad bets still shaking out around the state. Should other property owners start putting the word “iconic” in all of their materials?

15.    The various “public-private” redevelopment successes touted by the developers in other states don’t seem to have required quite the same sort of taxpayer-funded cash in hand.  Can they cite a successful effort that invested a similar amount of taxpayer money on a per-square-foot basis that wasn’t an investment in public infrastructure or funding traded for equity?

16.    Did the building owners have an appraisal done when purchasing the building in 2008?  They say they’ve spent $39,200,000 to date on the property.  Since we’re being asked to make the same investment, shouldn’t we know their upfront purchase price, how much they’ve spent since then, what they were paid in rent over the years, and what they have taken out in management fees and profits?

17.    Would a private investor get in league with someone whose own numbers indicate a loss of almost $25 million in five years on this project?

18.    Who’s on the hook for the bad investment?  Who invested the equity to allow the company to purchase the property, and who loaned them the money?  Who are we really bailing out here?

19.    More bluntly, does our proposed multi-million-dollar subsidy go to the new development, or does the plan include paying off old debt or old investors?

20.    What is the tax value of the write-down to the developer and/or its investors or lenders?  Will the state see the claimed $120,000 in corporate income taxes (HR&A, page 33)?  Will the EDC exempt the sales tax on construction materials?  Will the millions in federal payroll tax dollars that leave Rhode Island during construction be counted as an offset and a negative economic impact?

21.    The report calls the proposed rate of return for investors “below market,” at 2–6%. So what exactly is motivating an investor to invest?  Love of DC Comics–style architecture? Will there actually be other new investors, or will RI taxpayers be left holding Superman’s cape?

22.    If we later find out that the money players who are already over their skis on the project are taking the reduced return instead of losing everything, would that be called “fraud”?

23.    What kind of development fees, management fees, or other payouts to the developer, its investors, or its lenders are going to be made during the life of the project?

24.    Specifically, what do we get for $3,105,678 in “legal & professional” fees and $3,342,050 in “administration & development” fees?  (Would it be too bold to ask who exactly gets that $6,447,728?)

25.    If it’s an investment, do we get equity?  If the developer puts in $10,000,000 and we put in $40,000,000, do we get 80% ownership?

26.    How can the developers claim that the $75 million will drive economic activity without subtracting the $75 million that taxpayers will no longer have? Simply taking it from us and spending it yourself does not yield new economic activity.  A better term than the repeatedly used “generate” (HR&A, page 2, for example) would be “relocate” (or perhaps “redistribute”).

27.    Who thinks it is a compelling argument that the project will save $740,000 in lost property tax revenue over the long term?  The subsidies amount to roughly 100 times that amount. If we took those tens of millions and simply lowered the commercial tax rate in the City of Providence and across Rhode Island by eliminating the two-tiered tax system that today punishes and drives out businesses, it might lead to new tenants downtown and push up property values and assessments.

28.    In the absence of such market forces, where will the anticipated tenants come from?  Won’t they just leave the suburbs or the neighborhoods and move to the subsidized building?  Which cities and towns will lose the professional residents the project intends to attract?

29.    Who’s going to get those Burnside Park views?  The developers’ “tenant profile” talks about “young professionals, older professionals, Boston commuters, empty nesters, and students.”  Not exactly those most in need.  This table of expected annual incomes for each unit type assumes that housing costs represent about one-third of take-home income. In that case, our average beneficiary is making around $75,000 per year.

38questions-table1

30.    Is welfarequeenus hipsterus a rare breed of urban parasite noted for its aversion to suits and Windows-based products and its keen sense that everybody else can afford to pay a bit more for their greater good?

31.    Man of Steel aside, if we’re subsidizing “stainless steel appliances” and “granite kitchen and bathroom counters,” can we leave our doggie bags there when we go out for a night on the town after dinner? How about using the “24 hour fitness center” and “24 hour concierge/security”?

32.    Given the roughly $75 million in total proposed handouts, the proposal amounts to a subsidy of about $200 per square foot for 265 new households (HR&A, page 34.)  That kind of money builds a nice house; how about we just build a bunch of those and give them away?  That certainly seems more equitable than subsidizing one tall building in a single bound.

33.    How can they characterize a projected 104 jobs as economic growth?  Aren’t the people who will live there economically active today?  Same goes for resident spending estimates (HR&A, page 36.)  Even if every resident moved here from out of state, the HR&A study (page 38) only projects $697,000 in annual revenue to the State of Rhode Island, for which it calculates a net present value of $8,600,000.  So we invest $39 million in cash, and another $36 million in incentives, and we know on day one that over $60 million of that subsidy is a write off? Wouldn’t it be a better investment to spend $105 million to eliminate the sales tax and clear a path for 25,000 jobs?

34.    How can they claim a “multiplier effect” from jobs that are presumably mostly here already?  The “IMPLAN” model (HR&A, pages 41–43) for estimating economic impacts and multiple effects is certainly respected and credible for its purposes, but the HR&A study utterly misuses it.  The IMPLAN model assumes new economic activity, not simply the shifting of resources within the state; that’s more like a TRANSPLAN.

35.    Are we crazy to think that myopic economic analyses, absurd corporate welfare handouts, and inept economic meddling contributed to the fact that “Rhode Island’s economy suffered more from 2008 to 2012 than the neighboring New England states,” as the developer’s market study puts it?

36.    Mightn’t a broad-based reform help replace the roughly 1.5% population loss the study anticipates for the state with population and economic growth?  As the developers’ own analysis notes, we have 35,900 fewer jobs in Rhode Island today than we had at the peak of 2006.  Take out the 112,000 largely government funded healthcare and education sector jobs, and the 49,700 or so public sector jobs (U.S. Census Bureau 2011 Data for Full Time Equivalent Employment, state and local), and our current private employment of 388,000 is around 10% below the peak.

37.    If this deal ends in disaster, and taxpayers lose again, do we at least get the consolation prize of watching some political player get banished to Krypton?

38.    In the spirit of Rhode Island’s economic development habit of ending up where it began, we’ll close with: Did we learn nothing from 38 Studios?

On a Serious Note

Many years ago, the EDC liked to talk about “traded services” as the types of activities that represent economic growth for a state.  They are not activities that occur simply because of their proximity to the local market.  For example, a restaurant is not a traded service, because people will not travel to South Carolina for dinner.  On the other hand, jewelry manufacturing is a traded service, because another state can provide incentives or an economic environment that would draw that business away.

It follows that economic development policy should be focused on activities that are portable, or traded.  To subsidize non-traded services is simply to shift resources from one pocket to the other, while dropping a few dollars on the ground in costs and expenses.

Moving a Rhode Islander from Pawtucket to Providence is economic activity, but it is not economic growth.  The same can be said for the new dry cleaner or coffee shop that the resident will now frequent.  The construction activity for a new Providence apartment may be simply offsetting the same type of construction activity back in Central Falls.

Except that Pawtucket, Central Falls, and the other cities and towns in the state will never know what might have been.

Center Provides Testimony on Key 2013 Bills

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The RI Center for Freedom and Prosperity submitted the following pieces of testimony to the appropriate House and Senate committees regarding proposed 2013 pieces of legislation.

As an IRS approved, 501-C-3 nonprofit organization, the Center is not allowed to openly advocate ‘for’ or ‘against’ a specific bill, however we can provide testimony with regard to research and perspective relative to the underlying issue contained within the bill. 

HOUSE FINANCE COMMITTEE:

May 15 (H5365) – Stenhouse, Katz and expert panel present the entire case to bring the sales tax to Zero.Zero%

Capitol TV Video of the Hearing (Stenhouse @ 18:00 mark; Katz @ 56:00 mark) .

Stenhouse-Written Testimony-H5365

May 8 (H5751 & H5805) – Justin Katz on proposals to raise state income tax rates. Written testimony and live excerpts at the ehearing. katz-testimony-housefinance-taxtherich-050813; See video from the hearing (19:25 mark)

HOUSE JUDICIARY COMMITTEE:

May 8 (H5321) – the Center on proposals to modify Rhode Island’s litigation laws to ensure that defendants are liable ONLY for their percentage of fault. Written testimony only LegalClimate-H5321