Gov. Gina Raimondo has spent the weeks since her election analyzing the scale of the problem Rhode Island confronts. Last week, she spoke out honestly about the state’s dire situation — and the nightmares we will confront, as surely as hollowed-out Detroit did, unless we can summon the will to turn things around.
As she put it, the state’s economic engine is out of gas. Rhode Island suffers from high unemployment, with America’s fourth worst rate. Its job growth is abysmal. A disproportionate share of the state’s jobs are in industries that grow slowly. The state’s residents are older, poorer and less well-educated than those of our neighbors.
Rhode Island’s median household income is significantly lower than that in Massachusetts and Connecticut. One in six of its residents relies on food stamps. Nearly 20 percent of Rhode Islanders’ income comes from government transfer payments, a number that has been going up and is much worse than in Massachusetts, where it stands at around 15 percent.
Educationally, the state is in poor shape. A much smaller portion of Rhode Islanders hold high-skills jobs than do residents of Massachusetts. Rhode Island's high school graduation rate and its National Assessment of Education Progress (NEAP) math and reading scores are significantly lower than those in Massachusetts.
The state’s projected deficits are alarming: $190 million in fiscal year 2016; $256 million the next (much more than the budgets of 21 state agencies combined); $383 million the next; and a staggering $496 million in fiscal year 2019.
The state’s manufacturing sector has been cut in half, with 80,000 jobs vanishing since the 1980s. Only North Carolina, Mississippi and Arkansas fared worse as a percentage of total state employment. Rhode Island has lost good middle-wage jobs, and replaced them with lower-wage jobs.
Rhode Island has failed to position itself for jobs in high-tech industries that are now growing. In fiscal year 2013, the state received only $47 million in federal research and development contracts, compared with Massachusetts’s nearly $3 billion.
Meanwhile, the state’s government costs are unusually high: second highest Medicaid costs per enrollee in the country; second highest fire safety costs per $1,000 of income; third highest public employee compensation rates; fourth highest road costs per mile (while ranking abysmally in the quality of roads and bridges); high spending on public education, with generally mediocre results.
In areas that spur job growth, Rhode Island has failed to invest, or invested poorly. Its economic development budget is $4 million, compared with Massachusetts’s $80 million. It has 35 people working at its economic development agency, compared with 150 in Massachusetts. Its tourism spending is parceled out to local bureaus, instead of being pooled to compete with the likes of Massachusetts, Connecticut and New York.
While Massachusetts, Connecticut, New Jersey and New York provide state-level tax increment financing to spur business, Rhode Island does not. While Massachusetts, Connecticut, New Jersey and New York operate state-funded small business loan programs, Rhode Island does not. While Massachusetts, Connecticut, New Jersey and New York provide refundable/transferable tax credits for real estate development, Rhode Island does not.
The state cannot tax itself out of this mess, although it has tried. Higher taxes depress business activity, fueling higher deficits and bigger cuts in investments for job growth.
The good news is that Rhode Island finally has a governor who understands that more of the same cannot work.
Rather than operate in a vicious circle of disappearing jobs, lost revenues and higher taxes, Rhode Island must shift to a virtuous spiral of job growth, increased revenues and greater investments in education, infrastructure and property tax relief.
Given where Rhode Island stands today, that turnaround will be very difficult. It must slash in areas where the state spends significantly more than its peers. It must, at the same time, invest in job creation. Such changes will elicit loud howls and threats from Rhode Island’s entrenched special interests.
But there is no good alternative to growing Rhode Island’s economy. Higher taxes will only hasten the state’s decline. What the state must do is attract jobs in high-growth industries, using proven economic development tools to get us there. As of now, Rhode Island is not on the map of places businesses might consider for relocation or growth.
It seems clear that businesses want an educated workforce; reasonable costs; and predictability of future costs. No executive is going to look at Rhode Island’s projected structural deficits and come here. That problem must be solved.
We hope Governor Raimondo — who helped avert an impending financial disaster for Rhode Island by championing pension reform — will use her notable willpower and communication skills to make these changes. As then, legislative leaders will have to demonstrate courage and rally their members. If these leaders fail in that task, Rhode Island will confront much worse middle-class flight, economic despair and financial chaos.
