Report: R.I. economy demands ‘unique approach to economic development’

THE RHODE ISLAND ECONOMY demands a
THE RHODE ISLAND ECONOMY demands a "unique approach" according to the findings of a new report released by Fourth Economy Consulting. / COURTESY FOURTH ECONOMY CONSULTING

PROVIDENCE – There’s more to the Rhode Island economy than what is reflected in recent national rankings, according to a report released Wednesday by Fourth Economy Consulting.

Fourth Economy Consulting was contracted by the R.I. Economic Development Corporation to conduct an independent economic data analysis and assessment and to provide suggestions for short-term guidance to the Rhode Island community and considerations for the Sustainable Rhode Island campaign.

The 104-page report focused on five areas: business climate analysis, financial resource assessment, targeted cluster analysis and validation, state regulatory environment, and marketing analysis.

The report noted Rhode Island’s recent poor standing on national business climate rankings but said: “While it is very important to take a critical look at state rankings, it is also important to keep in mind that Rhode Island is not Texas, and Texas is not North Dakota. The idea of rankings presents a linear type of thinking that does not necessarily reflect the conditions, assets and opportunities that lie within each location.”

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From analyzing a variety of recent business climate rankings, FEC determined that investment, talent, sustainability, place and diversity were most important for a strong business climate.

Under these five qualifiers, Rhode Island has both positive and negative aspects. In investment, for example, the FEC found that while Rhode Island has made recent progress in the tax climate indicator by lowering its personal income tax rate, the overall state tax climate is “still a challenge” with property tax, corporate tax, gas tax, utility and unemployment insurance rates all ranking poorly compared to national figures.

The FEC report found that Rhode Island placed third in the in-migration of U.S. knowledge workers, something it called “an asset upon which to build,” given that “for every 1 percent increase in a region’s level of educational attainment there is a 0.04 percent increase in per-capita real income.”

Although the report found that Rhode Island’s housing is more affordable compared to neighboring states, it also noted that home ownership rates are low and, despite affordability in the region, housing affordability is low when compared nationally.

The Ocean State’s “diversity” section fared poorly. The state had low scores in unemployment by race, home ownership by race and four-year degree attainment by race. Furthermore, Rhode Island ranked 21st nationally for business ownership by race and 30th nationally for business value by gender.

The report contained six points of what it termed “Initial Guidance” for the state to improve its performance.

  • Create one voice – set a clear course. Within this call was the need to designate a single point person for the state’s economic development initiatives and to increase transparency of those efforts.
  • Sustain dialogue, link assets and partners. Create specialized teams to plan, share and build consensus around specific state functions, including tax policy, innovation and incubation, research and higher education, tourism and community engagement.
  • Focus on grow, innovate (and retain). Key here is to close the gap between study (of which there has been a lot) and implementation (of which there has been little), and get more capital into the economy.
  • Implement a business climate dashboard. Make it easy to track various metrics important to economic development, such as investment, talent, sustainability, place and diversity.
  • Convene industry leaders around market opportunity networks. The state needs to help those starting and growing businesses to connect with others who might help them or whom they might mentor, creating a more tightly woven and higher functioning economy.
  • Continue to advance regulatory reform. Make regulatory reform a greater priority, such that changes could be made in the current legislative session, and continue to stay in close contact with the business community to identify new or continuing obstacles in the state and municipal regulatory regimes.

Rhode Island was found to have a higher tax rate than most of its peer states, but the FEC report found that the Ocean State “does have cost advantages” when compared to neighboring states. “From housing to energy to high-skilled labor, businesses can access all at – relatively – bargain rates, in comparison to Massachusetts and Connecticut,” said the report, adding that Rhode Island’s proximity to MBTA commuter rail offered Rhode Island residents “low-cost, fast, local travel alternatives and commutes.”

In the financial resource assessment portion of the report, FEC found that while Rhode Island had a low and low-to-medium presence for seed stage financing and Series A investments, it fared medium or better for Series B financing, working capital and Series C rounds.

“Localities and local development companies also play a key role in meeting local firms’ financial needs across Rhode Island,” said the report, “sometimes doing so in creative ways that can be reflected upon at the state level to great benefit.”

FEC’s targeted cluster analysis and validation determined that “due to the limited size of most clusters and limited focus, Rhode Island should not focus on any specific cluster.” Clusters included: manufacturing, design, health care and life sciences, IT and digital media, and marine trades and defense, among others.

Rhode Island’s regulatory system, the reported determined, is “not unlike” other states around the country. “Over the years, states and local jurisdictions pass regulations in an effort to protect public health, welfare and safety,” said the report. “The unintended consequence is that these regulations have created a maze of paperwork and compliance requirements that, in many cases, can slow or even prevent a business from efficiently starting or growing operations.”

According to FEC, Rhode Island has more than 1,600 regulations in place, though the report said it was “difficult to compare” this figure to that of other states as there is currently no ongoing comparative analysis.

Finally, the report conducted a marketing analysis. “Marketing cities and towns, industry sectors and the state of Rhode Island is vital for the economic growth of the state,” the report said. FEC found that the state’s content organization lacks an “asset-focused, business-friendly approach,” that the technical structures of its online resources are “not optimized for maximum search capability,” and that social interaction, online conversations and community generation “does not occur with regularity or with intent to foster an innovative network.”

“Taken together, the findings of this report suggest that the unique nature of Rhode Island and its economy demand a unique approach to economic development,” said the report.

To view the full report, visit: www.riedc.com

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