Gov. Donald L. Carcieri’s eight-year tenure as Rhode Island’s chief executive is coming to a close.
He has spent the last several years grappling with severe budget deficits and a state economy that has been weighed down by a recession as deep as any in recent memory. But as he prepares to hand over the reins, Carcieri is optimistic he is leaving the state poised for a rebound. He recently spoke to Providence Business News about the state’s fiscal condition, as well as recent economic-development moves.
PBN: Tax revenue figures from the first quarter of fiscal 2011 are in, and they’re up about 10 percent compared with the same period a year earlier. Is the economy turning around as you wind down your administration? What about the danger of a double dip?
CARCIERI: I believe we have turned, and most of the economists who follow us are saying we have. There are no guarantees. Right now the whole national recovery is very fragile. Seventy percent of the U.S. economy is consumers, and what are they doing right now? They’re not too confident, or they’re paying down their debt. In that kind of climate, you can’t be really bullish on the economy until people feel comfortable.
Right now, most businesses I talk to are pretty comfortable. They’re seeing their business improving. They’re not comfortable enough to make big investments and big hiring decisions. Absent a double dip, I think we have turned, for sure.
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PBN: How much of that is because of your administration’s economic policies?
CARCIERI: It’s hard telling. Clearly, we’re small and we’re driven by the national economy. But I think what we’ve tried to do is get on top of the spending. If you look at the last several years, we’ve dealt with the pensions – not enough, and this is my frustration with the General Assembly. They always go part way, so we get some savings but not far enough. That’s why this thing [gaping unfunded pension liability] keeps lingering.
We’ve made three changes to the pensions since I came in. The last one made the [cost-of-living adjustment] only on the first $35,000. We raised the age at which the COLA would kick in. We raised the retirement age two years ago. We did something that most states haven’t dealt with, which was change the retiree health care [two years ago]. That’s what caused an exodus of state employees. We lost like 1,200 employees because of the new health plan. It was significantly less generous.
You can’t lower your taxes if you’re busy spending the money. This year, it was such an excellent, cooperative year with the General Assembly leadership. They bought most of the spending reductions, except the next administration and General Assembly are going to have to deal with pensions for sure. But they did embed the personal income changes – the Cato Institute rated that the best tax reform in the country.
CARCIERI: Yeah, because I think the next governor is going to be critical. I’ve spent eight years trying to move this thing in a positive direction on all of these fronts.
PBN: During one of the debates, Moderate Party candidate Ken Block said one of your administration’s failures was the lack of communication between your office and the General Assembly. Is that a fair assessment?
CARCIERI: He doesn’t have a clue. This has been convention: Somehow the governor can’t get along with the [legislative] leadership. By nature, the executive branch and the legislative branch are supposed to be checks and balances. It’s not supposed to be a big love fest, particularly when the General Assembly, in my judgment, has not dealt in the past with the issues that need to be dealt with. But there’s a natural tension that gets overplayed a lot from the outside. The teams are always working together, but sometimes you come to the point where you disagree.
PBN: One issue where there is lots of disagreement – not necessarily at the Statehouse, but in the business community and on the campaign trail – is 38 Studios and its $75 million loan guarantee. One well-known gaming consultant has written in a blog that the company is one of 10 “games businesses that are doomed.” Did you see that?
CARCIERI: No, I didn’t. We had industry consultants come in as part of the whole due-diligence process who said the opposite. Curt Schilling and 38 Studios have assembled a team of the top people in the industry. They’ve got all of the best talent; they are ready to launch in the coming year their first game. [Electronic Arts Inc.], the distributor, has money into this to underwrite the distribution. The feeling was pretty strong that it’s well along, and the likelihood of that [first game] being a total failure – with all the players involved – is not great. The second game – which is the multiplayer one – I think everybody understands that is a whole new area. But if the first game has even reasonable success, the analysis has said that they’ll have the cash flow to pay back the state’s guarantee. Even if the second one is a failure, there’s enough cash flow out of the first one. I think there are [consultants] that came in and said [38 Studios is] in the right area, they’ve got the right talent, and they think it’s going to be a resounding success.
PBN: The Economic Development Corporation has been criticized by some for focusing too much on landing the big fish. How do you respond to that?
There are very few [cases where that happens]. But in this case, we could actually attract the headquarters of a company that the judgment was that if they are successful, it’d be the nucleus for a new digital media.
PBN: You appointed Keith Stokes executive director of the EDC for a one-year appointment early this year. Would you like to see him continue on in the new administration?
CARCIERI: I would. He’s done a great job and he’s been well-received in the community. Everywhere I go, he’s been there. I think he brings a whole fresh perspective. My recommendation to the next administration would be [not to] change it now. We’ve got a terrific board – 12 of the most outstanding leaders in the state right now.
PBN: Your administration says the state finished fiscal 2010, ending June 30, with a $17.7 million surplus, but that was with help from the federal government in the form of millions of dollars in stimulus funding. What happens when that money disappears next year?
CARCIERI: In 2012, there’s [going to be] a $240 million hole. Regardless of what the projected deficit is – right now it’s $320 million, but that will change because they do a November revenue estimate – the real challenge is $240 million of the projected deficit is the loss of all the federal [stimulus] money. So what I’ve been trying to say to the leadership – and I won’t be in office, it’s not on my watch – is [asking] how are you going to fill the $240 million? One piece is we’ve generated a surplus of $20 million last year; we’re running now a $38 million surplus this year. What I focus on are the personal income tax [collections] year over year – up 4 percent – and … sales tax [collections]. Those two pieces are $1.7 billion of the total revenue that we take in. We’re running 4 percent ahead on each of them. If that sustains itself, and that’s a big if, for the whole year – that’s $68 million. There’s the potential to generate another surplus in 2011.
Say it’s $70 million, and we carry $20 million over from last year. We have $90 million in the bank. And we have a fully funded rainy day fund at $112 million to $115 million. So you have the potential of the $200 million [accounted for] of the $240 million.
And it could get better, depending on the November revenue estimate. So my message to the leadership is you can’t take your thumb off the spending, because you know how legislatures are when they start seeing surpluses. But I don’t see any shot that the federal government is going to be sending more money to the states in fiscal 2012, as bad as some of these states are, and that’s still going to put pressure on more pension changes, and put pressure on the cities and towns to drive the same kind of cost containment.
CARCIERI: That’s not over yet. We’ve got a 30-day extension. [The federal government has] set the money aside for us. Every one of these [types of] programs has a different maintenance-of-effort calculation. This one, we didn’t meet, but we think we do because [all the state appropriations to higher education] don’t show up on the line that we call “direct funding” for [public institutions].
But it doesn’t take away your basic point that when you’re in the kind of financial difficulty we’re in, we’ve had to cut back on the support for higher education. There’s no question about that.
[But] I’m not convinced our higher education institutions [are unable to] be run more efficiently. They’re sort of like our cities and towns: As long as you keep sending them money, they just spend it and use it. And when you stop sending them money, they raise the tuitions. How about you look at how you’re spending the money? I think the Board of Governors has got a bigger task here instead of saying OK to the tuition rises. Higher-ed is notorious around the country for being unresponsive to becoming more efficient.
PBN: What are you going to do after January? Are there plans to run for office in the future? You’ve been on Fox News Channel quite a bit.
CARCIERI: The only reason I go on there is I want the state to be seen positively. There’s been too much of a pity party. Do we have problems? Yes. Compared to what’s going on in other states, our problems are manageable. But we have to get a little more positive and a can-do attitude instead of saying “Poor me; the sky is falling.” We’ve reduced tax rates, and we’re turning.
PBN: Are you open to running for office a few years from now?
CARCIERI: I don’t know, and that’s a true answer. Right now, I’m trying to get done all these things we’re talking about and try to leave the state in the best possible condition for the next administration. Then we need some time to ourselves and our family. Then we’ll see. I never say never, but it’s not on the top of my mind. •
