In 2012, Gov. Lincoln D. Chafee got the chance to say “I told you so” to the sizable chunk of the business community that supported the 38 Studios LLC loan deal, and he’s taken advantage of the opportunity. But opposition from the business community has helped frustrate many of Chafee’s top fiscal proposals since he took office and critics say he’ll need to work with corporate Rhode Island, not fight it, to turn the state economy around.
PBN: You’ve called for an end to “irrational negativity” in Rhode Island, but many people don’t see much improvement. What have you accomplished on the economic front this year?
CHAFEE: The three categories that we are happy to see being positive: the unemployment numbers, the revenue and the voters’ confidence in approving the bond issues. In the unemployment numbers, for the first time since August 2006, the five areas the federal government tracks were positive.
PBN: Isn’t some of that a factor of just how far things had fallen, that at some point the numbers had to go up by comparison?
CHAFEE: I wouldn’t say that, because I am talking about half of 2006 and 2007. Those were good years. It just shows how hard it is to get all five going in the right direction in one month.
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PBN: And you take credit for that?
CHAFEE: Yes. All three of these areas I take credit for. My philosophy, which is under some fire for being very deliberate from critics saying “no sense of urgency,” is just different from the Hail Mary, end-arounds and Statue-of-Liberty plays. That’s not my style. I am methodical, grind it out, take care of basics, like customer service. It’s not flashy, but obviously it is working.
PBN: Speaking of the Hail Mary attempt, you were opposed to the 38 Studios deal before it happened, so your administration probably won’t pursue something similar. But has anything been done to prevent it from happening again down the road, when you are not in office?
CHAFEE: We capped that [Job Creation Guaranty] program at $10 million, which is still a lot of money, but less than the $75 million to 38 Studios. That was one of the first acts I took even before 38 Studios [collapsed] at EDC. The [thinking] was, how about the businesses that have been here for years and would love to have access to that kind of capital. If it is all going to one basket, that precludes all these other businesses that never have a shot at it. I can’t speak for other administrations, but while I am here we are going to be very, very careful with that money.
CHAFEE: No. I would say it is just this administration’s philosophy and that was part of the tension with the previous [EDC] board that I inherited. They wanted to be more aggressive on these types of incentives. And it took a year of battling for this more conservative approach. … I campaigned on education, infrastructure and workforce development and now the metrics are showing that is accurate. I have a lot of critics out there in the business community, but they are wrong. This is the way to build an economy.
PBN: So are we going to see any new attempts to scale back or cut any of these incentives and tax breaks?
CHAFEE: I am open to it. My budget is coming out in January so I will be able to say more then. In my first budget I was very bold in lowering the corporate tax by cutting the Jobs Development Act and combined reporting. In the first budget I wanted to broaden sales tax into services and lower the rate below Connecticut and Massachusetts. Neither of those passed. But I am encouraged that the Senate president said she is talking about addressing the criteria where Rhode Island keeps getting these bad rankings, where they don’t look at what is exempt. They just see the rate and say “bad.” She might be going to where I was two years ago.
PBN: How about your relationship with the business community?
CHAFEE: I am just going to keep making my points to them as I have all along about how, if you don’t like the status quo, then come to the table with ways we can change it. I do work on it. I think we are better off pulling in the same direction. But I think some of the pushback in the business community is irrational negativity.
PBN: On state pensions, we had the overhaul last year, but it did not completely eliminate our unfunded liability. Even if the courts allow the reforms, how do we go about addressing that problem? PBN: In the previous fiscal year, the rate of return for Rhode Island’s pension fund was about 5 percent, the national average was about 6 percent and the expected rate of return is 7.5 percent. Has the treasurer done a good job in maximizing the returns the pension fund needs? PBN: How concerned are you about the potential repercussions of the 38 Studios lawsuit – that it might prevent firms from doing business with Rhode Island for fear the state will come after them if things don’t work out? PBN: Have you thought any more about running as a Democrat in 2014?
CHAFEE: We still have challenges. We still have challenges with the rate of return. I am just guardedly optimistic that we have hit the bottom on the economy. People talk about a double dip, but I think we are going to start to see investment returns get more favorable. I don’t want to be naively optimistic, but I just think we are a strong-enough country and in the past election the voters, in speaking to the Tea Party in particular, are saying we want to pay for the services we provide.
CHAFEE: Honestly, I have not delved into the intricacies of our return on our investment. Have we failed or is there a legitimate reason why we are trailing the other states? I want to be fair and do my homework on that.
CHAFEE: This was the big event of 2012, 38 Studios, it seems to be that in Rhode Island, a lot of the business community supported it and now wants to pretend that it didn’t happen. There’s no introspection, no admission of poor decision-making. I call it the twilight zone. This was a colossal poor decision by a business community that is now being critical of my conservative approach. So that leads logically to the lawsuit. And I warned them at that Chamber breakfast, there is a precedent for a lawsuit being brought. The deal hadn’t been signed yet. There is a precedent of shareholders suing boards of directors for companies that made bad fiduciary decisions. They just got angry at me and didn’t listen. I said, if this fails, there is going to be a nasty lawsuit. It’s not good. I don’t know how much of a chiller it will be for investing in Rhode Island, but it’s not good.
CHAFEE: I have explained all the benefits and liabilities of being an independent. I like being the only independent governor. But there is no independent governors association. I am thinking about it, but it is still early.
That phenomenon of outside money coming into campaigns with the [Citizens United] case: the ability of the big leagues to get involved in local races. That’s new and changes the old way of running campaigns. In any kind of fight you need somewhat equal weapons. •
