Deficit, health costs seen as<br> major challenges for R.I.

If there is one thing that the region’s business leaders and consumers agree on, it is that the state’s deficit represents a real challenge to Rhode Island’s health.
That is the conclusion drawn by Steven J. Issa, Sovereign Bank’s market CEO for southern New England, based on the results of the bank’s annual economic outlook survey, which he presented to more than 420 business and community leaders March 1 at The Westin Providence.
The breakfast gathering, held in conjunction with the Greater Providence Chamber of Commerce, also included a panel discussion about key economic issues facing the state and brief addresses by Gov. Donald L. Carcieri and Providence Mayor David N. Cicilline.
“When you have a $100 million deficit, that’s one thing,” Issa said in an interview after the presentation. “But $359 million [the projected two-year deficit], that gets people’s attention. It gets my attention. … That number is alarming.”
The issue showed up strongly in the Sovereign survey results. The 308 consumers who responded to the survey voiced serious concern about the quality of local leadership.
Offered a series of choices for the region’s top challenges, 62 percent – double last year’s number – chose “local political leadership,” which shared the top spot with “cost of living.” Forty-six percent of consumer respondents chose “economic leaders” as a top challenge, compared with only 13 percent in 2006.
“A lot of people are being asked to make sacrifices,” Issa said. “I think [consumers] are just worried,” especially about potential cutbacks to entitlement programs that would be made to balance the budget.
“I think there are going to have to be tough choices. Those one-time gains like the tobacco money are all gone.”
On the bright side, only 30 percent said they saw “employment opportunities” as a top challenge, compared with 49 percent last year.
Business leaders were generally more optimistic about the economy as well, Issa said, with fewer of the 252 respondents saying they saw “slight” or “severe” weakness in the U.S. economy in 2007 – 23 percent, compared with 37 percent in 2006. In addition, 67 percent saw “slow” or “strong” growth in the year ahead, versus 54 percent last year.
Despite that optimism, however, businesses appear slightly less likely to make major investments in their own growth, instead holding the line on health care costs to employees. Sixty-two percent of respondents said there would be no change in health insurance coverage in 2007, compared with 50 percent in 2006, while 28 percent said they would increase co-pays (versus 33 percent) and 15 percent said they would increase deductibles (versus 20 percent).
“Leaders are saying, ‘We have already asked employees to make sacrifices,’ ” Issa said, and they are hoping that growth in the economy will generate the profits needed to satisfy investors. “I know we did the same thing,” he added.
Following Issa’s presentation, a panel discussion was moderated by Laurie White, president of the Providence Chamber. Panelists sounded many of the same themes that have been heard for years, but health care worries continue to grow.
Constance A. Howes, president and CEO of Women & Infants Hospital, said that the institutions affiliated with the Warren Alpert Medical School of Brown University are in good shape and continue to deliver world-class tertiary care, but community hospitals are struggling financially.
“We need to support them,” she said. Otherwise, “we can lose top-quality people, and that starts a downward spiral.”
Panelists agreed that the historic preservation tax credit has been a boon to the economy, but wondered if it was reaching a natural limit on its lifespan. “Eventually most of these kinds of projects will be done,” said Charles T. Francis, president of the Rhode Island office of CB Richard Ellis/New England. “Not every mill can be residential or office space.”
Francis was bullish on the state’s economy, saying the great reserve of intellectual capital would fuel healthy growth as long as taxes are kept down.
Patrick J. Canning, a partner with KPMG specializing in consumer products, industrial and technology markets, repeated an oft-heard complaint about Rhode Island’s income tax rate, saying that it puts the state at a competitive disadvantage with its neighbors, but he praised the reform passed last year that will bring the top marginal tax rate over the next six years. He also believes that the elimination of the long-term capital gains tax rate scheduled for 2008 will have a positive effect on more people than the change in the income tax rate.
The lightest moment of the breakfast was early on, as Cicilline took the stage to talk about the city’s key goals for the coming year – ensuring that investments by universities and hospitals are leveraged to create private-sector jobs, and that public education is revitalized, since it is “the single most powerful economic development tool.”
Before Cicilline mounted the stage, Carcieri complimented the city for its part in the state’s economic progress and, after noting that he had a good working relationship with the mayor, made reference to the fact that there is a line forming to succeed him in 2010.
Cicilline replied, “I can see the headline now: ‘Carcieri forms Republicans for Cicilline.’ ”

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