Rhode Island’s spending rate on social programs is unsustainable, its taxes are among the highest in the nation, its population is aging at an exponential rate, its school performance is one of the worst in the region in relation to spending and its economic environment drives business away.
The key to turning the tide, according to state Economic Development Corporation officials, is by forming a true statewide partnership.
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The 2005 Jobs Partnership, a package presented by the EDC to the General Assembly, asks for almost $55 million in order to study tax policy, supply loans to small and minority businesses, establish ready sites for company growth, form a biotechnology center in northern Rhode Island, a facility to attract more biotech companies, provide the Slater Centers with self-sustainable funding, expand on the marine life sciences field, and establish a Science and Technology Council.
“We’re at a crossroads and if we can’t get the state in the right direction, the consequences to the people who need our support will be adverse,” said EDC Executive Director Michael McMahon. “We have high taxes, which drives out successful people, which makes it difficult to have good jobs, which reduces the tax base, which puts increased pressure on the middle class.
“When we look at our spending and where we spend it, we have a good social conscience,” McMahon added. “It’s what we get from what we spend that there’s a disconnect.”
The solution to this problem, according to McMahon, is to address the issues head on: The state needs good government, where Rhode Islanders get what they pay for; good education, particularly pre-kindergarten through grade 12; and a competitive tax environment.
“Economic development in Rhode Island is too critical to allow it to be politicized and what we need is a true partnership,” he said. And while the ideas and elements of the Jobs Partnership may not be perfect, McMahon said he wants members of the General Assembly and other stakeholders to start a dialogue. “People need to understand how critical this is.”
Many groups – like the R.I. Economic Policy Council, the R.I. Public Expenditure Council, the Greater Providence Chamber of Commerce and General Assembly – have made strides toward this goal, but more needs to be done.
“We just have to put the pieces of the wheel together and make an efficient package,” he said.
Rhode Island cannot continue on its current path, according to EDC data. State spending on social programs is projected to skyrocket, from $1.98 billion in 2005 (with only $977 million coming into the state through income tax revenues) to $3.57 billion in 2015 (with $1.7 billion in income tax revenue).
Since 1970, Rhode Island has increasingly had higher taxes when compared to other states in the country. The state, according to the EDC, was ranked 31st in the country for its tax burden in 1970, 26th in 1989, fourth in 2001 and fifth in 2004. Massachusetts, in comparison, has continued a downward tax burden trend, from 18th in 1970, to 27th in 1989, 33rd in 2001 and 36th in 2004.
Rhode Islanders are also not getting the quality and results from the education system that reflect the amount of money being spent. According to the EDC, Rhode Island spends $8,845 annually per student, within $1,500 of what the other New England states spend, but Rhode Island’s proficiency rank is the worst in the region.
Successful Rhode Islanders are disproportionate supporters of the state’s nonprofits, McMahon said, and those successful people avoid Rhode Island. Only 0.32 percent of the state’s residents have tax returns with income exceeding $500,000, versus 1.03 percent in Connecticut and 0.68 percent in Massachusetts. That small percentage of Rhode Islanders contributes 17 percent of the funding for nonprofits, versus Connecticut’s 39 percent and Massachusetts’ 36 percent.
“Why do we care? You might say that this impacts the rich, so who cares?” McMahon said. “It’s the financially successful people who make these big business decisions. We have a system that drives financially successful people out of this state.”
The partnership proposal includes a laundry list of ideas for improving Rhode Island’s situation:
– Economic and community development oversight, to serve as the focal point for discussion.
– Evaluate tax policy.
– Small and minority business growth fund.
– Growth center jump-start program to identify and prepare good sites for economic development.
– Northern Rhode Island biotech facility
– Central Rhode Island bio-manufacturing facility.
– Secure Slater Center funding in the form of a flexible $15 million, five-year spending program.
– Business innovation factory, a place for growing companies to try new ideas.
– Expansion of the marine life sciences project
– Revival of office of economic and community development
– Science and technology council
– Elimination of sales tax exemption associated with RIFC loans.
“We had a lot of success in the past, but we ourselves approached things rather piecemeal,” said Jean Burritt Robertson, senior director of policy and research for the EDC. “We need to look at the bigger picture because of how things will be if we don’t.”
