Every candidate for governor wants to create jobs. But how would they do it?
Do they offer a comprehensive solution for the Ocean State, where the economy has strengthened but still lags behind several other New England states? Do they address structural problems that still remain, such as an undereducated workforce?
There are significant differences among the candidates on all these issues.
Two Republican gubernatorial candidates want to lower the sales tax and a third, former Alex and Ani LLC CEO Giovanni Feroce, promises to eliminate the income tax altogether and sees Rhode Island becoming a leader in blockchain technology.
Fellow Republican Allan W. Fung, mayor of Cranston, would streamline or downsize all incorporation, permitting and licensing fees. He’s also proposed giving startups a first year of tax amnesty and creating a business-concierge program for new companies.
Democratic candidate Matt Brown would create new jobs and housing by encouraging builders to construct 40,000 new homes over the next decade. His economic plan includes the creation of a state-run investment bank that he says would put millions into programs and services.
Incumbent Democratic Gov. Gina M. Raimondo wants to expand the Rhode Island Promise program of free tuition, to include more working adults and the final two years of college. Her economic incentives targeting businesses that expand or relocate in Rhode Island will also continue. She says her policies have led to the arrival or expansion of 24 new businesses in the past two years.
What do economists and political scientists make of these economic programs and promises? For starters, several say it can be difficult to discern whether state policies, or a stronger regional and national economy, have lifted the Rhode Island boat.
Some observers say because the state has improved its economic condition over the past four years, opponents will have difficulty making a case that a change in leadership is needed. Others say yes, the economy has improved, but largely the result of national forces, and question whether the state is any better prepared for the next recession.
Leonard Lardaro, an economist with the University of Rhode Island, is looking for economic policies that address underlying challenges such as educational deficiencies and workforce gaps. The state needs to transition from a manufacturing to a knowledge-based economy, he said, and policies that “flail at elements” won’t do that.
Economic policies that emphasize sales tax reductions, for example, are not the answer, he says. The state doesn’t need more consumption, it needs investment, he added. The state, he says, also needs a commitment to having a highly skilled and flexible workforce, where it could guarantee enough skilled employees for various industries.
“We tend to rent a lot of our people out to neighboring states, Monday through Friday. We redefined brain drain starting in the 1990s,” he said. “We rent some of our skilled people out, which makes it harder for our [businesses] here to get a critical mass going.”
‘Nobody’s going to go out of their way for $7 on a $1,000 purchase.’
DAN HORNE, Providence College School of Business associate dean
Dan Horne, an associate dean at the Providence College School of Business, and a professor of management, said the challenge for Rhode Island is in trying to distinguish its economic approach from the greater economy of New England.
Policies that take advantage of that integration in the region could attract more investment, he says.
“Creating a generally more favorable business community will attract people from Massachusetts,” Horne added.
The reduction in the sales tax proposed by several candidates will not result in a meaningful advantage, he said. Although Massachusetts has a lower tax rate, of 6.25 percent, compared to the Ocean State’s 7 percent, a reduction here is not likely to make a competitive difference because the tax excludes purchases of food and clothing.
“Nobody’s going to go out of their way for $7 on a $1,000 purchase,” Horne said.
Adam Myers, an assistant professor of political science at Providence College, expects that economic conditions and policy will not be the decisive factors for Rhode Island voters this year. Instead, he predicted a state election that reflects national concerns.
“Because the economy is doing objectively well right now, in terms of job growth, in terms of unemployment rates and so forth, it’s hard for me to see how whoever the Republican nominee is going to be, how they’re going to build a campaign around reversing Rhode Island’s economic doldrums,” Myers said.
Business-incentive programs that began under Raimondo, and applied to private investment in buildings, jobs and tangible goods, had supported $693.5 million in total development through the close of fiscal 2017, according to the most recent annual report on the R.I. Commerce Corp. incentives filed with state officials.
To spur that activity, the state authorized incentives that exceeded $83 million through June 30 last year, according to the report.
Despite the characterization of the incentives as benefiting only corporations, the incentives package includes programs such as “innovation vouchers,” which are aimed at emerging companies and smaller businesses. And many of the top job-creation and real estate incentive awards have gone to small businesses, defined as those with fewer than 500 employees.
Raimondo can point to more than 2,000 jobs that will be created in Rhode Island with the assistance of the business incentives.
But the use of public incentives for business investment has divided the challengers from Raimondo. They are proposing economic plans that mostly emphasize the needs of small business, reduction of annual fees and tax policies that would benefit all businesses, rather than targeted incentives that are aimed at specific companies.
Brown, her top primary challenger, has described the system of tax incentives now in place as “corporate handouts.”
His economic plan will be focused on the creation of housing, investment in renewable energy and in small business, and paid for, he said, through cuts in the tax reductions awarded to corporations and high-income earners. “We will end corporate handouts while cutting taxes and fees for homegrown businesses that are the lifeblood of our economy,” he said.
Rep. Patricia L. Morgan, a GOP candidate, supports business incentives only on a limited basis and generally favors a free-market approach.
She and Fung would also support lowering the state sales tax.
Fung’s economic plan focuses on making Rhode Island more competitive with Massachusetts, a focus on small and startup businesses, and the expansion of the concierge system he initiated in Cranston that guides young companies through the process of starting a business.
His “low-fee guarantee” would cut state fees on business to a level that he said will be the lowest in New England.
Feroce has the most unusual approach, a pledge to reinvent the Rhode Island economy but eliminating or sharply reducing most taxes, including the income tax completely, all underwritten by benefits that will come to the state if it becomes the hub for blockchain.
The technology is essentially decentralized record keeping, a robust system where records are simultaneously kept and updated on computers and is more difficult to hack because the data replicates so easily, according to Horne, whose expertise is in payment systems.
Feroce wants Rhode Island to become the center of education on the technology. But the whole concept of blockchain is decentralization, said Horne.
“The training of people, if we want to become a center that trains people in blockchain, yes that’s possible,” Horne said. “But we’d have to invest a lot in bringing in people who had the expertise who could do the training. That’s not a costless solution. And if people are trained and then they go leave Rhode Island, you’ve invested in them and then off they go.”
As a means to transform the economy in the next four to eight years, blockchain is not a candidate, he said, because the adoption of the technology will take years.
Mary MacDonald is a staff writer for the PBN. Contact her at Macdonald@PBN.com.