Mood gets more sour as RI economy slows

Rhode Island’s business owners and executives are finding it difficult to keep the faith.
The state’s economy is inching toward recovery so slowly it’s barely perceptible. The unemployment rate remains persistently high. Not helping matters: Earlier this year, local businesses mobilized to fend off a sales tax expansion plan that left them wondering whether Gov. Lincoln D. Chafee had been listening to their pleas to make the Ocean State friendlier to employers. Then there’s the steady drumbeat on the state’s ailing public pension system, underfunded by billions of dollars and in need of an immediate fix.
It’s gotten to the point that talk of a double-dip recession is making the rounds again, here and nationwide.
For a while, local businesspeople held out hope. They knew a true recovery was still way off, but it seemed their collective psyche had brightened after the misery of the Great Recession. As recently as eight months ago, more than half the businesspeople surveyed by Providence Business News in the winter of 2010 believed Rhode Island’s economy would improve slightly or significantly in 2011.
In PBN’s most recent survey, however, that optimism has waned. Now only a little more than one-third foresee any improvement over the next 12 months.
And the poll was conducted before the economic picture grew even darker, before the debt-ceiling fight in Washington, D.C., concluded and helped nudge the stock market into a tailspin, and before Central Falls’ unprecedented bankruptcy filing that sent shudders through local communities.
“We’re all going to have to take some serious castor oil before this gets better,” said Kerry McKay, owner of McKay’s Furniture in North Kingstown and an uncle of Rhode Island Republican Party Chairman Ken McKay. “There are too many fundamental issues that aren’t fixed yet.”
Indeed, even confidence that the respondents’ own companies will thrive has flagged somewhat in recent months after a steady climb in that measure for the previous five PBN surveys, dating back to the first survey in December 2008. A little more than 60 percent of the responding businesspeople said they believed their business would be better off a year from now, down 5 percentage points from the winter 2010 PBN survey.
Another 29.3 percent in the most recent poll said they thought things would be about the same, and 10 percent said they thought their company’s situation would turn for the worse in the next 12 months.
The deteriorating outlook is “scary” but not unexpected, according to Edward M. Mazze, distinguished university professor of business administration at the University of Rhode Island.
“In the last six months, we’ve had a lot of things happen locally,” said Mazze, who assists PBN in drafting the 25-question, semi-annual survey. “We have a new governor who was not elected by a majority of the voters, and we’ve had the public airing of the pension problem.”
Also chipping away at businesses’ confidence: Fiscal woes in Providence and Central Falls and uncertainty created by new lawmakers on the national stage who played a key role in the debt-ceiling debate last month.
Yet the darker outlook belies how well many companies have performed in 2011.
More respondents reported increased business activity. About 55 percent said they are doing better this quarter compared with a previous one, up from 43.7 percent eight months ago and 44.2 percent a year ago.
At the same time, the percentage of business that expected bigger profits this year compared with last year edged up from 49.4 percent in the winter of 2010 to 52.6 percent in the most recent survey.
“We are coming out of the recession,” Mazze said. “But it’s been very slow.”
The PBN survey is not scientific. In early July, the newspaper sent the questionnaire to 1,100 private, for-profit businesses listed in a statewide database maintained by PBN.
One hundred forty-one big and small companies returned the surveys, a mix that included anything from car dealerships to architects, manufacturers to real estate firms.
One thing that hasn’t changed in the results since PBN started conducting the survey three years ago: The sense of frustration with the cost of doing business in Rhode Island, and the perceived inability of state leaders to do anything about it.
“Businesses and individuals are fleeing the state because it is so poorly run,” one executive who operates a professional-services firm wrote in the comment section of the survey. “This is very bad for us and causes me to wonder about whether I will continue to live and maintain a business location in Rhode Island. I am sad to say this.”
Christine Blount sounded a similar note.
“Small businesses in this state need help! Not more fees and taxes,” wrote Blount, co-owner of the charter fishing-boat business, Frances Fleet Inc. in Narragansett.
Businesses such as Frances Fleet certainly have felt the squeeze. The still-sagging economy has kept a lot of passengers on dry land with little discretionary money to spend. High fuel costs and spotty weather this season have heightened the pressure.
Still, Blount said Frances Fleet, established in 1978, is keeping its five boats operating, and the business is steaming ahead.
Others apparently are in a similar boat, holding on for better times.
More companies are saying an outright “no” to the purchase of big-ticket items – 56 percent, compared with 49 percent in the 2010 winter and 50 percent a year ago.
And while the percent of employers confirming they are ready to hire new workers next quarter climbed to 37 percent from 29.5 percent last winter, that’s about the same percentage as in the summer of 2010.
Big-ticket investments might be out of the question for some, but so is consolidating businesses. Nearly 90 percent of respondents said they had no plan to close facilities – only slightly lower than in the previous two surveys – while 9.4 percent said it’s still under review.
In an effort to improve the bottom line, Kerry McKay, the third-generation owner of McKay’s Furniture, is redesigning the interior of his store, 3,000 square feet at a time. And he is fine-tuning his offerings, spending more time researching what’s selling.
“Recently, we’ve fallen back because of the economy, but we’re still here,” he said.
Yes, the fingers of blame are pointed at the economy, at least in the most recent PBN poll. Of the challenges facing Rhode Island business, the weak economy ranks highest among respondents (72.5 percent), as it has in most of the previous surveys.
Taxes continued to rank second highest at 60.6 percent (up from 56.07 percent in July), followed by health care costs (55.6 percent), government bureaucracy (52.8 percent), diminishing customer base (31 percent), energy expenses (24.6 percent), shortage of qualified workers (24.6 percent). Access to capital remained lowest on the list of challenges at 16.9 percent – surprising considering the amount of complaints among businesspeople that bankers continue to hold their purse strings tight for all but the most rock-solid borrowers.
With all those challenges lined up against business, Adrien Hebert says there’s really no reason for his company to be here.
The co-owner and chief financial officer of Trans-Tex LLC, a Providence firm that produces printed narrow fabrics, Hebert said the company would be smart to move to the South, closer to suppliers, or into Mexico for cheaper labor.
But he’s a native Rhode Islander, as is his business partner. It’s really the only reason why Trans-Tex has remained.
So the company, which has seen sales on the rise in recent years, recently bought a building in Cranston for expansion. Trans-Tex prepared to make $700,000 worth of improvements at the new location, but even that was fraught with difficulties, Hebert said.
Because the site was located near the Pawtuxet River, the R.I. Department of Environment Management had to sign off on the project. But the approval process was long and arduous, with the DEM sending back the plans for minor corrections.
“It is difficult to justify staying,” Hebert said. “I think [the economy] is going to see a long, steady decline until this state becomes more business friendly.”
Others agreed.
Reducing the cost of doing business in Rhode Island remained at the top of the suggested to-do list for government, with 76.1 percent of those surveyed marking that as important, although that was down from 85.1 percent from a year ago.
And reducing the red tape associated with doing business in the state ranked second at 56.3 percent, about the same as last year.
Rounding out the list of suggested governmental actions were providing tax incentives and credits (42.3 percent, down from 58.3 percent a year ago), eliminating the corporate tax (38.7 percent, down from 45.2 percent a year ago), supporting work force development programs (27.5 percent), and improving transportation infrastructure (10.6 percent, up from 9.5 percent a year ago.)
Mazze said he was struck that a shifted dynamic at the Statehouse hasn’t changed perceptions in the business community much.
“Even with a better relationship between the executive and legislative branches of state government, businesspeople feel not enough is being done to make Rhode Island a better place to do business,” he said.
Mixed signals leave Ross Cann, managing partner at Newport-based A4 Architecture, with little idea where the economy is headed.
A good sign for Cann: a Boston hotel gave the green light on an expansion project A4 initially started working on two years ago. The project stalled when the hotel couldn’t get financing.
A bad sign: The wild fluctuations in the stock market earlier this month. Cann said such changes can have a huge impact on his firm’s institutional clients.
“There’s no stability,” he said recently. “I can’t give an outlook for the next 12 hours, never mind the next 12 months.” •

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