PBN: How was RIPEC founded and why?
SASSE: It was founded in 1932 as a Providence Governmental Resource Bureau at the time of the depression. It came about because public officials in the city of Providence asked the business community for help to try and address some of the financial issues that arose because of the economic conditions.
PBN: Has RIPEC always maintained a format as a business group?
SASSE: RIPEC is supported heavily by the business community, both for profit and non-profit businesses, but it sees its role as promoting an effective and efficient government, and not necessarily as a lobbyist for business interests. It sees its role to help educate the public, to promote efficient and sound government, and to bring to the attention of public officials issues that need to be addressed in order to progress. So its role over a period of time has stayed fundamentally the same, except, I think what has changed is that its influence has grown over time. One thing RIPEC has going is its strong emphasis on getting out the facts and being objective and balanced in providing information and maintaining credibility with public officials from both parties.
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PBN: What do you see as key areas for RIPEC over the next year?
SASSE: There are three areas that are key. One is to identify the factors and policies that are driving state spending and ask what can be done. Every year since 1996 government spending in Rhode Island has increased much faster than the rate of inflation. One area is to look at what the spending growth has been, look at what we can afford, identify factors that are driving costs and make some recommendations as to how we can get the most bang for the buck. The second area we started to look at last year and we published a report “A System Out of Balance,” which is a comprehensive review of state tax systemThat studied recognized a need to do a number of things to make Rhode Island’s tax structure more equitable, fair, more balanced, particularly ways to fund education and also to improve its competitiveness. So the second major issue is tax reform and there are a number of initiatives we hope to work on next year, including the apportionment of the corporate tax, income tax reform and particularly to draw more attention to some of the investment type questions that are involved with capital gains. Finally, there have been a lot of major initiatives to reform the property tax. But a lot more needs to be done. So the third area deals with school finance. Those are the three major areas.
A fourth area, which we’re tracking very closely, is the whole question of sales tax, taxing consumption, given e-commerce the way business is conducted. We’ve urged the state government to work with other states to look at ways to streamline sales tax among the states so no state is put at a competitive disadvantage on how it taxes consumption. Keep in mind we talk about balance. You have to look at consumption, property and income taxes. If any one of those starts to decline in a relative sense it just puts more pressure on property or income taxes and then that puts more pressure on the competitiveness of the tax system. Those are the four areas we’ll spend some time on this year.
And another area deals with municipal government. We’ve taken on a major project which tries to identify fiscal issues in the 39 cities and towns before they get into fiscal problems. We just recently finished a major project for the City of Cranston. What we found was there was a need for two things in the state, one for a good information base on municipal finances, where money was coming from, how money was being spent, what are the trends, the fiscal issues. We hope to bring together a group to stimulate conversation to develop a user-friendly source of fiscal information about the 39 cities and towns. And separately if that information became available and people in the communities could identify potential trends, we think fiscal problems that plague some of our cities in the past might be avoided, with policies put into place to address issues before they become serious issues.
PBN: We’re in the third year of the auto tax phase-out. Are we going to be able to sustain that?
SASSE: What we have to recognize is that when Rhode Island’s property burden is about 40 percent above the national average and a phase-out of the automobile tax effectively means a 7 to 8 percent reduction in the property taxes being paid by every Rhode Islander. It’s important as a program to bring balance back into the tax system. The second thing that people have to recognize is that while the property tax payer is getting relief, the municipal governments are not losing revenue because the state is making up the revenue. Over half the revenue coming from the property tax is spent to support schools, so by phasing out the motor vehicle tax we’re reducing property taxes by 7 or 8 percent, and we’re diversifying and bringing more balance into the way we’re financing services, particularly schools, a very important public policy objective.
To answer your question directly, then, it becomes a matter of priorities and choice and how you allocate resources, and RIPEC’s position has been high priority should be given to the continued phase-out of the motor vehicle tax. The legislature this year recognized that phasing out the motor vehicle tax involves state appropriations for the reasons that I mentioned, and evened out the phase out, added an extra year to the phase out schedule to avoid any fiscal blips in the phase-down and make it more affordable. We think that it is sound public policy and should be a high priority.
PBN: Not many years ago you had suggested that one of Rhode Island’s major problems was the lack of an economic plan. Do we have one now?
SASSE: I think we’ve made progress in restructuring the manner in which we undertake economic development initiatives. As you recall we were involved in preparing the report creating the future, which recommended the restructuring of the old economic development department into a state economic development corporation and the creation of a council, a public-private council to advise the governor on economic development issues. Both of those things have been done. So I think organizationally we’re much better positioned to look longer term and address certain economic development issues. One example of progress that has come about as the way we have organized to do economic development business is the Slater projects.
PBN: Kip Bergstrom (director of the Economic Policy Council) talks about a regional economy. Is that a sensible approach and is it really achievable?
SASSE: No state is an island. We live in a global economy. We have to be cognizant of what’s happening around us. Part of it is a regional economy. Part of it is a national and international economy. It used to be the case that one would locate a business based upon where a source of power was, going back to the industrial revolution where energy was provided by water. Locate a business based on markets. Now given the technology, geography becomes less and less important. What’s critical in economic strategy is to recognize the interrelationships and to recognize that it is possible to locate businesses in a number of places. The quality of life in a community becomes a critical competitive step.
PBN: We had a movement not long ago that people dubbed a tax break for the wealthy. Those who favored it suggested it only put us on an equal footing with our neighbors. Is that important as we go forward?
SASSE: The whole issue of tax competitiveness is very important and tax competitiveness needs to be approached from several directions. One is income tax reform. Rhode Island’s income tax is piggy backed on the federal income tax. As a result of having a very simple system to administer, we’ve given up policy control of a system to Washington. Washington effectively defines what our income tax structure will look like. It’s difficult to remain competitive if you’re not adjusting your income tax structure to reflect the economy around us. One income tax issue, probably a political long shot, is the way we address capital gains. We’re not competitive with Massachusetts in the treatment of capital gains. Another tax issue is property tax issues. Property taxes are high compared to national averages, in attracting business, particularly manufacturing business, it is an issue we have to continue to address. And the third critical issue is the apportionment of the corporate tax. The way we apportion the corporate tax we penalize companies that make investment here in payroll or properties.
Those are critical tax issues and one issue that the business community sees holding back development is the competitiveness of the tax system. It is a complex issue, but it is something we need to address in a systematic way.
INTERVIEW
Gary Sasse
Occupation: Executive director of the Rhode Island Public Expenditure Council since 1978
Background: Associate city administration/finance and administration, Memphis, Tenn.
Education: Florida State, bachelor’s degree in government; University of Missouri, master’s, public administration.
Family: Married with four children, eight grandchildren.
Residence: East Greenwich
