We’ve heard it all before.
Rhode Island is one of the worst states in the country in which to do business, consistently ranked near the bottom when the 50 states are compared on the basis of factors considered especially conducive or prohibitive to doing business, such as tax rates, regulations and infrastructure.
Whether the rankings are completely accurate may be debatable but they should not be ignored, says John C. Simmons, executive director of the Rhode Island Public Expenditure Council. He sees Rhode Island as “much more competitive” than such ratings indicate, “but these are the rankings that people use” and “what people perceive us to be.”
“And perception can become reality,” he added.
A 15-page RIPEC report prepared for a Sept. 30 forum puts it this way: “While there does not appear to be a consensus on the best way to measure whether a state has a business-friendly climate, and which factors should be evaluated, there is no doubt that the rankings affect public perception and that their usage has become increasingly widespread over the past decade. … Perception is a key factor when promoting economic growth.”
The RIPEC report focuses on the Rhode Island ratings set by five business-climate studies, including two research organizations, the Tax Foundation and the Small Business and Entrepreneurship Council (SBE Council), and three media outlets, cable news channel CNBC, Forbes and Chief Executive magazines.
Scott A. Gibbs, president of the Economic Development Foundation of Rhode Island, based in Cumberland, said those most likely to use ratings are professional search consultants retained by major companies to scout new locations across the country.
The foundation is a private nonprofit that has developed such sites as Highland Corporate Park in Cumberland/Woonsocket, the 295 Industrial Office Park in Lincoln and the Westerly Airport Industrial Park.
“I can guarantee you they are looking at these rankings,” Gibbs said of search consultants, “and the rankings have, in my opinion, a material impact on whether a state even gets on a consultant’s radar screen. Search consultants, before they even talk to a state, are gleaning all sorts of data on such factors as taxes, the work force, building costs and the overall business climate.”
Melissa Chambers, spokeswoman for EDC, noted the steps the state has taken in the past year to improve its business climate, such as reducing the top personal income tax level from 9.9. percent to 5.9 percent, establishing an office of regulatory reform within the EDC, expanding the “capital continuum” to make more business capital available and taking early steps toward streamlining the permitting process.
“We need to talk about the good things,” she maintained. Chambers declined to comment on specific state rankings.
Simmons pointed to some limits in the way rankings are established. For example, the Tax Foundation, a key research group whose findings are often used by many influential agencies such as the U.S. Small Business Administration, considers the highest income tax rate when comparing states’ tax burdens, he said.
Yet, the state’s reduction of the top rate and other related changes, to take effect in Jan. 1, may not have as dramatic an effect as one might expect.
The Tax Foundation, which put Rhode Island at 44th in 2010 for its business tax climate, would rank the state 42nd in 2011 without the changes; if the changes had taken effect as of July 1, 2010, the state in 2011 would be ranked 40th, according to the foundation website (www.taxfoundation.org).
“We’re moving in the right direction,” Simmons said. “But are [the changes] substantial enough?”
In another change, Forbes ranks Rhode Island 49th and next to last in its Best States for Business and Careers for 2010, up one spot from 50th in 2009, without consideration of the tax changes. •
