Business leaders in Rhode Island have lower expectations for 2006 than they did for last year, Sovereign Bank’s sixth annual Providence Economic Outlook survey has found. Rising energy and health care costs and a burdensome tax structure were blamed for the change.
Of 282 company leaders surveyed in Greater Providence, 54 percent predicted “slow” or “strong” growth for the U.S. economy – down from 66 percent last year. Even fewer, 51 percent, expected “slow” or “strong” growth locally, down from 56 percent last year.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
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Nevertheless, 76 percent of business owners continue to prize the area’s colleges and universities – 86 located within a 50-mile radius of the state – and 72 percent said Rhode Island’s strategic location is a significant advantage to doing business here.
At the survey’s unveiling last Tuesday, Gov. Donald L. Carcieri said the state continues to invest in the economy. While most of the talk since the release of his fiscal 2007 budget has centered on cuts, he said, he’s proposing a 3.3-percent spending increase, roughly in line with the projected 2006 inflation rate of 2 and 3 percent.
The focus of the increased spending, he said, is on education, innovation and technology that can boost economic development.
“If we can bring our spending down to [the projected inflation level], I am confident that if the economy keeps picking up steam that we will in fact be generating revenue,” Carcieri said.
The governor also said his goal is to reduce taxes. The car tax is being phased out, he said, the budget proposes to end the capital gains tax by 2008, and he supports the “Taxpayer Relief Act of 2006” recently unveiled by House Democratic leaders.
Laurie White, president of the Greater Providence Chamber of Commerce, led a panel discussion of business leaders to dissect the Sovereign survey’s findings.
Eighty-five percent of the companies polled said taxes are the biggest challenge to doing business in Rhode Island. Jack W. Trifts, dean of the College of Business at Bryant University, said the income tax rate on the higher earners in Rhode Island is most burdensome on entrepreneurs and young growth companies that are the future of the state.
“Within regions, taxes are a significant determinant of where people invest in business,” he said.
Another obstacle cited by businesses was inflation and the subsequent effect on borrowing rates. The survey that said 87 percent of the business leaders surveyed expect a “moderate” or “potentially significant” increase in the rate of inflation in 2006.
Steve Andrews, vice president of the capital markets division at Sovereign, said companies should expect one or two more hikes to the current federal prime rate of 4.5 percent.
Company employment remained relatively stable last year, the survey found, with 44 percent of respondents reporting no change in full-time employment and 46 percent of executives reporting there will be no significant alterations to their work force this year. The percentage of companies predicting a “slight” increase has gone up 8 percentage points since 2004 and sits at 41 percent in this year’s survey.
One area where work force increases are needed is health care – especially nurses.
Constance A. Howes, president and CEO of Women and Infants Hospital, said the long-term outlook for the availability of trained health care workers is bleak. An opportunity exists with getting more males into the nursing pipeline, said Howes. However, the most pressing need is getting certified nurses to train students, she said.
Many businesses reported that rising expenses are cutting into revenue.
Half of the businesses reported they absorbed the cost of higher health insurance premiums, while 53 percent said they either increased co-pays or raised deductibles. (Totals add up to more than 100 percent due to multiple responses.)
Howes said many high-deductible health plans now offered by employers are “Swiss cheese” plans that do not cover diagnostic or preventive care. “It is inhumane to pass the burden of the cost to people that are sick and least able to afford it,” she said.
About 49 percent of companies expect to increase their capital spending, compared with 45 percent last year. Sixty-five percent of companies said oil and gas prices either had a “significant” or “moderate” impact on them, the survey found. And 61 percent of respondents – up 7 percentage points from 2004 – said the region’s financial outlook is “slightly stronger” this year.
Charles T. Francis, president and Rhode Island partner of CB Richard Ellis/New England, said the outlook for commercial real estate is good because Providence is now embracing its role as a suburb of Boston. In addition, new jobs being created in the financial sector, especially by Bank of America, Sovereign, Citizens Bank and Fidelity Investments, are sending a strong message that there are other places to do business than in Boston, he said.
Francis also noted that Providence has a great opportunity to develop about 20 acres of land being freed up by the relocation of Route 195. Rising material costs, however, could drive up the price of construction, and ultimately make rents more expensive, he said.
