Governor Carcieri Should Veto This Budget

The Providence Journal Chose NOT to Publish This Article
submitted: June 2009
 
by Leonard Lardaro

Recently, the legislature released its proposed FY 2010 budget. In the weeks leading up to that budget, I felt that it was important that we not prejudge what would ultimately emerge so that we would give the legislature every opportunity to institute meaningful changes in the midst of such a deep economic crisis. Balancing our state’s budget in such an environment is inevitably complicated and controversial. I don’t envy the task the legislature undertook. 

Now that the budget details have been released, I must say that it is neither what I had expected nor hoped for. My reaction has been a combination of disappointment; frustration, and confusion. Since the beginning of Rhode Island’s fiscal crisis several years ago (before almost any other state), I have continually stressed that the way Rhode Island balances its budget each year is every bit as important as balancing it in first place. The severity of this crisis has presented us with a rare opportunity to reinvent our state’s economic profile, as crisis always brings with it opportunity, if leaders are capable enough to seize those opportunities. This last point is especially relevant, as Rhode Island’s image has been severely tarnished globally, causing us to be viewed as “damaged goods,” a state with an extremely high unemployment rate for no apparent reason.

While there are many aspects of the budget I can comment about, I will restrict my focus to its implications for future job growth. How bright are Rhode Island’s prospects, either for when the current recession will end or how strongly the subsequent recovery will be? Unfortunately, Rhode Island will come out of this recession later than most other states and its recovery momentum will be muted by the fact that its primary employment engines here are health services, tourism, and not-for-profits. What we can look forward to is a recovery whose job creation momentum is almost certainly guaranteed not to produce whiplash. While Rhode Island does have a small and growing tech sector, our efforts to enlarge it over the past two decades have not been all that successful. Our lack of a sufficient “critical mass” in high tech was one of primary the reasons why Rhode Island fell into recession before most other states – we lacked enough of these “momentum generators” that could have sustained our momentum as the national economy slowed.

Looking forward, it is clear that we need this sector, along with our overall employment base, to be much larger and to grow far more rapidly than it has to date. Why has Rhode Island not done very well in terms of job creation over the years? Perhaps the single most important reason is that our tax and cost structure is non-competitive. By this, I am not merely referring to tax rates. Sadly, our problems extend far beyond that. When I say tax and cost structure, I am referring to tax rates, fees, regulations, electricity costs, and problems with the appropriateness of the skills of possessed by our labor force.

Judging from the FY 2010 budget, the legislature obviously doesn’t appear to share my concern with Rhode Island’s problems in these areas. Sadly, though, the world is all too aware of their existence. Whenever any fifty-state business climate comparison is released, Rhode Island is always in a highly competitive position – for the worst rating. I won’t deny that these comparisons entail some adding of apples and oranges, albeit very eloquently. But the consistency of their findings should signal something to our leaders: rightly or wrongly, this is the way the world views us. Recently, when news entities from around the world were detailing Rhode Island’s economic malaise, every one of them cited this as a major contributing factor.

We were recently presented with an opportunity to favorably alter our state’s tax and cost structure based on the recommendations of the Governor’s tax workgroup (of which I was a part). While I don’t agree with everything recommended in the final report, it does lay out a very substantial framework upon which Rhode Island can end the continual lambasting it is continually subjected to in fifty-state comparisons. To my utter amazement, these recommendations were entirely omitted from the budget that was submitted. This glaring omission is only the first part of my disappointment, confusion and frustration with this budget. Presented with such a deep recession, arguably the perfect environment to enact such changes, the legislature opted to completely overlook them. Beyond political considerations, this highlights something I have come to believe over the years: I honestly don’t believe that our leaders understand either the distinction between consumption and investment or the implications of choices made concerning them. Specifically, this budget indicates to me that the legislature does not understand the long-term implications of its actions on the future of our economy.

But things get even more confusing. Governors and the legislature abandoned public higher education here about a dozen years ago (a highly vivid illustration of my belief about their lack of understanding concerning the long-run). With this budget, the legislature has announced its intention to abandon the Economic Development Corporation. In the past, persons in our legislature actually blamed the current recession on the EDC, one of the most bizarre things I have ever heard. Apparently, their reasoning went something like this: not enough jobs were created, causing us to lapse into recession before most other states; therefore the EDC caused this recession.

Has the EDC been a failure? Hardly. In spite of numerous budget cuts and being forced to work within the confines of our state’s highly non-competitive tax and cost structure and the resulting tarnished image, they have been able to offset many of negatives of our state’s economic climate, nurturing our high tech presence and bringing about positive events that would never have occurred absent their efforts. I will suggest that the problem the legislature has with EDC stems from their lack of separating cause from effect. The cause for much of our state’s lack of job creation success (and our moving into recession early) is not independent of legislative actions. Their decisions often have dramatic effects on our state’s ability to generate jobs and ultimately its success in the information age. But if they believe I am incorrect, and if they genuinely believe that the EDC is responsible for our state’s recession, let me urge them to invoke the principle of symmetry: if the EDC caused this recession, have them appear before you and ask them to single-handedly end it!

Judging by the FY 2010 budget, I have to wonder if our legislators even believe that Rhode Island is currently in crisis. Let me pose two questions. The first should be asked of all legislators: Is this the best we can do? Second, based on what I have discussed here, it is incumbent on legislators to explain how this budget, which ignores meaningful tax changes and proposes to dismantle the EDC, makes Rhode Island’s economy more competitive. What specific factors will be the underlying basis for future job growth?