Please pardon me if I lead with a shockingly “artistic” word that wouldn’t be printed in a family newspaper…

What the fuck is the State of Rhode Island doing by removing the sales tax on “the arts” and then proposing to borrow $35 million to fund the arts? And why the hell is the Governor proposing to shift the Rhode Island State Council on the Arts  and the RI Film and TV office into the made-over EDC, now called the Rhode Island Commerce Department?

In case you missed it, let me give you a brief recap. During the last legislative session, the government freed citizens from the onerous burden of kicking in 7% extra on purchases of paintings, sculptures and so on. Since the whole state is now tax free, you won’t have to travel to the former tax havens of Newport, Tiverton, and Little Compton or lesser-known parts of Providence, Pawtucket, Woonsocket or Warwick to get a deal on a stainless steel mobile or a portrait of your great Aunt. (See http://www.arts.ri.gov/special/districts/)

Pop Quiz

• How much sales tax have you spent in the last decade on the arts?
• Would paying no sales tax have made any difference in your purchases?
• Would you have bought more or less “art”?

So why eliminate sales tax?

The idea is that Rhode Island would become an art buying tourist destination, drawing thousands of wealthy patrons from around the globe to spend their millions here. Yes, we’ll lose the 7%, but we’d gain so much more in hotel and restaurant revenue.

Theoretically lucky artists, maids and waiters will dance in the streets filling their buckets from the rain of money showered upon them by all those wolves and wolverines of Wall Street looking to wallpaper their apartments in Dubai. I’m not going to hold my breath.

But, in the meantime, if we’re not generating revenue from the arts, where will we get state funding for the arts?

More loans from banks!

We’re going to borrow it. Yes, just like we pay for our bridges and roads, Rhode Islander’s are going to be asked to pay extra for years to come for the art that we use today.

Maybe if the $35 million was going to actually pay for new works of art, that might be interesting (as well as profitable for folk like myself), but it’s not. According to the Providence Journal, $30 million of that will be funding for “public and non-profit cultural and performance centers” like Trinity Rep. The last $5 million will go to fund historical sites and cultural centers. I like Trinity. I like historical sites. That’s not arts funding.

The Governor also proposed an additional $1 million for art to come from the general revenue fund.

Will this million go to make more art? Will it go to bring more art to children in public schools?

According to RISCA, the answer is, nope.

“This $1 million in new funding does not provide additional resources for grants to artists, arts organizations or schools.  The Governor recommended a hold-even budget of $590,000 in state funds in our discretionary grant category.”
—RISCA Website (http://www.arts.ri.gov/blogs/?p=11952)

Who will benefit?

Under this proposal, the former EDC, now called the Rhode Island Commerce Department, will become the administrator for the $35 million. RISCA and Film will move into the Commerce Offices and “collaborate.” (Editor’s note: here’s how Randall Rosenbaum, executive director of the Rhode Island State Council on the Arts described their proposed new relationship on Twitter today and here’s how he describe it in a blog post recently.)

According to the Governor, this will “synergize and enliven the state’s creative apparatus.” Furthermore, Chafee said, “the Commerce Corporation will be a valuable tool for organizing customized programs for the arts: design shops, historical sites, intellectual property producers, all of which drive so much of our economy.”

We’ve seen how great the EDC has been at disbursing creative funds that generate jobs so far (See 38 Studios). I can only imagine how much better the arts will be when fully “synergized”

To recap the entire process as proposed:

1. No revenue generated for the State by sales tax on “Art.”
2. $35 million more in debt acquired by the State.
3. Money for established organizations, tourism and historical sites buried in a bill for “arts.”
4. The responsibility for administration of a that $35 million bond is under the aegis of the Department of Commerce.
5. An unfunded promise of $1 million for the arts that doesn’t go to support art, artists or arts in education

So, who really wins?

• Anyone who buys buy expensive art and pays no sales tax (see: rich people)
• Banks that get more income from bonds (see: rich people)
• The Department of Commerce — whatever that is.
• But you and me? Naaah.

Who loses?

• Artists, who continue to struggle to make a living with possibility of real government support.
• Children who spend more time working on mindless tests and only get a taste of “art” as an extension of “business.”
• Taxpayers who pay extra money for loans.
• The entire State of Rhode Island, because art that serves business is called advertising and art that serves government is called propaganda.

What can we do?

• Do call Your Senator, Rep and the Governor. Tell your friends.
• Don’t vote for a bond issue to fund the arts. Don’t vote for representatives and senators who claim to support the arts but undermine it. Don’t vote for a Gubernatorial candidate who won’t make a real commitment to support the arts. Don’t vote for anyone who tells you that the business of art is commerce and business.

Oh, and instead of making a campaign contribution this month. Go out and spend a few dollars or a hundred dollars or even $1,000 on art made in Rhode Island. I can promise you that every dollar you spend will be appreciated and recycled within the community. And you’ll have something cool to hang on the wall, or read.

And maybe donate an extra 7% to a charity. Rich people might not be able to afford it, but you can.

This all makes sense and I can appreciate the importance.  Fundamentally, when local dollars are spent locally, they recirculate in the economy.  Or to put it conversely, every dollar that is spent outside of the state is a net loss of overall wealth for Rhode Island.  Similarly, every dollar spent at a national chain (even if local) suffers from leakage as our economic system peels off layers of surplus value to pay shareholders, CEOs, advertising, etc. that drains wealth from a community.  You get the picture.

While I support the whole concept of buy local, it is really low impact and based more on the individual consumer’s purchasing decisions.  “Should I get my tools and supplies at Mt. Pleasant Hardware, or should I go to Home Depot?  Should I get my copy of Debtors’ Prison: The Politics of Austerity Versus Possibility at Symposium Books downtown, or should I just order it from Amazon?”  Many people choose the latter in these scenarios.  With limited take-up of “buy local,” the benefits remain small.

What can work much better is strategic sourcing from large local institutions.  This can include universities, hospitals, large corporations (I’m looking at you CVS, Fidelity, and GTECH), and city and state governments. [Note: it’s important to remember that all this can be done without a local purchasing preference policy which Rhode Island policymakers rejected a few years ago at the request of large contractors due to the danger of reciprocity in other states.]

A lot of my work involves strategic sourcing and when done right the results are hugely beneficial for local, small, minority, and women owned businesses.  And it benefits the state too as more purchasing done locally = more tax revenue.  It’s not easy to do (nothing is), but if one looks at a hospital (or system like Lifespan), the amount of money they spend in any given year is huge, similarly for universities, for city governments, and for corporations.

The state can be a partner in the strategic sourcing process by helping identify local businesses that can serve as vendors for large institutions that currently buy large quantities of goods and services out of state or overseas.  Imagine if the RIEDC RI Commerce Corporation convened a roundtable of all the executive leadership from each of the state’s hospitals, sought to understand their purchasing needs, identified mutual pain points, and proactively identified, recruited, and scaled local businesses to serve the needs of these institutions.  Linking local suppliers to local buyers is a low cost way to boost the economy.

Sounds far-fetched, but I do this often at work.  Recently, I assisted with Johns Hopkins University’s initiative to increase their local spend by 10% in Baltimore, developed a local sourcing plan for a Los Angeles Hospital, and analyzed the success of Source Detroit, a program to transfer a portion of the $1.6 billion dollars spent annually by Wayne State University, the Detroit Medical Center, and the Henry Ford Health System to locally owned businesses.

The process is basically to find out what an institution buys and then identify local businesses that can supply it instead.  There are challenges, however.  First and most importantly, you need commitment and buy-in from the senior executive leadership at the institutions.  There are lots of good ideas out there and quick-win solutions that would boost the state’s economy, but without the commitment, nothing is going to happen.

Second, not everything can be sourced locally so you need to be selective.  This is the fundamental difference between a generic buy local campaign and strategic sourcing.  Identifying the high-spend categories that are available in the local market is important and will make the process flow smoother.  Not everything is made here, and if it’s not made here, it can’t be purchased here.  Luckily though, Rhode Island still makes a lot of stuff.

Third, you have to overcome the existing practices of the purchasing managers.  Relationships take time to build, and switching to a new vendor can involve some risks.  These risks can be partially alleviated by starting slow and by identifying quality local supplies used by other institutions.  There is a process that works to change the purchasing habits and long-standing relationships, but it takes time.

Fourth, sometimes local suppliers don’t have the cheapest per product cost.  When businesses operate with a shortsighted focus on low prices, local suppliers lose even though they may still have the lowest overall cost.  There are many hard and soft procurement costs that are often ignored such as transportation fees, legal fees, late deliveries, damaged product, etc. that would not accrue from local vendors.

Finally, many small businesses need help building their capacity to be able to handle the procurement needs of a large institution.  Here is another role for the state and partners to play to ensure that the local businesses can effectively provide the goods and services needed by large institutions.  Small business support organizations like the Small Business Development Center and SCORE can offer the training and resources needed.

Why is strategic sourcing important for the state?  There are three key reasons.

1. It benefits the local community.  When institutions source locally, local revenues increase, resulting in higher tax revenue for the state, and the increased demand may lead to the creation of new jobs.  By identifying minority and women-owned firms, or firms located in low-income areas of the state, strategic sourcing can have profound positive impact for some of the most economically marginalized folks among us.
2. It benefits the institution.  Local goods and services can reduce delivery times, allow for lower overhead costs (you don’t need to store as much when the supplier is 15 minutes away), and reduce potential disruptions in the supply chain.
3. It strengthens the entire business community.  By shifting spend to local vendors, large institutions improve the local business ecosystem and generate a more robust and competitive network of suppliers.  Having local suppliers also means interactions are easier and quicker, and the partnerships can develop new ways to identify and rectify supply chain problems, create new products and processes, and add innovation to the whole system.  Also, by shifting to local purchasing, local vendors become more adept, more responsive, and more stable over the long-term.

If I was a Mayor or Governor, I would create a position in my administration specifically tasked with building and supporting these relationships.  There is a net benefit to the state with the minimal cost of an FTE position in the budget.  The benefit to a city is less, although new business expansion would provide additional property tax revenue.  To do it right, you need someone competent who can facilitate these connections, hold conferences and convenings, and identify the local businesses that can act as vendors.

Alternatively, this could be done outside of government by any trusted third-party (i.e. RI Foundation, Chamber of Commerce, RI Black Business Association, etc.).

This is the 2nd in my ongoing economic development series called “Rebuilding Rhode Island’s Economy.”

Right on cue, Summer Solstice arrived on June 20 and ushered in temps well into the 90’s, providing the first blast of real heat for Southern New England this year. It was about time too, the choruses of “When is it going to warm up?” were getting a little stale.

Well, warm up it did. With schools out and summer vacation just getting into full swing, the shoreline beaches were packed today and the roadways leading to them were clogged starting early in the morning. Routes 4, 1 and 102 were at near standstills around noon today and the traffic was sustained well into the afternoon as those who couldn’t get to the beach early,  made their way down later in the day.

Across the bay in Newport, the situation was much the same, except in the case of the City by the Sea, there is a cruise ship anchored offshore and plenty of tourists were on hand in the city’s shopping and tourist areas, spending money and providing a much-needed boost to the state’s economy.

The tourists in Newport also got to see a real show today, as the eight teams vying in the America’s Cup Race Series were all in the water today, testing the carbon fiber hulls and various sails in advance of next week’s races, scheduled to kick off on Thursday.For those unfamiliar with America’s Cup racing, the ships have evolved over the years but the premise is the same; just think of it as NASCAR, for the very rich.

The RIEDC has done a fantastic job putting this event together, partnering with America’s Cup Race Management and NBC Sports, among others. Unlike America’s Cup races here in years past, these races will be visible from shore and the base at Fort Adams will provide spectacular views of the action from very close in-shore. There will be plenty of other activities on site with action taking place from 11 am – 7 pm from June 28-July 1. Prior to the 28th, entrance to Fort Adams and the racing facilities will be free, anyone wishing to attend on race days will have to purchase tickets and pay to park.

RIEDC was formed under the Almond administration, when the Department of Economic Development was closed and those responsibilities moved over to the Port Authority, which was renamed. The Port Authority was chosen because of its unlimited bonding authority, a fluke of legislative drafting when that agency was originally created. As of 1995, when this happened, the only other agency with this kind of authority, the Public Building Authority, was discredited by DiPrete-era abuses and on the way out. In other words EDC was born with extraordinary powers and has used them extensively, which is partly why the state’s debt nearly doubled during the Carcieri administration.

In the 17 years since then, RIEDC has been through more directors than I can count. Some have been widely admired, and some just looked good. Keith Stokes, the current most recent director has, I believe, set a longevity record by lasting three years, though I welcome reader corrections to my director timetable. He is widely held in high regard, but the agency has a vague and difficult set of goals, so no one should be surprised when the failures are legion and the successes short-lived.

The 38 Studios debacle reminds longtime observers of previous ones, like Alpha-Beta, and the Wyatt jail in Central Falls. And just as the debacles recur, so do the ensuing reports. We’re all looking forward now to a report from the RI Public Expenditure Council about how to shake up EDC.  But that’s nothing new, either.

Three years ago there was a report about EDC from a panel of worthies headed by Al Verrecchia, chairman and former CEO of Hasbro. The panel suggested that EDC needed shaking up, but their report ultimately contained precious little of use about how to do that. For example, the report said the agency was without focus and alternately complained they didn’t spend enough time working with already-existing local companies and that they didn’t have a good marketing approach to attract companies from elsewhere. Both might be true, but was the report’s suggestion that EDC concentrate on both really the best way to improve the focus?  The report was too easily interpreted as an endorsement of what EDC was already doing. Essentially, the message was “keep it up, but do it better,” even if some of the report text struggled to say something else.

What to do

It’s possible to see the agency’s discredit as an advantage. Might it be possible to dream that we can discard the destructive and expensive things the agency does and replace them with activities that actually help the economy? My vote for what’s really needed around here? Information.

EDC could usefully refashion itself into a research agency. If agency staff actually spent significant time studying the economy and the local markets in an intellectually honest and rigorous way, some practically useful recommendations for action would be bound to arise from that work. This is the kind of thing that no individual company can take on, but an agency like EDC could produce information vital to all of them.

Perusing the EDC web site, there is a lot of information available, but it’s all the kind of thing you can get from the PBN book of lists or from Census Department or BLS web sites. They provide a handy list of tax incentives and programs, but what do they provide to help people make business decisions?  That is, beyond “what government program should I apply for?”

On the EDC web site, I can learn which are the top employers in the state, and I can learn which economic sectors employ the most people, but there is precious little one might use to make important decisions. Where can I learn whether there is a shortage of machinists?  Who do I ask about unmet credit demand?  Is it banks or family and friends who finance most new RI businesses?  What proportion of venture-backed businesses survive five years?  What stage businesses have the most trouble getting credit?  What are the important barriers to export markets for RI businesses?

Who needs this information?  Someone who aspires to be a machinist would, of course. Someone who wants to start a business, or a bank interested in expanding its business lending portfolio, might also find it useful. A business contemplating expansion, perhaps. Oh, and General Assembly members who routinely assert that this or that would be good for the economy without any idea whether it’s really true could benefit. But most of all, the people who craft economic development policy would find real information vital. Or they should.

EDC is in a unique position that could allow it to gather — and analyze — useful data about the local economy. They could be doing business surveys, worker surveys, surveys of bankers and investors, analyses of credit markets, classifying foreclosures. They could be hosting conferences of academics to present research about these topics, or offering research fellowships at Brown or URI for economists willing to spend time looking at the RI economy. They could present a public lecture series on the subjects important to the state’s economy, modeled after the Geek Dinners (that a previous EDC director helped begin). In short, they could actually present valuable information to help people make important economic decisions.  Would it be expensive?  Not compared to the status quo.

Research doesn’t just mean accumulating information in a single place, even if that’s a handy service. It means analysis: counting things, classifying them, and coming to conclusions about them. It means tracking events and interpreting them. It means finding information that isn’t already available and creating the tools necessary to anticipate events and follow trends. It means cultivating a staff able to do these analyses and with the intellectual confidence to follow where the data lead, and whomever they offend.

This, of course, is not the path we’ve taken. What we have now is an agency that does some good service and quite a bit of harm. We have some important programs housed in an agency that frequently acts like nothing so much as a state-funded corporate lobbyist. Our state deserves better and wouldn’t it be nice to have an agency that tells us all what’s going on around us instead of hiding it?

This is from a 2009 column I wrote about EDC (link – scroll down to “EDC: What’s the point?”).  A report had just come out scolding EDC’s performance, and this was my review of that report.

But what of EDC itself? The panel complained they were without focus, and alternately complained they didn’t spend enough time working with already-existing local companies and that they don’t have a good marketing approach to attract companies from elsewhere. So which one should the refocused EDC take on? Both, says the panel. That will sure improve the focus, won’t it?

Some background you might not remember: Back in the misty dawn of time, EDC was born as the RI Port Authority and tasked with issuing bonds to develop and preserve the Port of Providence. When the Navy pulled out of Quonset, the Authority’s authority expanded there. Then, in 1995, when Governor Almond decided that the state’s economic development apparatus should no longer be a department of the state, he laid off the entire department, and transformed the Port Authority into EDC.

Why the Port Authority? Simple. Almost alone among state agencies the Port Authority had been granted unlimited borrowing authority when it was formed, which EDC inherited. And borrow they have, for good and for, well, less good. They blew $30 million on Alpha-Beta, a bio-tech flop, and EDC’s authority was a pivotal part of the deal that allowed state debt to balloon in order to pay for the I-boondoggle rearrangement of Route 195. There’s plenty more, including $14 million for the Masonic Temple hotel project, and $30 million for the troubled Wyatt jail in Central Falls.

What’s more, freed from the state personnel system, EDC was free to pay its executives whatever they please, and to conduct their business however they pleased. Their executives could wear good suits, house their operation in first-class office space, and generally conduct themselves just like the overpaid CEOs they spend their time with.

This isn’t to say EDC hasn’t done some good. I’ve written approvingly about the geek dinners they promoted under Saul Kaplan, its last director, and there have been other networking initiatives that bore some fruit, too. But let’s be honest. What’s the point of EDC at all? In large part, the best things the state can do for the state’s economy have to do with those essential things that the private sector can’t (or won’t) do: universal public education; maintaining roads, bridges, water lines and the like; policing the marketplace; protecting the environment; facilitating grant-funded research. These are the factors that could make ours a stronger economy. What an EDC can do will only ever be a minor effect compared to these others.

This, of course, is a political problem for the agency because expectations are so much higher than can be achieved.

What happens at an agency with such an ill-defined and difficult role? Failure, that’s what. Over the years, EDC has seen some good people come through its doors (along with the inevitable few who only look good in a suit) but they’ve been tasked with the impossible. Their mission has been to make our state’s economy bloom despite the fact that we are shrinking our investments in our infrastructure, our workforce and our environment. And what have we seen? Tremendous pressure to do something has produced ill-considered loans, and nebulous and occasionally laughable plans.

A future EDC or something like it could play a useful part in monitoring the state’s economy, and in technology transfer, trying to push new technologies into the market to advantage local businesses. They could be useful promoting networking and centralizing some information businesses need. But our EDC has served mostly as an ATM for corporations, and as a state-paid corporate lobbyist, pushing tax cuts in the legislature, oblivious to the effects these cuts have had on permitting delays, to say nothing of education and bridge maintenance. The agency needs to be rethought, but the changes must go a lot farther than this panel envisions.

“The hope would be that we can continue to maintain state support consistent with past practice or, better still, increased levels of investment,” [Slater managing director Richard] Horan said. “Given the cost-effectiveness of the program … there is certainly a case to be made.”

But Keith W. Stokes, executive director of the R.I. Economic Development Corporation, says the $9 million from the U.S. Department of Treasury’s State Small Business Credit Initiative should be a major step toward Slater becoming self-sustaining. “That money [now provided annually by the state to Slater] has to go to more economic development.”

Slater currently receives $2 million dollars from the state, money well spent and an amount itself reflective of the steep funding cuts doled out by the state in 2009.

Yes, there certainly is a case to me made for the cost-effectiveness of the program. In recent years Rhode Island moved from a middling 29th to as high as 11th in 2008 in national rankings, a needed bright spot in the state’s business outlook. When we look back in a few years at where we are, will we wonder why we let Tea Party type, anti-tax gone haywire conservatism trump sound business sense?