How to bring the unions to the stadium opposition


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Build RI is a labor-management partnership between a variety of trade unions.

My colleague Steve Ahlquist previously posted a great story covering the two meetings on July 27 about the proposed construction of the taxpayer-subsidized stadium. One point that was made at the Providence meeting, worth expanding on here, is the issue of the construction trade unions, which have endorsed this project. This piece will make an effort to appeal to both the general membership and leadership of these unions, who will prove to be some of the most important allies in this struggle and, on the other hand, will perhaps be the make-or-break of this deal.

It is important to empathize with the membership, they are facing a massive drop in employment and job sites, with a huge percentage of the rank-and-file out of work. This project would create jobs for a large swathe of their members, something I do not begrudge them for.

But this is a decision I do not think they have properly contemplated. First, while the governor has previously eluded to a hiring push that would target minority workers, the current contractor participating in this project, Gilbane, has one of the worst records of minority hiring in the nation. That is an important issue to discuss because the disenfranchisement of minority workers is a vital one.

Second, and perhaps more importantly, this stadium could generate short-term gains on one project but may in fact kill development in the I-195 land in the near future. As Kate Bramson reported on May 2, any and all further construction hinges on a super-permit that would install a stormwater mitigation mechanism at the proposed open park.  Bramson wrote in that piece:

The master permit hinges on a plan to use parkland within the 195 district for stormwater mitigation. Builders are required to treat a percentage of stormwater on parcels they develop. However, if they can’t meet the entire stormwater requirement on a parcel, the master permit allows them to gain credit from the parkland’s treatment of stormwater.

Given the tides and ebbs of Rhode Island politics, this could end up killing future development on the I-195 corridor for up to five years. And on top of that, recall that the federal government also will need to be involved, prolonging the wait. That of course translates out to a much greater amount of time for unemployed union members to remain so. Between an extended waiting period and a traffic-clogging stadium, potential developers in the bio-med and education sectors might take their business elsewhere, keeping that land vacant for a very long time.

Bucking the trend and opposing an endorsement that has already been made by the union is always a tremendously problematic issue, no doubt. It takes courage, gumption, and being versed in the relevant documentary records so to make a cogent case. I would refer interested parties especially to this slideshow produced already by the I-195 Commission, an outline of proposed development by landscape architects that every taxpayer in the state already funded. Just to re-iterate, the state has already paid three times for this land.  First, we paid for the de-comissioning and demolition of the old I-195 highway. Second, we paid to have it zoned and developed by the federal government. Third, we paid for the aforementioned landscape architects and other planners to work out the schematics of the park.

If this ballpark scheme goes through, it will cost taxpayers another three times. First they will need to pay for the stadium’s construction. Second they will pay to re-design the sewer and highway system to accommodate the stadium. Third we need to re-develop another parcel of land as a park should the government refuse to accept the idea of a smaller park on the grounds of the stadium.

There is simply too much risk as opposed to reward in this idea and organized labor should rethink their position, not so to undermine their standing but to promote and improve their reputation. This week Boston Mayor Martin Walsh rejected the move to finance the 2024 Olympics with Beantown tax monies, causing their bid for the Games to be voided. That move has probably bought Walsh another term in office and could very well give him a future bid for higher office. The unions in Rhode Island would be wise to take such logic into consideration. To be clear, I am no opponent of labor unions, I am a member of one and was an eyewitness to the Illinois Caterpillar strike in the 1990’s. But this project, should it come to pass due to labor’s support, will be seen by many as a black mark on its record and will be fantastic fare for union busters on both sides of the aisle.

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PVD City Council fails to deliver on minimum wage promise in new TSAs


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City Council Finance Chair John Igliozzi

Last year, after the General Assembly stole away the power of cities and towns in Rhode Island to set their own minimum wages, Providence City Councillor John Igliozzi told a packed room of disappointed hotel workers that the city was not prohibited from imposing higher minimum wage standards via tax stabilization agreements (TSAs), which are contracts between cities and private industry, and cannot be interfered with by the General Assembly.

Igliozzi said then that all future TSAs should include strong minimum wage requirements and many other worker protections and rights.

Igliozzi is the chair of the Providence City Council Finance Committee, so one would expect that he would follow up on this proposal, but so far, nothing like this has been incorporated into the new TSAs being cooked up in City Hall and expected to be voted on this week.

When Jesse Strecker, executive director of RI Jobs with Justice, testified before the Finance Committee of the Providence City Council, he presented a short list of proposals to ensure that whatever TSAs were adopted would truly benefit not just the investors and owners of billion dollar corporations but also the working people and families of Providence.

Strecker’s list included the following:

1. Provide good, career track jobs for Providence residents most in need by utilizing apprenticeship programs and community workforce agreements, hiring at least 50% of their workforce from the most economically distressed communities of Providence, with a substantial portion of that workforce made up of people facing barriers to employment such as being a single parent or homeless, or having a criminal record, offering job training programs so local residents are equipped with the skills necessary to perform the available jobs and hiring responsible contractors who do not break employment and civil rights law;

2. Pay workers a living wage of at least $15 per hour, provide health benefits and 12 paid sick days per year, and practice fair scheduling: offering full time work to existing employees before hiring new part time employees, letting workers know their schedule two weeks in advance, and providing one hour’s pay for every day that workers are forced to be ‘on call’;

3. For commercial projects, create a certain number of permanent, full-time jobs, or for housing developments, ensure that 20% of all units are sold or rented at the HUD defined affordable level. Or, contribute at an equivalent level to a “Community Benefits Fund,” overseen and directed by community members providing funding to create affordable housing, rehabilitate abandoned properties, or finance other community projects such as brown field remediation; and

4. Present projected job creation numbers before approval of the project, and provide monthly reporting on hiring, wages and benefits paid, and other critical pieces of information, to an enforcement officer, overseen by a Tax Incentive Review Board comprised of members of the public and appointees of the city council and mayor, to make sure companies are complying with their agreements, and be subject to subsidy recapture if they do not follow through.

Mayor Jorge Elorza submitted an amendment mandating that under the new TSAs, “projects over $10 million will be eligible for a 15-year tax stabilization agreement that will see no taxes in the first year, base land tax only in years 2-4, a 5% property tax in year 5 and then a gradual annual increase for the remainder of the term.”

In return, the “agreements include women and minority business enterprise incentives as well as apprenticeship requirements for construction and use of the City’s First Source requirements to encourage employment for Providence residents.”

But that short paragraph above contains few of the proposals suggested by Strecker.

Supporting the Jobs with Justice proposals are just about every community group and workers’ rights organization in Providence, including RI Building and Construction Trades Council, Direct Action for Rights and Equality (DARE), UNITE HERE Local 217, IUPAT Local 195 DC 11, District 1199 SEIU New England, RI Progressive Democrats of America, Teamsters Local 251, Fuerza Laboral / Power of Workers, Environmental Justice League of RI, RI Carpenters Local 94, Restaurant Opportunities Center RI (ROC United), Mount Hope Neighborhood Association, American Friends Service Committee, Occupy Providence, Olneyville Neighborhood Association (ONA), Fossil Free RI, Providence Youth Student Movement (PrYSM), Prosperity for RI, and the Brown University Warren Alpert Medical School Prison Health Interest Group.

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Tax breaks for truckers in new Senate toll bill

The Senate Lounge was standing room only before and during the hearing.
The Senate Lounge was standing room only before and during the hearing.

A Senate version of Governor Raimondo’s truck toll proposal, also known as Rhode Works, contains tax breaks for truckers.

The new version of the bill, sponsored by Sen. Dominick Ruggerio (D- District 4), and heard by the Finance Committee Thursday, includes $13.5 million in tax credits and rebates for truckers. They would receive tax credits on their registration fees, rebates on their gas and property taxes, as well as $3 million in grants for those who frequent TF Green Airport and Quonset Business Park.

RIDOT has also slightly reworked their funding formula for the proposal, asking for $500 million in revenue bonds, rather than $700 million. According to Director Peter Alviti, the difference would be bridged by refinancing some of the debt the Department already owes the state, which would give them another $120 million. Without that $80 million to complete the funding, Alviti said the Rhode Works program would be extended over a longer period of time, 30 years, to achieve the same goal. With this new schedule, RIDOT’s interest would increase, and they would eventually pay back $1 billion to the state. According to RIDOT, the total funding for the project would be over $4 billion.

The proposal is based on a serious need to repair Rhode Island’s bridge and road infrastructure, which is ranked 50th in the United States. During the hearing, Alviti stressed safety as one of the main reasons for Rhode Works’ existence.

“This is becoming a more frequent problem, and it will become more frequent in the days and weeks coming unless we do something now,” he said.

The program would also create 11,000 job years in the construction industry. RIDOT also anticipates $60 million each year in revenue from the proposed tolls, $38 million of which would be put towards fees owed to the state. Any other revenue from tolls would directly go towards the repair of bridges and roads. RIDOT plans to reconstruct 155 bridges using this money, as well as upkeep others that are currently in fair condition. The tolls would only charge tractor-trailers, costing them $.69 per mile in Rhode Island, while most other states in the northeast are $1 or more per mile.

“It’s understandable that there’s a certain amount of resistance to the changes we’re proposing. But it’s a fair cost,” Alviti said.

Jonathan Wormer, the director of the Office of Management and Budget, also gave testimony in support of Rhode Works, and explained how much these tolls will end up costing the trucking companies. There are 123 trucks that drive explicitly in Rhode Island all day, whose tolls would be capped at $60 for the whole day, costing the company just under $1.8 million. The 3,111 interstate trucks that come through the state would be capped at $30 per day, and cost $14.9 million. Such toll costs are only about two percent of what companies spend per year. Fuel is considerably more, at 39 percent.

These fees would be collected via EZ Pass, which many truckers that pass through the state already have. If they do not, RIDOT would also implement camera technology that would charge the owner of the license plate. Alviti stared during the hearing that they would not build any tollbooths that would hold up traffic. There are 17 possible locations that the department is looking to install these gantries.

Although most of this information has been revised from the previous bill, Christopher Maxwell, the President of the Rhode Island Trucking Association, said it’s still not ready to become law. “The debate and dialogue should continue, it should not end now. It should begin now that we have all the information,” he told Senate Finance members.

Maxwell believes that directly tolling tractor-trailers will violate the commerce clause in the United States Constitution, and discourage interstate commerce. He stated that no other state is exclusively tolling trucks.

“This does clearly put interstate commerce, and these carriers that you’re not giving breaks to, at a disadvantage,” he said. So much of a disadvantage, that Maxwell added that his association could provide legal proof that such a toll would violate the commerce clause.

“We want to be part of the solution, we are not part of this bill,” he added, citing that the association does have ideas on what RIDOT should do, but did not offer an explanation of what those ideas are at the hearing.

Local truckers came to speak out against the bill as well. Frank Nardone, one truck driver, explained that he avoids tolls in almost all of his routes, and Rhode Island would be no different.

“I don’t like to pay tolls, I don’t think they’re necessary,” Nardone said. According to Nardone, tolls are not the way to make money, especially because Rhode Island truckers already have to pay $388 for the road use tax.

“I think I’m being taxed enough,” he said.

Ed Alfredi owns a trucking company based in Smithfield, and in his testimony, said that Rhode Works makes it impossible to figure out exactly how much the tolls would cost his business.

“If I was to try and sit down, and see what this was going to cost me and my company, it’s very difficult, because there’s no facts,” he said. “It’s going to have an effect, and we should be able to have an exact figure of what these tolls are, where exactly they’re going to be.”

Time is of the essence for the governor’s proposal. While those opposed want more, those in support keep pressing forward, wanting to pass the legislation as quickly as possible. If their efforts fail, Speaker of the House Nicholas Mattiello has hinted at a special fall session in order to fully consider the bill.

House Finance approves budget bill, full chamber to vote Tuesday

The House Finance Committee considers the FY 2016 budget.
The House Finance Committee considers the FY 2016 budget.

After much deliberation, the House Finance Committee gave a unanimous 19-0 vote on the FY 2016 budget late on Tuesday night, which included $37.7 million more than the proposed budget given by Governor Gina Raimondo back in March. The legislative budget proposal is for $8.67 billion dollars, with $3.55 billion from general revenue contributing to that.

“We concur with many of the governor’s initiatives for economic development,” House Finance Chairman Raymond Gallison (D-District 69) said in a press briefing tonight.

According to Gallison, the committee, in large part, accepted Raimondo’s budget, but there were some key provisions that saw change, including Social Security, Medicaid, and sales taxes to businesses.

Those who made between $80,000 and $100,000 will be exempt from paying social security income tax. These tax cuts will give retired Rhode Islanders $9.3 million in tax relief. Businesses are also now exempt from paying the sales tax on corporate utilities. Governor Raimondo had originally proposed phasing it out over five years, but will instead be taken out all at once this year. The earned income tax credit for middle to low income households has also increased from 10 percent to 12.5 percent.

The budget outlines a 2.5 percent Medicaid cut for hospitals, and a 2 percent cut for nursing homes. Gallison said this provides more protection for nursing homes. The House budget cuts Medicaid roughly $67 million, a far cry from the $90 million that the governor had proposed, but the hospital license fee has been increased to 5.862 percent, which would bring in $13 million in additional revenue.

“Funding to maintain HealthSource RI is included in the budget,” Gallison said, outlining the distribution changes to its funding. Now, individuals will pay a surcharge of 2.86 percent on their monthly premiums, and businesses will pay a .59 percent surcharge. The budget allocates $2.6 million for HealthSource RI going into FY 2016. There is also no more additional surcharge for outpatient and imaging services.

Full-day kindergarten is another key provision, with the governor allocating $1.4 million from general revenue to fund programs in the seven communities that don’t offer full-day kindergarten yet. Educational aid was increased by $35.8 million in order to pour money into the educational funding formula. There was also $20 million added for school construction purposes.

Higher education saw an increase of $7 million. The Rhode Island Higher Education Assistance Authority is being downsized, with its responsibilities now being transferred to the Council of Post Secondary Education and the Office of the General Treasurer.

Other major provisions within the bill include cuts to all eight local tourism bureaus, a $2 million increase for RIPTA, and a $0.25 increase in the state sales tax on cigarettes, bringing it up to $3.75 per pack. The tax increase is estimated to bring in $1.7 million in revenue.

What is absent from the budget is just as significant as what is present.

“This budget does not contain anything whatsoever to do with a proposal for a stadium, or any tolls on trucks as proposed by the governor,” Gallison said during the hearing. Also notably absent is the “Taylor Swift tax” on million dollar homes in the state.

Speaker of the House Nicholas Mattiello has gone on the record saying that the proposed budget is business friendly, and will allow for economic development in the state.

“The budget that’s going to be voted on tonight is very pro-business, pro-economy. It’s going to serve as a catalyst for existing businesses as well as working to attract new businesses to the state of Rhode Island,” he told members of the media on Tuesday.

Gallison agreed with that sentiment, giving his own statement at the beginning of the hearing.

“We continue to move Rhode Island onto an economic path to enable businesses to continue to grow,” he said.

The bill is scheduled to go to the House of Representatives floor next Tuesday.

Senate Judiciary considers legislation to legalize cannabis


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From Left: Jared Moffat, Rebecca McGoldrick, and Diego Arene-Morley testify in support of S510.
From Left: Jared Moffat, Rebecca McGoldrick, and Diego Arene-Morley testify in support of S510.

A Senate Judiciary Committee hearing on Tuesday showed overwhelming support for legislation that would legalize marijuana in Rhode Island after its economic successes in both Colorado and Washington.

Jordan Wellington, a lawyer with Vicente Sederberg LLC in Colorado, came to speak in support of the legislation, S 510. Wellington has worked closely with Colorado’s state government to implement the retail and regulation of marijuana, and now works in their Department of Revenue’s Marijuana Enforcement Division as the single policy analyst.

“Instead of should or shouldn’t we, we discussed how to move forward with this responsibly,” he said.

Wellington said Colorado gained more than 20,000 jobs and saw $900 million in sales that brought in $125 million in tax revenue. The cost of enforcement, he said, was less than $10 million.

Money from the extra revenue was invested in educational programs about cannabis to teach youth about its effects and consequences.

“We have found that some of the messaging to youth has been very effective,” Wellington said. “A very cautious message has been given to Colorado’s youth.”

According to Wellington, Colorado has not been without its challenges by taking this step forward. Regulation and education has been key in making the policy work. “One of the biggest things we did was we put a lot of different restrictions on potency in edibles,” he said.

The question of youth cannabis use was touched upon several times throughout the hearing. Andrew Horwitz, an assistant dean at Roger Williams Law School, who also testified in support of 510, said the prohibition approach aken towards marijuana is completely ineffective, and disingenuous to children.

“We are fundamentally dishonest in the way we talk to our children about marijuana,” Horwitz said. “We talk to them like it’s crack, like its heroin. They know now to believe us, that marijuana does what we claim.”

Horwitz also stated that reforming juvenile use starts from the top, with how the state looks at marijuana as a whole. “We are doing terrible damage by the use of our criminal justice system to deal with a public health issue,” he said.

One of these damages includes a racial disparity in the number of African Americans who are arrested for marijuana related crimes, due to police saturation in communities of color, as well as racial profiling.

“We’re doing a number of things wrong,” he said. “We’re arresting people for distributing marijuana. If you legalize the distribution of marijuana, you eliminate the whole line item of law enforcement.”

Jared Moffat, director of Regulate Rhode Island, also came in support of 510, with an entire binder of studies regarding the legalization in Colorado. The most accurate study of youth use, called Healthy Kids Colorado, looked at 40,000 middle and high school children, and is re-done every two years.

“The best available data on youth marijuana in Colorado shows that the use has remained flat,” he said, especially when in comparison to alcohol and tobacco, which has continually fallen in recent years. Moffat, like Horwitz and Wellington, pointed to education as the key to reducing youth cannabis use. Looking at the context of use is important as well.

“If we are acknowledging that marijuana is available in our schools, we need to acknowledge that is readily available from drug dealers,” Moffat said.

Moffat said many of the studies that opponents brought up against the legalization of marijuana have cherry picked their data in order to make it look like youth use has risen. One such study compared the city of Denver to the United States as a whole.

“If you take any metropolitan area, you’re going to find higher use,” he said.

Youth use was definitely the biggest worry of both legislators and the few opponents who did come out to speak against the bill, such as Debbie Paragini, who came as a Rhode Island parent.

“I feel really upset living in a state that is thinking about legalizing yet another recreational drug. For an economic basis? I don’t understand that,” she said. “As a parent, I think this is a really bad idea.”

Speaker Mattiello calls for an end to criticism of Speaker Mattiello


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mattiello whiteSpeaking at a Greater Providence Chamber of Commerce luncheon, Speaker of the House Nicholas Mattiello held court and spoke plainly about his economic priorities for Rhode Island.

Clearly upset that Politifact ruled false his recent statement in which he denied that there have been tax cuts for the rich in Rhode Island, Mattiello pointed out that when he speaks to his “well-to-do” neighbors, they “don’t see any tax relief.” Then in a gesture more suited to Imperial Rome than to Democratic Rhode Island, Mattiello declared, “That discussion has to stop.”

Of course, the discussion isn’t stopping.

Mattiello made no secret about his economic priorities: rich people. The real question is why any business interest in Rhode Island bothers to pay lobbyists any more, given that Mattiello has basically said that businesses will get everything they want, from lower taxes to fewer regulations. Says the speaker, “We have to concentrate on the things that are important… Let the business community know that they’re important to us, know that we are going to do the types of things they need to have done.”

No longer will people be the priority in Rhode Island. “We changed the tone,” said Mattiello, “The business community knows that they have priority, they know that they’re important…”

It follows then that people not in the business community do not have priority and are unimportant.

On HealthsourceRI, one of the most successful state run health exchanges in the country, Mattiello remains unconvinced, saying, “I’m informed that it’s not as good as we think it is… There are a lot of problems with the exchange… It should be no more expensive than it would cost us to have the federal government to do it…”

I can’t be the only one who detects a massive dose of hubris when Mattiello says, “I have not made my mind up as to whether or not we’re going to keep it in the state, give it to the federal government and so forth…”

Just in case you need a preview of what to expect as the years roll by under Mattiello’s House leadership, you can rest assured it’s going to be more of the same.  “I would support [reducing or eliminating the $500 minimum corporation income tax] and I would support reducing and eliminating other taxes also. There’s a lot of taxes we could reduce or eliminate… I’m not sure that’s it going to be my priority this year, but it’s certainly something that I’m mindful of and it’s something that we ultimately have to address.”

One has to wonder when the General Assembly will get its House in order, and find new leadership.

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Mattiello’s ‘dynamic analysis’ is long discredited economics


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MattielloSpeaker of the House Nicholas Mattiello has been making statements demonstrating his support for “dynamic analysis,” (also known as “dynamic scoring“) a fiscally irresponsible and economically discredited accounting trick supported nationally by congressional Republicans that amounts to little more than rebranded trickle-down economics.

At Saturday’s 2015 Small Business Summit, held at Bryant University, Mattiello defended the $20 million tax break on social security income he’s proposed as a short term economic hit for long term economic gain.

“What I’ve been saying lately,” says Mattiello in the clip below, “is that everything we look at in state government, we look at the wrong way. We look at it from a very static point of view. ‘What is it going to cost us?’ ‘Oh, this year it’s going to cost us $20 million so forget it, we’re not going to do it. If we don’t have room in the budget to do it we’ll kick that issue out. Well, we have a structural deficit in Rhode Island, folks, so under that analysis we’re never going to do anything in Rhode Island to make our economy better. Sometimes you have to prioritize and you have to do what the economy needs to do to move forward.”

Then, in today’s GoLocalProv, Mattiello said, “I know that keeping people in Rhode Island, with more discretionary income in their pockets, will be a significant long-term gain for our economy.  This initiative comes with a short-term cost in our state budget.  But, we need to start using a more dynamic analysis that takes into consideration long-term benefits, instead of a static analysis that only looks at how much things cost.”

Mattiello has invested a lot of political capital to pass his signature tax break. And to make these tax breaks work, he’s going to cut the state budget accordingly. The cuts are most likely to be in the areas of social services, which the Speaker has repeatedly signaled his willingness to cut. But in order to pass his tax break, the Speaker needs an economic analysis friendly to his idea. Conventional, or what is known as static analysis, does not look kindly on Mattiello’s idea, but dynamic analysis does.

The economic analysis Mattiello wants to use here in Rhode Island is the same as what is being proposed nationally by the Republicans now in control of Congress, and it’s scarily reminiscent of the policies Kansas Governor Sam Brownback instituted in 2012 that eviscerated the economy of that state.

Congressman Chris Van Hollen of Maryland and Congresswoman Louise Slaughter of New York penned a piece criticizing dynamic analysis, writing that Republicans “are rigging the rules in favor of windfall tax breaks to the very wealthy and big corporations who can hire high-priced, well-funded lobbyists—once again choosing to leave behind working families. Their plan would further distort the nation’s fiscal outlook by applying this scoring model only to tax cuts—not the economic impact of investments in education, healthcare, infrastructure, and other areas. That means that the value of tax cuts to the economy would be exaggerated, and the value of investments in the middle class would be undercut.”

Shaun Donovan, Director of the Office of Management and Budget at the White House, outlines three reasons why dynamic analysis is little more than a ruse and it’s worth quoting from at length.

First, dynamic scoring requires CBO and JCT to make assumptions in areas with unusually great uncertainty. While all budget estimates are uncertain, there is substantially more disagreement among economists and experts about how policy changes affect the macroeconomy than about most other scoring issues. This helps explain why estimates from different CBO models of the long-run growth effects of a 10 percent tax cut differed by a factor of 15 – and ranged from positive to negative – when dynamic scoring was used.

“Second, and more fundamentally, dynamic scoring would require CBO and JCT to make assumptions about policies that go beyond the scope of the legislation itself. For example, when a tax cut or spending increase is deficit financed, its long-term effect on the economy depends heavily on how and when its costs are ultimately recouped – whether through higher taxes or lower spending, and after how large an increase in debt. When the legislation itself is silent on these questions, Congressional scorekeepers would have to make an assumption – potentially putting scorekeepers in the game, rather than just referees. Moreover, in standard models, these assumptions are often the difference between a positive or negative effect on the economy.

“Finally, dynamic scoring can create a bias favoring tax cuts over investments in infrastructure, education, and other priorities. While the House rule would require dynamic scoring for legislation making large changes in revenues and/or mandatory spending, and makes it permissible at the option of leadership for any such legislation (even if modest), it would not apply to discretionary spending, ignoring potential growth effects of investments in research, education, and infrastructure. More insidious, economic models that find large growth effects of tax cuts are often based on the assumption that they would be paid for entirely through reduced spending – without taking into account at all the economic consequences the reduction in government investment.”

Speaker Mattiello seems intent on implementing the kind of economic policy here in Rhode Island that has long benefited the rich and connected over the middle class and the poor. These policies have led to massive wealth acquisition by the very few amid crushing poverty for many. In doing so Mattiello has aligned himself with the Republican Party and against the Democratic Party of which he claims to be a member.

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Best wishes Tom Sgouros, new adviser to Seth Magaziner


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tom-headshot-thumbIt’s always gratifying when one of the best and most deserving folk actually get a position in government where they can make a powerful difference. We recently learned that RI Future contributor Tom Sgouros has been appointed as senior policy adviser to Seth Magaziner, the new treasurer of Rhode Island.

Tom was himself a candidate for the office of treasurer in 2010 but dropped out early in the race that Gina Raimondo would go on to win. He is known for his incisive, well-researched and often sarcastic insights into the economics and policies of Rhode Island.

In addition to writing for RI Future, Tom recently started — and will suspend — an excellent column in the Providence Journal. Which is a shame, but a fair tradeoff for honesty and transparency in government.

Tom’s most recent book, Checking the Banks is subtitled “The Nuts and Bolts of Banking for People Who Want to Fix It”, so it looks like they’ve picked the right person for the right job.

sgouros book ad
“This is a marvelous book! Well-written—even enjoyable to read—about local banking! ” — Gar Alperovitz, author of What Then Must We Do?

In the book, Tom goes into great detail about what’s wrong with the banking system, like the mortgage crisis, lack of loans to small businesses, and predatory practices. He also offers alternatives, solutions and possibilities for change.

We hope that Tom and Treasurer Magaziner will create bold initiatives to make banking more innovative. Maybe we can start our own state bank, and save taxpayers millions while priming the local economy’s pump…

At the beginning of the session everything is possible. Now the hard work begins.

(DISCLAIMER: As the editor and publisher of two of Tom’s best books, this article is 100% biased and slanted.)

Providence should pass a parking tax


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accessibleparkingpic
Map of Pittsburgh courtesy of Streetsblog. Click on the image for more information.

Cities with less parking do better economically and environmentally, so getting Jorge Elorza firmly behind a parking tax should be one of our top concerns.

When asked whether he would support a parking tax during his administration, Jorge Elorza blew a dog whistle for potential supporters and opponents, saying in effect “not now.” On balance, Elorza’s reply makes me confident that the mayor-elect’s administration will institute a parking tax if Providence voters push him on the issue. A parking tax is one of the most important economic development and transportation initiatives that the mayor could take on, and progressives should ready themselves to ask for its passage.

I feel comfortable trumpeting the impending passage of a parking tax because of the particular caveats Elorza had with passing one. He at first said “we can’t adopt it right now”, but then added this:

The larger reality is that our citizens are already over taxed, and we can’t consider adding anything new to that burden. Over the long term, if we can manage to lower some of the other taxes – property tax, the car tax, etc. – I would consider a parking tax, because it’s much more progressive tax. First, it requires visitors to the city to share a portion of the tax burden, unlike the property and car taxes, which only impact residents. It also incentivizes other forms of transportation and ride sharing. (my emphasis)

Why do I think such a seeming non-answer is hopeful? Because the caveats are built into the proposal itself. Proponents of a parking tax ask that the city tax parking, and use 100% of the revenue to reduce other taxes. A parking tax means a tax cut on your house or apartment. We should take this as a yes and start pushing Elorza to keep his promise. Yours truly much prefers a lowered property tax to a lowered car tax for obvious reasons, but even a lowered car tax in return for a parking tax wouldn’t be a non-starter.

Pittsburgh currently has the highest parking tax in the country, at 40% of value, and it brings in more revenue than income taxes for the city (I would favor a parking tax arrangement that also taxes “free” parking–see article here–but getting commercial lots to pay a tax would be a start). Allowing Providence to tax parking could create the right balance that would both favor development and create a fairer environment for ordinary people.

As a type of de facto carbon tax, a parking tax works much better than, say, the gas tax, because if the mechanism that discourages driving works to actually reduce vehicle miles traveled, the result will be an economic situation that favors less driving even more. When drivers reduce their vehicle use, gasoline tax revenues are reduced, and programs like public transportation budgets suffer. Raise the tax to get more revenue, and driving is reduced yet again. But drivers who shun the parking tax by driving less will leave lot owners with less revenue, not transit agencies. The owners of lots, who previously may have calculated that it was worth developing nothing and taking a fee each day from commuters, might get a different idea. On the other hand, if drivers continue to park, the city collects revenues which can be put into property tax reductions. This, too, would encourage infill. So we have a positive feedback loop.

A parking tax dodges some of the objections people could have to a land tax. Residents with big yards don’t need to worry that the city is going to try to punitively charge them for green space*. And a parking tax would favor smaller businesses that often struggle to compete with big boxes, but which produce more benefit with less cost to cities. Big business need not even worry so much, since catching up would simply mean following the set of incentives the city is offering. Got parking you’re not using? Build another store on it, or lease it out to developers for housing.

The parking tax, unlike the car excise tax, has the advantage of taxing non-residents as well as residents, making it a more progressive way of pricing the cost of automobiles to society. This set up also answers a critique I’ve heard of the car tax, which is that some people may find themselves unable to give up a car due to long exurban commutes out of the city. A parking tax would inherently tax those who work in the urban core the most, meaning that city residents who normally drive from nearby neighborhoods to their jobs in the core out of convenience would likely be the first to change their habits and use other methods to get to work, while those who live on the South Side but work out in the boonies at a Walmart would be unaffected. Since a parking tax would raise the effective cost of driving to the core while lowering the cost of living there, many residents would experience the parking tax as a break-even tax or even a tax reduction.

A parking tax, by lowering property taxes, would encourage infill. Currently, the city frequently awards tax stabilization agreements (TSAs) to downtown developers to help ameliorate the city’s huge parking crisis and get new building stock. TSAs have a built-in logic that makes economic sense, but residents nonetheless have good reason to feel annoyed at them. With very high property and commercial taxes (Providence has the highest commercial taxes of any city in the country, in fact), it just doesn’t make sense to develop parts of Downcity without some reduction in cost, so TSAs get something where the city might have gotten nothing. But instituting a parking tax will help to lower these overall tax burdens in a more equitable way. Now, not just those with connections to City Council, but also renters or homeowners in every  neighborhood of the city, will see a reduction in their taxes.

The parking tax should also please progressives because it asks for as much as it gives back. TSAs fundamentally lower taxes for certain people without any immediate short-term plan for revenue. In a city facing yet another fiscal shortfall in the coming year, that’s a problem. Raising revenue for the city from a parking tax while giving that revenue back would be a more balanced approach.

The immediate challenge for the parking tax will be getting a City Council resolution in favor of its passage. Based on my best advice from talking to a variety of city and state officials, I understand that the legislature would have to give Providence authorization to institute a parking tax. I know there are some who have said they’re interested in helping with this effort, but first City Council has to move forward.

I’m going to be working with City Council to build support for a parking tax in the coming year, and I hope that RI Future readers will join individually and as organizations to call on Council and the mayor-elect to pass it.

~~~~

*I don’t contend that this is something that really happens under a land tax, as, in fact, land taxes often effectively act as parking taxes, but what I would say is that this clarifies the issue in voters’ minds.

NBC 10 Wingmen: election postmortem


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wingmenDoes the success of the ballot measures mean Rhode Islanders don’t believe in austerity? Can libertarians and progressives work together to make Rhode Island the first east coast state to legalize marijuana? Will the new crop of Democrats be much different from the old bosses?

NBC10’s Bill Rappleye and the GOP’s Rob Paquin and I discuss here:

News, Weather and Classifieds for Southern New England

Mike Stenhouse, Thomas Jefferson and a ‘functioning democracy’


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TJ“A properly functioning democracy depends on an informed electorate,” said Thomas Jefferson.

Well, at least that’s what Mike Stenhouse of the RI Center for Freedom & Prosperity tells us. Problem is, that doesn’t sound at all like Jefferson, and I can’t find any reference with a primary source attributed to that quote.* If Rhody’s Littlest Think Tank can’t get a simple quote straight, what’s that say about the level of fact checking that goes on, outside of “I found it on the Internets?”

So what’s got Stenhouse pulling spurious quotations from the Internet anyway? At issue are proposed IRS regulations that might prevent “research organizations,” such as his own, from producing partisan hit pieces or at least prevent them from continuing to pretend these reports are not political activity, distributed under the guise of educating the public. Here’s how Stenhouse describes it:

The Freedom Index is intended as a tool to educate the people of Rhode Island about the activities of their government. However, under many circumstances, the proposed IRS regulations would redefine the publishing of legislator names on any kind of scorecard — such as our Freedom Index — as “political activity.”

Stenhouse frames this as an issue of free speech. But what’s at issue is not his ability to say whatever he likes but rather his organization’s ability to avoiding paying taxes while doing so. And what better way to make that point than to wrap one’s opinions in the “words” of Jefferson? Of course, Jefferson did believe in the importance of an informed electorate and often wrote about the issue. Here’s how Jefferson put it, albeit less concisely:

Whereas it appeareth that however certain forms of government are better calculated than others to protect individuals in the free exercise of their natural rights, and are at the same time themselves better guarded against degeneracy, yet experience hath shewn, that even under the best forms, those entrusted with power have, in time, and by slow operations, perverted it into tyranny; and it is believed that the most effectual means of preventing this would be, to illuminate, as far as practicable, the minds of the people at large, and more especially to give them knowledge of those facts, which history exhibiteth, that, possessed thereby of the experience of other ages and countries, they may be enabled to know ambition under all its shapes, and prompt to exert their natural powers to defeat its purposes.

So what did Jefferson mean by that? He certainly wasn’t envisioning Republican front-groups masquerading as 501(c)(3)s. What Jefferson was actually proposing was the creation of public schools, one of his lifelong passions.

I think by far the most important bill in our whole code is that for the diffusion of knowledge among the people. No other sure foundation can be devised, for the preservation of freedom and happiness…Preach, my dear Sir, a crusade against ignorance; establish & improve the law for educating the common people. Let our countrymen know that the people alone can protect us against these evils [tyranny, oppression, etc.] and that the tax which will be paid for this purpose is not more than the thousandth part of what will be paid to kings, priests and nobles who will rise up among us if we leave the people in ignorance.
1786 August 13. (to George Wythe)

That’s right, Jefferson was in a sense the Founding Father of the public school system and actually proposed increasing taxes to pay for their creation and support, exactly the kind of activity that would have damaged his ranking as a state legislator in this so-called “Freedom Index.” Wahoowa!

 

————————————————–

* I searched as best I could for the source of that quote, but I only found it in blog posts and always without mention of the original source. Also sometimes as “the cornerstone of democracy rests on the foundation of an educated electorate” or as “an educated citizenry is a vital requisite for our survival as a free people.” Monticello lists that as a spurious quotation:

http://www.monticello.org/site/jefferson/educated-citizenry-vital-requisite-our-survival-free-people-quotation

Here is the closest quote (mentioned by Monticello’s reference librarian). Stenhouse probably should have used this one:

If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be. The functionaries of every government have propensities to command at will the liberty and property of their constituents. There is no safe deposit for these but with the people themselves; nor can they be safe with them without information.

As I mentioned, the “problem” with that is that Jefferson was writing about public schools. The sentence before that reads (uh, oh!):

If the legislature would add to that a perpetual tax of a cent a head on the population of the State, it would set agoing at once, and forever maintain, a system of primary or ward schools, and an university where might be taught, in its highest degree, every branch of science useful in our time and country; and it would rescue us from the tax of toryism, fanaticism, and indifferentism to their own State, which we now send our youth to bring from those of New England.

I also searched…

Why state unemployment doesn’t matter as much as you think


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white collar blue collarEveryone knows that Rhode Island has the highest unemployment rate in the nation, right?  After a few years of lagging Michigan and sometimes Nevada, we are now the nation’s leaders, despite the rate having ticked down slightly last month.

But consider this: what do you learn by comparing a tiny state like ours to relatively gargantuan states like Michigan and Nevada?  Is that comparison useful?  Huge parts of Nevada are desert; huge parts of Michigan are farms; there are no huge parts of Rhode Island. Could that be relevant to the three states’ economies?

Comparing states to each other is a decent way to get a handle on differing state policies, but do we think that state policies are at the heart of our high unemployment rate?  Are there no other differences you can think of between, say, Texas and Rhode Island?  I believe our state’s policies certainly contribute to our economic condition, but sometimes another analysis can be revealing, too.

I looked last week at the unemployment rates for metropolitan areas (“Metropolitan Statistical Area” or MSA), as defined by the Census Bureau, and learned that the Providence MSA (which includes what you think of as greater Providence, as well as stretching out to include Fall River) has unemployment of 9.7%, higher than the statewide rate. We rank 339 out of 372, a pretty dismal showing. But that’s not dead last, so I also learned that there are 32 MSAs in 11 different states that rank lower than ours, including New Bedford, at 11.1%, and bottoming out at Yuma, Arizona, at over 22%. And Westerly and Hopkinton are part of an MSA centered in Connecticut, and their rate is 7.9%, or number 268 on the list. Nothing to be proud of, but better than 104 other places.

Half of the MSAs in California are doing worse than we are, as are three out of five in New Jersey, and four out of 25 in Texas. But those states also contain some high-performing MSAs, so the devastating performance of some areas are washed out in the statewide averages. There are several one-party states in that mix — from both parties — as well as several with divided control of their governments. It seems to me that anyone who wants to claim that Rhode Island’s high unemployment rate is entirely due to state policy has the burden of explaining why we should adopt the tax and regulatory policies that have brought Brownsville, Texas to a 9.8% unemployment rate or Yuma to 22%.

A few years ago I did an analysis that suggested the structure of the labor market might be relevant. Nestled between two richer states, Rhode Island’s white-collar jobs pay comparable wages to those neighbors. Jobs like these are good jobs, for which you might commute a long way, or even move your home. For jobs like being a psychologist, computer programmer, architect, or lawyer, this is pretty much a single job market. An employer in Warwick looking to hire a staff attorney competes for a pool of attorneys who might easily take a job in New London, Attleboro, Sharon, or Boston.

It’s not like that for hiring a cashier in a convenience store. You wouldn’t commute to Boston to work in a deli, and so it turns out that while white-collar wages here are at least comparable to wages for similar jobs in Massachusetts and Connecticut, blue-collar jobs vary much more, and in fact pay much worse here in Rhode Island.

I made a couple of rankings of states based on a selection of job categories, and I learned that some areas ranked high on my white-collar job list and low on my blue-collar list, while in some it was the other way around. (Read more about them in my book, “Ten Things You Don’t Know About Rhode Island.” The table is below, but you’ll have to check out the book to get all the details.)

In truth, I have no idea why these rankings differ, though it is entertaining to speculate. I noticed, for example, that places with a long history of union manufacturing (Ohio, Pennsylvania) pay good blue-collar wages, even for non-manufacturing jobs, and places that are very attractive to live (Hawaii, Oregon) tend to pay relatively poor white-collar wages. Agricultural areas tend to pay poor blue-collar wages, even for non-agricultural jobs. Rhode Island, with high white-collar wages and very low blue-collar wages, is an anomaly in the Northeast, and belongs with the states of the South, Southwest, and California.

Here’s what else I notice: the places that pay the worst blue-collar wages dominate the high end of the unemployment ranking.

This seems counter-intuitive — why would lower wages mean higher unemployment? — but it also seems to be true. On closer examination, maybe it’s not so crazy. People at the low end of the income spectrum tend to spend the money they have because they have to. More money in those people’s hands means more money being spent, so it makes sense that an area with better-off low-wage workers will enjoy higher levels of economic activity. This is just speculation, but it is broadly consistent with the basic Keynesian model of the economy that dominates our economic discourse.

But we can go one step farther, too. If we want to bring state policy into the equation, it seems that the metropolitan areas with the highest unemployment are not only places with low blue-collar wages, but are often in states where taxes on the low end of the wage scale are relatively high. According to the Institute for Taxation and Economic Policy (ITEP), Texas, Arizona, Illinois, and New Jersey are all places where total state and local taxes on the poorest people approach or top 12%, just like here. In other words, these are largely places where poor people are paid badly and taxed at high rates, too.

ITEP tells us that state and local taxes on poor people in Rhode Island average 12.1% of their income, while for people in the top 1%, the average rate is 6.4%. The tax cuts for the rich that we have given year after year have not resulted in lower taxes all around. Rather what has happened is that the state simply shirked its responsibilities to education and local aid. The cities and towns took up the slack by raising their property taxes, which fall most heavily on those with the least ability to pay. Taking money away from people who are most likely to spend it is what you might call the opposite of economic stimulus, so it is little surprise that the result is what you might call the opposite of prosperity.

What could we do about this?  Pushing up the minimum wage would be a start. Cracking down on wage theft and the mis-classification of employees might help, too, as well as finally being honest about what we’ve been doing to our cities and towns.

Just something to think about when you read about the unemployment rate. As usual, it seems the things that everyone knows sometimes get in the way of understanding what’s going on.

White collar Blue collar
1 NJ 64,053 HI 33,363
2 CA 62,851 NJ 31,976
3 CT 61,435 CT 31,310
4 MA 61,282 AK 31,191
5 DC 60,176 MA 30,045
6 MD 60,074 WA 29,357
7 NV 60,060 IL 29,168
8 RI 59,720 DE 29,094
9 AK 59,492 DC 29,004
10 NY 59,198 NV 28,868
11 MI 58,588 CA 28,705
12 DE 56,932 NY 28,516
13 IL 55,684 PA 27,711
14 AZ 55,680 OR 27,560
15 VA 55,358 MI 27,369
16 GA 55,323 MN 26,989
17 HI 55,231 CO 26,900
18 CO 55,141 MD 26,848
19 NC 54,849 IN 26,777
20 TX 54,734 OH 26,724
21 OR 54,552 NH 26,406
22 PA 54,415 MO 26,152
23 TN 54,110 RI 25,994
24 WA 54,105 VA 25,913
25 MN 54,096 WI 25,903
26 WV 53,906 KS 25,728
27 OH 53,878 AZ 25,445
28 WI 53,769 TN 25,396
29 FL 53,269 IA 25,294
30 IN 52,910 GA 25,153
31 MO 52,649 WY 24,968
32 NH 52,622 VT 24,708
33 UT 52,536 NE 24,635
34 ID 52,128 ID 24,611
35 MS 51,840 SC 24,333
36 AL 51,311 UT 24,299
37 ME 51,104 MT 24,161
38 SD 50,725 ME 24,075
39 AR 50,489 LA 24,004
40 LA 49,971 NC 23,983
41 WY 49,790 KY 23,967
42 VT 49,734 SD 23,850
43 SC 49,478 ND 23,841
44 NM 49,132 OK 23,753
45 KY 48,838 TX 23,502
46 IA 48,564 FL 23,466
47 OK 48,361 WV 23,353
48 ND 48,171 NM 22,634
49 NE 48,039 AR 22,562
50 KS 47,308 AL 22,428
51 MT 46,128 MS 22,097

(Source: SalaryExpert.com, 2005 data, methodology described here)

Combined reporting would close tax loophole for retail giants, big box stores


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dve sullivan tax guyRhode Island missed out on somewhere between $40 and $100 million in 2011 and 2012, according this new report. That’s because in 2011, the General Assembly rejected Gov. Chafee’s idea to implement what is known as “combined reporting” for corporate taxes and instead called for the aforementioned report.

The study found that combined reporting would have earned Rhode Islanders between $23 and $54 million in 2011 and between $21 and $44 million in 2012, depending on the accounting method used. The larger number focuses on just sales while the smaller number also factors in payroll and property. Read the overview here and watch video from last night of state Division of Taxation employees explain it the Senate Finance Committee.

Combined reporting combats the corporate practice of doing business in one state and utilizes the tax advantages of another state. The Institute for Taxation and Economic Policy called combined reporting “the most effective approach to combating corporate tax avoidance.” 23 states and the District of Columbia use combined reporting, including most New England states.

Rep. Teresa Tanzi, a progressive Democrat who represents Narragansett and South Kingstown, has sponsored legislation this year and in the past two legislative sessions that would implement combined reporting.

“The fundamental justification for combined report is a robust corporate tax that can’t be gamed by aggressive corporate tax planning while creating a level playing field between big multistate corporations and smaller, local corporations,” she said in an email to me.  “Nonetheless, I am gratified that the study confirmed that Combined Reporting would give a modest boost to revenues that could be used to help the state address its unmet needs, and we now have the numbers to show the advantage certain corporations have.”

Most local businesses would not be affected by combined reporting, according to the study. It found 28 percent were negatively affected and 6 percent experienced a tax advantage.

“Any company that has a large presence here, property and payroll, is not really affected,” state Tax Director Dave Sullivan told the Senate Finance Committee last night. “companies that do not have a big footprint here and have maybe one or two retail outlets here may actually see an adverse affect in tax increases with single sales factor. If all their property and payroll are out of state and they have a significant number of sales because they have, we use the example of big box stores here in this state…”

Massachusetts and Vermont both implemented combined reporting in the same year they lowered their overall corporate tax rate. State tax officials told the Senate Finance Committee both states improved their Tax Foundation rankings after doing so.

Wage Inequality


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inequalityWage inequality has been growing astronomically over the past 30 years. This is a fact. Anyone claiming otherwise is either ignorant or lying or both.

Can you tell I’m getting tired of having to “prove” stuff that is so obviously factual? Well, in case you couldn’t, I am tired of it.

In fact, even the winners in this zero-sum game have tacitly begun to admit that wage inequality is growing. For the last couple of years, the main counter-argument put out by the lackies of the very wealthy has become that, yes, inequality is growing, but it doesn’t matter.

That’s a lie, too.

Growing wage inequality was one of the primary causes of the collapse of 2007/8. It remains a primary cause of the ongoing Great Recession. Since the vast majority of wage earners were finding their salaries stagnant, if not shrinking, these same people had to rely on credit to finance many of their purchases in the so-called “Bush Boom” of the naughts. I say “so called” because, for the first time since the end of WWII, the median salary at the end of the “boom” did not reach the median salary at the end of the previous boom. That is, median salary in 2007 was lower than it was in 2000/01, before the mild recession that occurred at the end of the 1990s. This is stark proof that wages, for the vast majority of people who actually work for a living (as opposed to living off dividend income, or carried-interest) was not growing despite what Republicans were touting as a “booming economy”.

And spare me the morality play about the evils of credit, about how it shows a lack of moral fibre, how it demonstrates that people are too lazy, or too insistent upon immediate gratification, that they can’t wait and save to make purchases, blah, blah, blah.

Here’s a secret: Had people done this in the naughts, there wouldn’t have been enough demand to create even the wimp “Bush Boom”. The US would have remained mired in the recession that started in 2000 throughout Bush’s first term. I can say this with complete confidence because the only thing that fueled the expansion of the economy—such as it was—was that people were buying stuff on credit. This created the demand that created the expansion.

And demand is the key component. Corporations are swimming in money. They have so much money they can’t figure out where or how to spend it. More, they can borrow billions and billions of dollars at de facto negative interest rates. And yet, corporations are not spending money. If “supply-side” economics had any validity, businesses would be spending money like drunken sailors right now, and they would have been doing so for the past five years, ever since we hit the point of negative interest rates. Why haven’t they spent money? No, the answer is not the uncertainty of possible tax or regulatory changes. That is an absolute crock. If you actually read the business press (as opposed to listening to FOX News) you will realize that businesses are reluctant to spend because they do not believe there is sufficient demand for more products.

Demand. There you have it. The engine that truly drives economic expansion. My grandfather had a succinct way of describing conditions during the Great Depression: “Sure, a loaf of bread only cost a nickel. But what the hell, you didn’t have a nickel.”

In case anyone doesn’t get the point: it doesn’t matter how cheap things are because of a large supply. If people still don’t have the cash to buy stuff, it doesn’t get bought.  IOW, there is no demand.

Demand.

And that is what is holding up recovery as the Great Recession enters its fifth—or is it sixth?—year. Got that, people? Sixth year. Lehman Brothers collapsed in 2008, while G. W. Bush was still president. Before Obama had been elected, let alone before he had taken office. Got that? George Bush was president. Hank Paulson, former head of Goldman Sachs was Secretary of the Treasury. Not Obama, not Geithner (although he was President of the NY Fed at the time).

Inequality matters, people. It matters a lot. It keeps demand down. When demand is down, people lose jobs. When people lose jobs, demand drops further, and more people lose jobs. This is called a death spiral. It’s essentially the same phenomenon, but going in the opposite direction, of what caused the inflation of the 1970s. And no, cutting wages DOES NOT HELP. Cutting wages is the equivalent of throwing people out of work. Yes, perhaps fewer people will lose their jobs outright, but demand will still decrease. It may—or may not—take a little longer, but the same result is attained.

So the answer is that people need to make more money. But what is happening instead is that the wages of most people are being cut. It’s the time of the year when a lot of companies are doing compensation planning. For many big companies, this is now a very simple process. A few people, maybe ten percent of the corporation’s employees, will get nice raises, maybe 5%, probably more. The rest will get nothing.

That is, the rest of the employees will get a pay cut. Their pay will remain the same, but even 1-%-2% inflation will erode stagnant pay. The result is a de facto pay cut. The result is a further decrease in demand. Funny: Republicans scream about how tax increases will hurt the economy because they will take money out of people’s pockets. But a pay cut does exactly the same thing, and yet Republicans fall all over themselves to demand—DEMAND—pay cuts.

It’s enough to make you suspect that Republicans don’t care about the economy at all. All they care about is tax cuts. All they care about is making the wealthy even wealthier. Even if it means the rest of us slowly slip into  poverty.

This is because their wealthy corporate masters want tax cuts. So Republicans bow and scrape and say “Yes, Master” and move heaven and earth to give their masters what they want.

The rest of us can pound sand.

Rebuilding Rhode Island’s Economy, Part 1: Economic Development 101


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Unemployment LineI am of the mind that the biggest issue facing the state right now is the sluggish economy.  I know many share this belief.  With that in mind, I will be focusing my (unfortunately limited) time writing specifically on creative strategies to improve Providence’s and the state’s economy, and thinking about it from the perspective of the upcoming gubernatorial and Providence Mayoral campaigns (i.e., what do the candidates have to say about what I write?).  Before I delve into specific suggestions, I believe there are a few items relevant to economic growth that need to be clarified at the outset.

State House

First, there isn’t much the government can do to improve the economy directly, particularly in this climate of economic distress and innovation paralysis.  When the economy is running smoothly, most folks want the government to “stay out of the way.”  But when the economy tanks, policymakers are the first to be blamed (this is a disingenuous and undeserved complaint), and everyone wants them to “fix it.”  First, you can’t have it both ways people.  Second, there is no magic solution to “fixing” the economy.

Second, economic growth takes time, commitment, alignment on a vision, and the autonomy to make things happen.  It is unlikely to see radically positive results in a few months or even a couple years.  Economic development is a decades-long strategy, that often requires partnerships and long-term planning that are challenging for public officials, policymakers, and civil service staff.  While the pain of recessions, joblessness, and foreclosures is real, there are often few options for state and local officials to ease that pain.

Third, everything matters to economic development: education, transportation, infrastructure, workforce, land-use, zoning, existing markets, history, taxes, regulations, natural assets, etc.  But each of these matter to varying degrees depending on the industrial sector and individual businesses.  To assume that “lowering taxes” or “reducing regulations” is the most important of considerations is foolish, ill-advised, offensive, and immeasurably distracting from the various other issues that are generally much more important for long-term economic success.  While everything is important, some things are more important than others.

winner and loserFourth, every strategy comes with trade-offs and there are always winners and losers with any policy change.  Typically, those with wealth and power can influence policy to their benefit.  And while this may benefit them personally, or as a group, there are long-term consequences for the economy that are generally ignored.  The incremental policy decisions that have been made in the past have led to our little state to lack the sufficient resiliency to bounce back from the recent and ongoing depression/recession.  The economic conditions in which Rhode Island finds itself will take many, many years to rectify.

Fifth, demand for goods and services drives the supply of goods and services.  If no one wants to buy stuff, stuff doesn’t get made, and people lose their jobs.  Most tools that are deployed by cities and towns and the state try to stimulate the economy do not address economic demand, and as such they are largely inefficient and/or ineffective.

Sixth, underlying everything is an often ignored but crucial criterion: the importance of inclusive and dispersed economic growth.  The benefits of economic growth need to be broadly shared because the more people who earn money, and the more money that they earn, the higher the level of economic growth.  When economic growth benefits a small (and shrinking) number of people, aggregate demand declines and the economy suffers.  When a rising tide actually lifts all boats, something that the post-WWII economy was notable for, everyone benefits.  When a growing number of boats are chained to the bottom of the ocean, as has been the experience from the mid-1970s onward (with a notable exception during the 1990s), the economy flounders, people fall deeper in debt to maintain their standard of living, and the economy slows.

"I must break you."
“I must break you.”

Seventh, the ONLY way the state (or any state, region, city, etc.) can be successful in the long-run is by improving its competitiveness in particular economic areas.  This can be done by increasing the productivity of existing businesses through innovation or better trained employees or achieving higher workforce participation rates, while ALSO supporting the high and rising wages and living standards of Rhode Islanders.  Period.  This is hard to do, but not impossible.  The role the city and state can play is to lay the groundwork for an iterative process of successive improvements to support business productivity gains and assist with the dispersion of economic benefits.

Eighth, when we discuss economic development, it’s important to differentiate between locally-traded clusters, sectors, and industries and those that are subject to larger markets, regional, national, or global in scope.  The first group includes restaurants, local health services, residential housing construction, etc. while the second group includes software development, manufacturing, higher education, etc.  The success of the first group is largely dependent upon the success of the latter.  To put it another way, an economy can only grow by exporting lots of high-value goods and services and bringing in money to the state from other parts of the country / world.  The degree to which the economy is exposed to and successfully competes in global markets is the single largest factor that explains how successful its local economy is.  This isn’t to say that the local economy isn’t important, just that everyone selling hamburgers to each other does not grow the economy.

Finally, businesses grow at various points over their lifecycle.  The only businesses that are guaranteed to have net positive job growth are new businesses, for the obvious reason that they will employ at minimum the owner of the business and they have no current employees to let go.  Many businesses grow to a certain size and stay there for their entire existence.  Many businesses have dramatic fluctuations in their employment based on seasonal or market demand.  Some businesses have limited but sustained growth.  And only a few businesses experience pronounced growth, and that growth is generally limited to a short period of time.  All of this is important when it comes to growing jobs because there are only limited opportunities to identify and support existing businesses during their growth phases.  But the opportunities are innumerable to support new business growth, and it is new business startups that have been responsible for net new job growth in the past decade.

There are additional factors that contribute or impede economic growth, but in my mind, the 9 above are of paramount importance.  Feel free to bookmark this post as I will update it as I begin listing specific strategies to Rebuild Rhode Island!

Health care, medical costs and quick decisions


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healthcareIt’s 7:00 in the evening. You, a Rhode Island resident, are at the mall in Attleboro. You’re out to dinner in Seekonk. You’re on vacation on the Cape. Suddenly, your teen-age child collapses, unconscious.

What do you do?

Do you call an ambulance? The child is unresponsive. His eyes are rolled back in their sockets. He appears to be breathing shallowly. I repeat: what do you do?

Do you call 911? Or do you try to assess whether the situation is dangerous, whether you should try to take him to the hospital yourself, or whether you should just take him home and call a doctor in the morning? Which do you choose? And no, you’re not a doctor, and no, you don’t even play one on TV.

Some would suggest we should choose the latter route. Or, if we decide to go the ambulance route, we should call several providers, trying to see who has the best price, then see if we can haggle it downward a bit. Or maybe ask if they’ll take a chicken as a discount. In the meantime, your child is still unconscious. But being the hyper-rational homo economicus that you are, you pull out the copy of the local yellow pages you always carry in case of situations like this, or you use your smart phone to search the web for the local services, and then you coolly work the market and see what sort of price you can get.

OK, you’ve done that, only to find that the best deal you can get is $2,999.99. Now, you have insurance, but it will only cover 80% of the charge after the deductible is satisfied, and only if the situation is deemed an emergency. Well, your kid is unconscious; does that, in and of itself constitute an emergency? Are you a doctor? No. Do you have a clue whether it’s truly an emergency? No. And, 20% of that ambulance bill still comes to $599.98, assuming that everything goes as planned, that your deductible has been met, and the insurance will actually cover the 80%.

So what do you do? Does this change your behavior?

And remember: you get your insurance through your employer, so it’s not like you can negotiate your own deal with the insurance company. And that’s a good thing.

And what if your checkbook balance is somewhere south of $800 at the moment, and you still have to make the car payment? That $599 will take a pretty good bite out of that. If you’re making RI median, your next check will come in somewhere between $1200 & $1300 (depending on deductions, etc). And remember, this is just the ambulance. If you do go to the ER, there will be a plethora of other charges: for tests, x-rays, CAT scans/MRIs, physician services, and so on.

One thing that’s important to remember is that something like an ambulance, or an ER, has to be staffed and prepared at all times. An ER will probably use its facilities on a fairly constant basis, so there isn’t a lot of down time. That is not necessarily true for an ambulance. Maintaining and staffing that ambulance 24/7 costs money. Now, if you depend on paying for the ambulance by billing the people who use it, a significant part of the bill will be for maintaining that service when it’s not in use. So that means the price has to be a lot higher than just the cost of that particular run. A lot higher.

Now, we could subsidize the ambulance service as a common good; but that means taxes have to go up to pay for that. Since people who decide the level of taxes probably don’t have to worry about a couple of grand if they need an ambulance, they won’t see the point of having to pay taxes all the time to support an ambulance service that they may never need. Let the people who need it pay for it. Sounds ever-so-sensible. So the poor schnooks who do have to worry about having to pay a couple of grand for an ambulance will pay for all that down time out of their pocket.

But that’s fair, isn’t it? If you make the bad choice and get sick, well, hey, you made that choice. No one put a gun to your head and made your kid pass lose consciousness.

So you go that route. You kid goes to the ER, gets half-a-dozen tests, and, thank the Lord, appears to be fine. So you all go about your business for another month or so. And then the bills (note the plural: bills) start to come in. The first is for the ER, and that’s around $4,500. But your insurance works as planned, so your only responsible for $900 (which is 20% of the total). Then there are the bills for the MRI, the blood tests, physician services, yadda yadda yadda. These clock in at another $1,500, so you only have to pay $300. So we’re over a grand already.

Then the ambulance bill comes. Oh, that was out of network. So sorry! You’re not covered!

So now you’re faced with the whole $2,999.99.

And the whole episode cost something like $9000 (Well, technically, $8,999.99, using the figures I’ve presented).

Now, how would you have acted when your kid collapsed? Would you have rationally balanced a potential bill of about $4,300 against some unknown ailment with unknowable consequences? Would you have considered the hole this was going to blow in your budget and said, “well, I have no idea what’s wrong with my kid, but maybe it’s not a big deal?” Or do you go the ambulance/ER route with no clue what it’s going to cost?

Would you have done anything differently?

Bill sponsor Malik more unbiased than WPRO news


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RI State House 1Here’s an interesting instance of media bias: a WPRO preview story on a proposal to eliminate the state sales tax was less balanced than an op/ed in the Fall River Herald News written by the bill’s sponsor, Jan Malik.

The WPRO report uses an interview between conservative talk show host Matt Allen, a supporter of the proposal, and Mike Stenhouse, the leader of the corporate-backed think tank that initially suggested the idea to explain the legislation. There was no counter perspective in the WPRO, even though no economists support the idea.

Malik’s op/ed, on the other hand, did contained balance:

The Rhode Island Center for Freedom and Prosperity has backed the bill, while URI economist Dr. Leonard Lardaro and URI business administration professor Ed Mazze found fault with the idea.

For a little perspective on these three sources of information: Mazze and Lardaro are economists and URI business professors. The Center for Freedom and Prosperity is a corporate-funded political group that gets paid to claim that anything that shrinks government is good for the economy.

So while Malik’s op/ed doesn’t offer a lot of balance, it’s worth noting that it offers more than the local talk radio outlet that bills itself as “the Station of Record.”

For MetLife and Rhode Island, size matters


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Downtown Providence from the Providence River. (Photo by Bob Plain)
Downtown Providence from the Providence River. (Photo by Bob Plain)

In the brouhaha about MetLife leaving, I did see and hear people try to blame this on the too-high RI taxes. Of course; it’s always about the taxes, isn’t it? I would like to make one point about that.

For 2012, MetLife reported $1.4 Bn of operating earnings. In comparison, the $80-90 Mn of tax relief that the will receive would just register as a rounding error in any single year. But those tax savings will be spread out over a number of years. As such, they don’t even constitute a rounding error.

Any company, of any size, that makes long-term decisions based on a few years worth of tax savings is not a company that will be around long enough to realize those savings. Only a company in dire straits would make so drastic a move for so little return. Because let’s face it, the up-front investment that is required will more than eat up those tax savings. In such cases, breaking even is a good result in the real world.

No: the savings will come from other areas: lower rent vs what is being paid in the Northeast, in greater Chicago, in the SF Bay area; it will come from lower wages paid to younger workers who do not incur the disability and medical expenses an older workforce will incur; it will come from pension benefits that do not continue to accrue to said older workers, and that will not be paid at all to younger ones. That’s where the money is.

No, RI’s problem is not the tax structure. It’s the size that matters.

The sad fact of the matter is that RI does not have its own economy. RI is a pale reflection of what is happening in Boston. Nor is this a recent development: it was already true in the early 1980s. Look back at the numbers; that was the period when Dukakis was creating (or taking credit for) the “Massachusetts Miracle.” The 128 Loop was America’s Technology Highway, where high tech lived before being superseded by Silicon Valley. Massachusetts recovered sooner than most of the country from the recession of the late 1970s; RI was a couple of years behind.

Then, in the mid-eighties came the phenomenon of Woonsocket turning into a bedroom community for Boston. Same with Nashua NH. Around then the ProJo carried a story of people taking classes to lose their RI accent because they felt that companies in Boston believed that people with an RI accent were less intelligent.

So, no, this is not a new phenomenon. What I have cited is anecdotal; but the numbers in the BLS and Census, etc. will support these contentions.

Also according to the US Census, in 2000, 79% of the population of the US lived in urban areas. In states like Nevada, it’s upwards of 90%. More, 45% of the population of the US now lives in the top 20 urban areas. In the meantime, the Census Bureau also says that one-third of all counties in the country are being drained of population. What does this mean?

It means that the urban concentration that began at the end of the 19th century is continuing. More and more people are living in and around cities while other areas languish. Telecommunication, and telecommuting were supposed to make cities obsolete; the opposite is happening. Telecommuting was all the fad in the late 90s and into the new millennium; now, companies are eliminating it.

It means that, in order to compete, size is a huge factor. Charlotte NC is now the #2 financial center in the country, after NYC. It has surpassed Chicago, with its Mercantile Exchange. It is the #2 center largely because the #1 bank, Bank of America, has its HQ there, and Wells Fargo has its East Coast operations HQ there. The Charlotte Combined Statistical Area has 2.4 million people. This is not rural America anymore.

With a million people, Rhode Island cannot compete with such a center, any more that it can compete with Boston. The advantages of a large educated, concentrated workforce with good infrastructure and a compact geographical footprint are too great to overcome. This is why NYC not only continues to exist, but to thrive, in the face of all the reasons conservatives say it shouldn’t: high taxes, big government, and whatever else they complain about. Half of the wealthiest zip codes in the country are in NY and NJ, both of which are high-tax states.

RI is not losing jobs to lower tax states; RI is losing jobs because the vast majority of jobs are in these concentrated urban areas. If jobs aren’t there already, they’re relocating there. I heard a story on NPR that a growing company in Kansas could not find workers. That’s because no one is willing to relocate to a small town that depends on a single employer; what happens when that employer decides to off-shore the jobs? People are stuck in a small town without prospects. In a larger metro area, there are other jobs, or at least a greater possibility of other jobs.

Size matters. The country is not de-urbanizing. Exactly the opposite.

Addendum: The point is, MetLife made its decision to relocate to NC for its own reasons. Only then did it approach the NC government and see how much it could extort from the state’s taxpayers. In other words, MetLife got money from the state to do exactly what it would have done without the tax breaks. In fact, there have stories to this effect in the North Carolina media, complaints that the state of NC got played for chumps by a large company.

And, btw, NC in general, and Charlotte in particular, have unemployment rates that are only a couple of tenths of a percent lower than what RI and Providence has. It’s not exactly boom-town down there, either.

So, yes, NC is getting the jobs. But they would have gotten the jobs without the subsidies.  So no, it’s not about the tax rates, no matter how often or how loudly conservatives will say it is.

Tax Equity Bill Would Mean $66 Million For State


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The state could collect a much-needed $66 million in additional revenue by raising the income tax rate the richest 2 percent of residents pay by 2 percent. That’s the message tax equity advocates will announce at a press conference at the State House this afternoon.

“We can’t keep going down this failed path,” said Kristina Fox, who works for Ocean State Action. “RI needs a more equitable tax code that brings in revenue fairly to fund public programs and services that we all benefit from.”

Rep. Maria Cimini and Senator Juan Pichardo, both of Providence, are sponsoring a bill that would roll back some of the tax cuts bestowed on the richest Rhode Islanders during the previous decade. Their proposal would raise the rate from 5.99 percent to 7.99 percent of those who make more than $250,000 a year.

“This is a common sense solution to the biggest problem facing our state,” Fox said.

Tax advocates say the additional revenue could be used to increase state aid to cities and towns. When former Gov. Don Carcieri and the legislature gave tax breaks to the rich, they did so in part by slashing aid to cities and towns. This is what led to the financial catastrophes in Providence, Central Falls, Woonsocket and West Warwick.

Not only did Rhode Island’s urban areas struggle because of the rapid decline in state aid, but the rationale for the tax cuts never materialized. In fact, unemployment in Rhode Island has skyrocketed since the tax cuts of 2006 and 2010 and the cuts in state aid, which you can see in this chart:

Or you can watch this video that the group Rhode Islander for Tax Equity created last year:

Real Key To Fixing R.I.’s Business Climate


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On Tuesday, amendments to the state’s tax code regarding the corporate income tax rate was reviewed by the Senate Committe on Finance. The amendments, straight from the desk of Gov. Lincoln Chafee, would lower the tax rate on corporate profits from 9 percent to 7 percent over the next three years.

While the proponents of the idea that Rhode Island is anti-business may see this as a way to encourage more entrepreneurism in our state, or to make the state more attractive to business owners that may be pondering relocating to Rhode Island, once you plug in the numbers, the majority of employers in Rhode Island – the small businesses to which our legislators pay much lip service, but don’t offer much else –  won’t see a tremendous savings.

For example, if a small business posts a profit in any particular year of $100,000, at the current tax rate, they pay $9,000. At the 7 percent rate proposed for 2016, they would pay $7,000. A mere $2,000 savings, and given the rate of increase in the overhead of running a small business, this savings amounts to all but nothing in three years. This largely symbolic gesture has very little benefit in the real world. The real killers of small business are the local property, sewer, and tangible asset taxes.

If the state wanted to really promote small businesses and make the business climate in Rhode Island more hospitable to new and existing businesses, they would lower the income tax rate on the middle class, which is the greatest driver of our day-to-day economy.

By putting more disposable income into the pockets of the greatest percentage of our population, who then go out and spend that money on things like food and clothing, more constant commerce occurs, increasing revenue streams for businesses and hence, making the “onerous” 9 percent tax rate a bit more tolerable. Consumers may also opt to save that money to purchase a big ticket item like a car – hopefully an hybrid or electric –  or stash it away for a down payment on a home – hopefully one that has been retrofitted for the highest levels of energy efficiency. In either scenario, businesses benefit.

Even if a majority of the vast middle-class elect to save or invest that extra money, that contributes to consumer confidence, another indicator that is currently in the dumps in Rhode Island.

In the light of so many years of top-down, so-called economic development, and the current fiscal straits in which the state finds itself, you’d think that more legislators and leaders would recognize that the wind has shifted and take a new tack.

House Finance is scheduled to hear the amendment on Wednesday.


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