Ocean State: Size matters

Providence buildings

by John Perilli

Welcome to Ocean State, a new Rhode Island politics blog in which I take an analytical slice at some of the most tangled debates and issues facing the state. I hope you find these posts informative, or at least entertaining or infuriating. My first topic: Rhode Island’s much-maligned business climate.

Countless proposals have come pouring down as to how Rhode Island should fix the Rhode Island Economic Development Corporation, an independent agency tasked with bringing businesses to the Ocean State through a combination of loan incentives and tax credits. This past spring, a video game company called 38 Studios, led by former Boston Red Sox pitcher Curt Schilling, defaulted on a $75 million EDC loan and sent the state into a panic. The EDC took the brunt of the blame and now finds itself under the legal hacksaw.

The Rhode Island Public Expenditure Council recently made one suggestion. In their report, they recommended that the state consolidate the EDC under a new organization, called the Rhode Island Commerce Corporation, as well as institute a new cabinet-level secretary of commerce who would respond directly to the governor. Others want to curb the EDC’s decision to make power, and some, including the Economic Development Foundation of Rhode Island, would disband the organization altogether.

There is one fact, though, that no one is discussing enough: the physical size of our state!

Out of all the suggestions I have read as to how Rhode Island should fix its 50th-ranked business climate, none have placed enough emphasis on our size. Unlike any other state, most of our workers have the ability to commute to jobs in Massachusetts or Connecticut. Many Rhode Islanders also have the option of shopping out of state, starving us of precious sales tax revenue. Lastly, and perhaps most importantly to this discussion, it is easier for a cash-strapped business to relocate out of our state than out of anywhere else in the country. Their customer market wouldn’t even change by much, but they would no longer be paying corporate and property taxes to Rhode Island.

While I am in favor of rebranding the EDC, any comprehensive plan to fix our business culture must account for our size. Our 9 percent flat corporate tax rate must be lowered and made progressive to promote local startups and keep existing firms in Rhode Island. The revenue from new businesses will eventually raise enough money to give students who both graduate and work in Rhode Island a tax credit strengthening our workforce and our human capital. This bill failed in the last legislative session due to low funds, but an increase in revenue will no doubt push this popular measure over the top. Lastly, whichever way the EDC is reformed, the new agency must be overseen more strictly. A small, opaque, corrupt state is easy to pass over for any business opening a new franchise.

Anyone who sets out to reform Rhode Island’s business atmosphere must remember that our small size makes us a special case. We cannot hope to change our fortune in the business world if we do not keep this central geographical fact in mind.

 

photo by Jef Nickerson