Economic Development on the cheap

Rhode Island EDC has committed $75 million of RI Tax payer money to bring 38 Studio, a video game developer, to Rhode Island. In return 38 Studios is supposed to create 400 jobs for RI. The rationale is that the video game industry  is the next growth industry.  RI  needs the jobs and taxes these will generate. The video game industry needs a well educated, highly trained and skilled workforce made up of artists, musicians, artistically oriented engineers and technicians.

Yet, the educational resources we will need to train these worker are being cut back. Congress is cutting federal support for arts education, while Providence, the home of RISD and soon to be 38 Studios, is cutting its arts programs in the school system. So once again our big economic development ideas are in conflict. We are attracting an arts based business with a tax payer investment to a private enterprise while under-investing in the children of the same tax payers and underfunding the education system that is supposed to train a generation of students to staff the graphic arts,  musicians positions these companies will need. . Makes sense -- Rhode Island sense that is.

Meanwhile Borders books has filed for Chapter 11 bankruptcy, Borders has 3 stores in Rhode Island in Garden City, Providence Place mall and T.F. Green Airport –– were on the list to close. Today, it was announced that the Cranston (Garden City) store will not be closing. The jobs will be saved, the customers will still have access to their bookstore. A small gain in a sea of closures, bankruptcies and job losses. How did this happen? Did EDC jump in? Did Governor Chafee or Speaker Fox intervene?

No, it was done because the owners of Garden City, the Los Angeles County Employees Retirement Association, was willing to make a deal that satisfied everyone. These seems like a win, win situation. RI keeps the jobs and collects the taxes, Garden City keeps earning money with an occupied building and the L A County Employees Retirement Fund continues to get a return for its members. And Borders gets a break on its lease while continuing to earn money from the store..

Maybe more business to business cooperation is what we need. Note that with all the anti-public union talk from the Tea Party and its allies, it was a county employee retirement fund that help save the day, not a too big to fail Bank.. Maybe when cooler minds get together to solve a problem, small changes are possible. .

Maybe enough small steps can save enough jobs and businesses to compensate for one big gamble. Maybe by sharing the pain, these individual efforts will rebuild a sense of community to solve the problems. Economic development on the cheap -- just maybe it will trump the grand plans, big bets and the "if it wasn't my idea, it ain't worth doing" mentality that seems to dominate economic development thinking in Rhode Island.

Another perspective: Teacher and Public Employee Pensions

A major debate has been and continues to go on about the role of public service workers (government employee) pensions and the rebellion by taxpayers exemplified by the position taken by such groups as the Tea Party and RISC (Rhode Island Statewide Coalition). The underfunding (or legislative stealing) of the state and local pension funds by legislative and community governing bodies and poor (or blatant) mismanagement of such funds by the trustees of these funds  (such as West Warwick) has certainly added to the current and future fiscal problems facing the citizens of Rhode Island at all levels. These issues have been discussed here over the past year and more.

At times, the blame game become more the focus for debate, than any substantive discussion of solutions. Ideological battles between Unions verses taxpayers, legislatures vs taxpayers, citizens verses public employees, reactionary conservatives (know nothings) verses reactionary liberals (progressives) generate a lot of entertainment and media noise. But just as the BP oil well in the Gulf of Mexico continues to waste millions of gallons of crude oil and natural gas and pollute the environment, the public treasury is still leaking and the state's fiscal future and public trust is being polluted by incompetent and greedy management.

Despite the debate and rancor at the State and community levels, we need to step back a little. The misbehavior which lead to the problem can be traced back to its source. That source is the general public, you and me, that is US, who through our uncritical support of our local elected officials have created a calcified legislature incapable of making the hard choices the times demand. We condemn the General Assembly but keep our own representatives who, when "they go along to get along," are not acting in our or the state's best interest.

Instead we elect representatives who can only make the easy choices, such as fireworks, cashing in the future earning from the tobacco settlement, approving budgets based on speculation about a federal bailout. The General Assemble has made short sighted and short term decisions over the past two decades that are today having real negative consequences, often unintended self inflicted ones.  Even those who promote such short sighted and selfish behavior are feeling the consequences today.

What are these consequences?

Every once in a while you run across an article, or posting, on the web that is worth sharing, especially in light of the issues confronting Rhode Islanders these days.  An article appearing on the Money and Market Website, entitled  State Pension Woes Only Worsening  by Nilus Mattive describes the significance of the public pension situation on the individual public employee who is, or has been "planning," for his or her retirement and expecting that the government will be able to keep its promise. After describing the sad state of affairs facing this public employee, he concludes with this warning.

I’ll Say It Again: Do NOT Count on Any
Government to Pay for Your Retirement!

As we go into this election year, it will be important that each citizen, each of us, consider the promises we made to state and local public employees through the actions of the legislators, council persons, and board members we elected to represent us. And especially those of you who are public employees, consider what the real consequences of your actions as a union member and as a taxpaying citizen have been. Consider where does your true enlightened self interest  rest. Consider what you have done to plan for your future and what you will do now. Consider what your chances are to retire with those rich pension deals negotiated at another time when we were all in a better place. 

The secret to life is change. The secret to success in life is the ability to change in response to a changing environment. Today, is the first day of the rest of your life, are you prepared to change?

If you became Governor - what would you do?

A poll published online May 10, 2010 by The Providence Business News asks the question

What should be the new governor’s top priority upon taking office in January 2011?

Readers are asked to select from 5 options.

1. Balancing state and local budgets 12 votes (33%)

2. Economic development/job creation 15 votes (42%)

3. Improving elementary, secondary and post-secondary education 3 votes (8%)

4. Improving the state's tax environment 5 votes (14%)

5. Implementing a robust energy and environmental protection policy 1 vote (3%)


These are very early and preliminary votes but it does suggest what the mind of the public expect from a governor. and their ignorance of what a governor in Rhode Island can be expected to do.

1. Balancing the budget

Given the Rhode Island Constitution and despite the long overdue separations of powers act, balancing the state budget is a legislative function. The most the Governor can be expected to do is:

a. to recommend a balanced budget to the legislature,
b. to manage, after the fact, a budget that the legislature approves, and
c. to do so as effectively and efficiently as circumstances and the law allow.

As for the local budgets, these are up to the local legislative bodies (town councils, boards of education, etc.)to determine and beyond the Governor's control.

So while it might be desirable to have strong leadership in the Governor's office, institutionally there is little real power here to achieve this goal without a commitment of cooperation from the General Assembly.


2. Economic development/job creation

Rhode Island is a small state that tries to behave like a big state. Localities compete as aggressively with one another for new businesses and jobs as Rhode Island does with other states. The Governor can lead here by setting some clear priorities and goals for development and by promoting the state to out of state employers. But the governor can only sell what the state has to offer and what the General Assembly will fund. These two are not always in synch.

In "Meeting the Challenge of the New Economy", the 1997 Annual report from the Rhode Island Economic Development Council, the Council listed 8 myths about Rhode Island's economy. Myth # 5 is

"by creating jobs, state and local government employment helps the economy."

The report continues,

"The Reality: The right number of state and local employees allows government to accomplish the tasks it needs to ( e.g. maintain the roads, police protection). More than we need, however, eliminates even more jobs in the moderate term by removing purchasing power from consumers and raising taxes."

This is even truer today than back in 1997, yet little has changed in terms of the Governor's ability to change labor contracts and renegotiate the long term commitments to public employees. Management, the Governor's Office, requires the legal tools to enable it to make the management decisions that creates and maintains the right number of highly trained, skilled and experience government workers to do the tasks it needs to do.

The governor does not create jobs, nor should he/she. Instead, the Governor should help create a climate that fosters private sector employment opportunities. Here again, cooperation between the GA and the Governor will be required.

3. Improving elementary, secondary and post-post secondary education.

The Governor is the public's elected CEO. Here is where the Governor can have a real impact and where real change can be brought about. Education is the most critical step in an economic and social policy. Economic development does not occur overnight, anymore than educating a child to become a productive worker does. Both are long term processes. Changing the educational environment is a leadership and policy issue. Setting that policy, especially strategic policy, is the job of even a weak Governor.

a. The first step in building and supporting a viable and adaptable system to meet the needs of students, parents, communities and employers would be to set middle and long range goals and objectives for the state's educational system. These would be based on realistic assessments of the changing workforce needs, regional and global economic trends and local and state capacity to respond to these needs would be.

b. Next would be to create and carry through a realistic plan to achieve such goals. For the next Governor it would be follow through on the work done by Dr. Gist and those involved in planning and seeking federal support through the Race to the Top grant competition.

c. Next is to build on our strengths beginning with the best talent we have. The new Governor should avoid the temptation to replace the team now in place solely to reward friends and cronies. We have seen enough of this in recent years and even recent days in the state.

d. Support for individual teachers efforts to use and share their best practices even when these are contrary to arbitrary and/or out-modded contractual work rules or administrative policies is critical. By promoting and rewarding professionalism through public recognition and professional advancement for outstanding performance would demonstrate to all the state's commitment to quality education and a quality workforce.

e. Support for the state's post secondary institutions including the technical as well as professional post secondary education at a level competitive with the rest of the region and the world would put action behind the claim that we have the well trained workforce employers are seeking

f. The Governor should also push for full funding for the plan at all levels and through all available means and would re-enforce that commitment.

4. Improving the State's Tax environment.

I realize this may go against a lot of people's gut reaction but here goes. The State's tax environment is not, nor should it be, based simple on "pricing" considerations. By this I mean, it should be based on the true cost/benefit to me to live and work here, not on my tax bill. It should be based on the real or "true" value I receive for the taxes I pay.

For example, policies which focus on "lowering my tax bill" by not fixing the bridges and roads that support my business; or provide me with workers who can not read, write, do math or think critically; or impose inconsistent and onerous laws, regulations, processes that impede my ability to conduct my business competitively; or make it impossible for me respond to a new business opportunity in a timely and competitive manner, are the hidden taxes which really create a bad tax environment.

By the same token, the value of a reliable and efficient public works department, a dependable and accessible government permitting service, a clean and safe water supply, etc. should be considered when evaluating the value you receive from paying your tax bill. For example, what is the value of the state's response during the recent floods worth to you? Or, What is the value of the life that fireman saved? These are examples of the positive value we receive for the tax bills we pay. They would be sorely missed if they weren't there.

Here is where the Governor can have a impact. He should direct the administration's efforts to address the hidden taxes imposed by the General Assembly, especially when they fail to address these issues. One way to attack this problem is to change the dialogue from "government waste" to "government value." Former seeks only to cut costs without reference to quality. The latter exposes the "hidden taxes" of government uneffectiveness and inefficiency and shifts the focus to discovering the potential the value of government services deliver by those taxes.

A policy of greater transparency, i.e. "the good, the bad, and the ugly" should be the Governor's position. The new governor should use the bully pulpit of the office to expose the smoke and mirrors of backroom deals and magical thinking that we find in the GA.

The goal is to address Myth #4 from the 1997 report.

"If it is good for business (or labor) it has to be bad for labor (or business)."

The adversarial period of 20th century business/labor relations must end. If we are to improve the tax environment for everyone in the state and compete in a 21st century global economy, we need to change the way we think about who We and They are. Here the moral leadership of the Governor's Office must come into play.


5. Implementing a robust energy and environmental protection policy

In order to implement such policies, they must be sustainable and realistic in terms of overall needs and resources available to the State and localities. The Governor can provide guidance in balancing the state's economic, and social needs as reflected in the state's energy production and consumption practices weighed against the long term hidden tax of poor or inadequate environmental regulation and enforcement. Here the Governor can provide leadership to bring competing interests together for find solutions that serve the best interests of all and not the best interest of "favored" interests.

The job of the next Governor is to create a political climate where all parties feel that they have been dealt with in fairness. This will go a long way in creating a physical, economic, social and political environment that supports the public's and State's immediate and long terms interests.

Where is the Value and Who benefits?

Many problems arise when people loose sight of the purpose and goal of the things they do. They are quick to define problems in terms of short term discomfort, forgetting that the problem is the result of long term neglect,mistakes,or ignorance. Therefore they are prone to seek short term solutions.

Rhode island's budget crisis is not the acute problem that it has been portrayed in the legislature and public. It is chronic and worsening. We are taking cold medicine to treat a cough that is but a symptom of our lung cancer. This institutional and public denial lead to squandering opportunities for long term solutions to achieve short term fixes. The tobacco settlement money, unfunded mandates, unfunded pension obligation, borrowing for major projects just to capture federal matching funds, and forgoing routine maintenance on critical infrastructure are all examples of short term thinking with long term negative consequences.

Yesterday's Providence Journal carries the follow story:

"Dig uncovers significant historical site in Narragansett"

The outcome of the lawsuit and performance of the quasi-state agencies which currently control the destiny of the site will have a long term impact on the state, the local communities and the people of Rhode Island. Hopefully, our leaders may have gained some wisdom from past mistakes and take time to weigh the long term cost/benefits against the short term fix this discovery might make available.

Here are the options:

There is a opportunity to build some 20 homes in a prime piece of property in a desirable location in the state. Building this development will create some short term employment and sale of goods and services that would help the economy for a few months. The sale of the houses will generate some fees for local government, commissions for a few realtors, and sales to the new residence. In the longer term it will generate property taxes. The short term gains.

In the long term the public services to support the development will include new roads, utility lines, education and public safety costs for the new residents, and annual maintenance of the improvements. What will be the cost to the developer, to the community and who will be paying for this long after the developers have moved on?

On the other hand, South county RI is a tourist center and tourism is a major economic driver of the region. In turn tourism contributes significantly to the state's economy and general revenue. The site, as described in the story, is unique in the northeast and only one of two such sites on the Atlantic Coast. Isn't there value here?

There is certainly archaeological, cultural, historic, and scientific value to the site for both the Narragansett Indians and for the general public. But more than that, there is economic value with both a short term and long term payoff for all.

Archaeology is a labor intensive activity. Excavating the site will create jobs and need for supplies just as the construction of the homes would. The preservation of the site and its development into a historic tourist venue should produce jobs and income for the community well beyond the initial excavation and construction period.

The site is part of the history of the region which brings thousands of tourist into the area annually. Tourists buy gasoline, cigarettes,liquor, hotel rooms, meals, and other services and goods that produce tax revenues. And when it comes from out of state, it is new money added to the state's economy.

We complain about the lose of manufacturing jobs to offshore manufacturing plants. The United States is NOT a manufacturing economy anymore. It is a service and experience economy. This is where the growth is. Tourism is part of that economy.

Many people don't see that tourism, conducted here in the state, is really exporting entertainment and leisure services to other states and foreign countries. That is, people have to come here in order to consume our "experience" products. They have to come here and buy that experience and spend money here.

This archeological site is a one time opportunity for Rhode Island to capture the economic value of the site. Once it is dug up either for housing or a tourist attraction it's potential and value will be lost or radically changed.

Isn't it time we stop looking for the loose change found in the sofa for our next fix, and instead use it to start looking for a real job that will pay the bills and help pay off our debt?