May 14, 2008

Meaningless talk and inaction in a crisis: Why Rhode Island's crisis will get worse before it gets better & what to do about it

Donald B. Hawthorne

The state of Rhode Island is in a deep financial crisis. Resolving its large budget deficits will require real and significant structural changes to the status quo.

The status quo was best summed up in a passing comment by Representative Gorham last night on the Matt Allen show: Gorham talked about how the state budget deal is typically reached in a "clandestine" fashion in the office of a just a few state legislators and then rapidly moved to a vote.

That approach is, in no small way, how RI got into its current mess and maintaining such practices won't yield successful and lasting change.

As someone who has led corporate turnarounds for nearly 20 years and has read extensively on what it takes to lead successful change initiatives, it is appalling how little progress has been made to effect real change in the face of the current crisis here in RI. It's not like these structural problems are a new development!

One of my favorite authors on leadership and change is Harvard Business School professor John Kotter. He has been writing for years about the topic of leading change and is a world authority on the subject. More on his books can be found here.

For the last decade, Kotter has been writing extensively on what he calls the "Eight Step Process of Successful Change." Here is an excerpt from his "Iceberg" book, a book which uses a fable to describe what it takes to realize successful change. Easily accessible to the layperson, I recommend reading it.

Set the Stage

1. Create a sense of urgency: Help others see the need for change and the importance of acting immediately.

2. Pull together the guiding team: Make sure there is a powerful group guiding the change - one with leadership skills, credibility, communications ability, authority, analytical skills, and a sense of urgency.

Decide What to Do

3. Develop the change vision and strategy: Clarify how the future will be different from the past, and how you can make that future a reality.

Make it Happen

4. Communicate for understanding: Make sure as many others as possible understand and accept the vision and strategy.

5. Empower others to act: Remove as many barriers as possible so that those who want to make the vision a reality can do so.

6. Produce short-term wins: Create some visible, unambiguous successes as soon as possible.

7. Don't let up: Press harder and faster after the first successes. Be relentless with initiating change after change until the vision is a reality.

Make It Stick

8. Create a new culture: Hold on to the new ways of behaving, and make sure they succeed, until they become strong enough to replace old traditions.

As we all reflect on the severe crisis here in RI, one of the most disconcerting conclusions is how RI is currently 0-for-8 in moving in the right direction.

Where is the sense of urgency?

Where is the powerful guiding team?

What is the change vision and strategy?

There will be no successful structural changes in RI until those questions are answered in tangible and affirmative ways. If they are not, the crisis will worsen instead of getting better.

Avoiding the hard choices which go with implementing difficult changes is a part of human nature and, at one level, perfectly understandable. Which is why it is so important for there to be leaders who display the requisite courage to initiate the change dynamic.

The structural status quo in Rhode Island is built on a foundation of economic fiction. And, whether certain people like it or not, economic fictions simply cannot persist - even if many people choose to ignore the problems in the hope they will just go away. Which is exactly what causes bad situations to turn into crises.

Tackling RI's economic fictions matters for reasons beyond just balancing a budget. The well-being and futures of many families will be affected. As I wrote back in 2004:

...Even so, this debate is about more than current taxation levels and today's family budgets. It is about freedom and opportunity for all -- and family budgets in the future. The greatness of our country is that people can live the American dream through the power of education and hard work.

High taxation and mediocre public education create a disincentive for new-business formation in Rhode Island. That means fewer new jobs, and less of a chance for working people to realize the American dream. It also means people have an economic incentive to leave the state -- and the ones who can afford to do so will continue to leave.

Unfortunately, the ones who cannot afford to leave are the people who can least afford the crushing blow of high taxation and mediocre education. The status quo dooms these families to an ongoing decline in their standard of living. That is unjust...

We are at a crossroads in Rhode Island. If we tackle issues now, a turnaround with only some pain is possible. If we delay, we will doom multiple generations of working families and retirees to further tax hell and a reduction in their standard of living. That is wrong.

This public debate is about breaking the chains of bondage and giving all citizens the freedom to live the American dream here in Rhode Island. What greater legacy can we leave for our children than a fair shot at the American dream here in their state?

...Let's tear down this wall of economic fiction, and let freedom ring out across the state. Let's make Rhode Island a vibrant land of freedom and opportunity, for all working families.

Either we will do change here in RI or change will do us. The failure to act over the last 4 years means the changes will now be far more painful. And the pain will only deepen more if further inaction accompanies the passage of yet more time.

So, have you done your part to increase the sense of urgency? Have you stepped up to become part of a team dedicated to real change? Have you worked, even at your town level, to identify a vision for change?

One of the most striking observations I regularly find when going into troubled companies is how many people at all levels instinctively know what is wrong. One of the most heart-warming outcomes is how many of those people want to pitch in and be part of a solution. And one of the most satisfying developments is watching those people rise to the occasion, often in ways that would never have been predicted. Never under-estimate the power of the human spirit to be selfless and do great things. Even when it requires going through pain.

But before those wonderful developments can ever occur, we have to start with the basic first steps of a successful change initiative. Unlike the business community where companies die if they base their plans on economic fictions, change in the political world is much more difficult because entrenched special interests have no incentive to be part of constructive solutions. They have no incentive since their demands are funded by third-parties - taxpayers - while the special interests suffer no direct adverse economic consequences from making unrelenting demands.

Any real solutions in the RI public sector will require taking enough power away from those special interests so that the economic price of their demands is reduced. Yet the people to do that - politicians - usually have a focus on their own re-election and thus have no incentive to challenge the very interests who can subsequently cause them to lose an election. The problem is compounded further because the same politicians and bureaucrats have no incentive to help solve the problems because they also suffer no direct adverse consequences from their failure to act.

So any solution to RI's problems will require some selfless and courageous politicial leaders who care more about change and doing the right thing than winning elections. Part of their challenge will be to build a large enough coalition of citizens committed to change. It is only then that a courageous citizen coalition can exert the requisite pressure on enough fence-sitting politicians, providing the latter with a sufficient re-election incentive to join the change initiatives and the majority votes for change.

Bluntly, I don't see any of those dynamics even starting to happen in RI right now. Which says things will get far worse before they have any chance to get better.

We are faced with an ongoing political stalemate in place in RI: The window of opportunity for "reasonable" solutions passed some years ago. When RI already has one of the highest taxation rates among the 50 states, raising them even higher is a certain doom loop. It is too late to solve the problem by tinkering on the margin. Yet the special interests have shown zero willingness to back off their entitlement demands so as to make structural changes possible. With each passing month, there will be even less flexibility.

We are on a treacherous path as a state. But sometimes it takes going through sheer hell before the will to make tough decisions arises. Given the incredibly powerful and entrenched special interests and the political balance of power, maybe the only viable solution for RI is to let it all blow up and then pick up the pieces. Maybe we just have to become a statewide version of Vallejo.

Since the status quo political debate on these problems is an abject failure, here is my provocative proposal for public discussion:

    Building the sense of urgency: Begin talking publicly and bluntly about exactly how bad the structural problems are. No sense of urgency will be built until after these problems are crisply defined and transparently obvious for citizens across the state. Simply saying we have a budget deficit of $X million is insufficiently compelling; we need to talk about the ongoing budget deficit and how we have masked it previously, the structural problems which have caused recurring deficits, the unfunded pension liabilities, and the unfunded healthcare liabilities - all of which were incurred despite extremely high taxation levels.
    Pull together a team of leaders and active citizens: There has to be a conscious building of a powerful group of people from across the business community, policy community, and political community who are committed to change. It is a group which will only coalesce when we stop being so delicate in our conversations about the crisis. In RI, that means we need some people who are willing to take on previously unseen levels of personal risks. As they say, we need a few good men and women who have both the sense of urgency and the willingness to talk about the stark challenges faced in RI. Who are equally willing to talk bluntly about how the inaction of politicians and bureaucrats as well as the resistance from powerful special interests make it necessary to either do some major restructuring immediately or implement a radical solution of throwing the state into receivership/bankruptcy. Said another way, we need leaders who are willing to use that blunt public conversation to shake the foundation, thereby either stimulating real and previously non-existent policy ideas for serious change outside a legal restructuring or making the case on why there is no other alternative.
    The change vision for RI: By the middle of the next decade, do what Massachusetts did in recent years by going from taxation levels which earned it the nickname "Taxachusetts" to middle of the pack among the 50 states.
    The strategy for achieving the change vision: Set a specific and firm near-term time deadline for implementing the necessary major structural changes to realize the change vision. If the changes don't occur by the deadline, throw the state into some form of receivership/bankruptcy and then restructure everything by brute force.

What do you want the future of RI to look like? How are you willing to help bring about change?

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.


Excellent work.

Please go a step furhter and do another Post to talk about exactly what "structual changes" need to be made.

People who really don't want to address illegal imigration, but want to get credit for appearing to do so, hide behind the meaningless and intangible phrase of "comprehensive immigration reform."

Similarly, "structual change" is the new buzz word for everyone to throw around with respect to RI's financial crisis.

Let's be very specific and articulate 3 - 5 tangible things that NEED to happen.

For example:

1. Pension Reform - nobody collects a Pension until age 65, etc. And reform includes EVERYONE (judges too) and no "grandfathering".

2. Healthcare - Anyone receiving taxpayer funded employment related healthcare must contribute at least 25% of the cost their healthcare. Then they will be incented to seek less costly plans. Members of the General Assembly talk about the need for "structual reform" all the time now. When pressed, they'll mention healthcare, yet these fools receive FREE healthcare and refuse to share in the cost.

3. Collective Bargaining reform coupled with changing the law to allow RI to be a Right to Work State


We need specifics and we need to keep repeating them over and over. And we need to identify by name the barriers to meaningful change.

We can no longer allow the likes of Bob Walsh and other Union leaders to go unchallenged as they lead this great state down the drain with their demands to create an unsustainable nanny-state, in which their flock does not participate, nor share in the risks, of the free market.

It is no longer good enough to just make vague references to "special interests". We need to be specific and relentless.

Posted by: George Elbow at May 14, 2008 7:53 AM

You've got it right George. But it will only happen at the point of a gun-like it took to truly reform the old Worker's Comp scam.
To get to Easter we will have to pass Good Friday. Thus, this is the RI Future most municipalities will have to go through:

Yesterday the Senate voted to end debate on a bill that requires police officers, firefighters and other first responders across the nation to submit to collectively bargaining. Before the Senate votes on final passage of the bill later this week, lawmakers really ought to take a very close look at a city council vote in the sleepy California town of Vallejo last week.

The Vallejo City Council voted May 6 to become the largest city to ever declare bankruptcy in California. The cause of Vallejo’s demise? Contracts with fire and police unions account for 74% of the city’s $80 million budget. Why did the city sign such ridiculous contracts? Because public sector unions are a controlling force in the Democratic Party and Democrats dominate Vallejo’s government. Therefore, when it came time to for the city to negotiate salaries with its unions, the Democrats were represented, the unions were represented, but the city’s taxpayers were not.

But don’t think for a second that this problem is confined to California. reports: “The U.S. will probably see more municipal bankruptcies in the years ahead as local governments deal with the mountains of pension and retiree benefits they’ve promised but never funded.” The Weekly Standard’s Stephen Moore documented many of these nationwide unfunded liabilities earlier this year including: one of every three Los Angeles County school system dollars goes to teacher requirement costs; the 10 largest Chicago-area cities face a combined $18.7 billion in unfunded pension liabilities; Philadelphia was forced to issue a $4.5 billion bond to cover unfunded pension liabilities for 33,000 retirees.

Liberals in Congress defend their new bill for police officers, firefighters and other first responders by pointing to language that forbids public safety unions from striking. But as the Wall Street Journal notes, similar strike bans in state laws never work: “Union officials call strikes anyway, then negotiate amnesty as a condition of ending the work-stoppage. This is what happened in 2005 when New York transit workers broke the law by going on strike and shutting down the city. They paid no price and still got their raise.”

Heritage analyst James Sherk explains what we will have to cope if this legislation passes:

Morning Bell: The Municipal Government Bankruptcy Enhancement Act
A union’s monopoly over bargaining makes it a cartel that prevents employers from hiring workers who would do the same job for less than union wages. … Without providing financing for the mandate, the act will force these governments to either cut services or raise taxes.
Or as Vallejo shows, they could also just declare bankruptcy.

Posted by: Mike at May 14, 2008 9:55 AM

Right To Work appears to have been successful out here in Idaho. Our economy is quietly thriving. Wages aren't that high, but neither are costs. People seem grateful for their jobs.

The problem in RI comes down to the citizens who either don't participate in government or who elect idiots. I am not sure how you solve that problem.

RI and WV both seem to love Hillary Clinton. Maybe this is a good indication that these particular regional groups of people will always make bad choices. Cradle to grave coddling by the government --and vibrant economically productive societies.. are not compatible.

In RI's case, its policies appear to have caused the mass importation of welfare mothers, illegal aliens, unionists, socialists, etc.. After the tipping point is reached, how do you expell them when they control the politicians?

Posted by: Citizen Critic at May 14, 2008 12:01 PM

I lost hope for RI after the last General Assembly session when, in the face of already acknowledged current and structural deficits, the Democrat General Assembly:

Spent the last of the tobacco money, all sold at a discount in order to raise current cash;

Handed Frank Williams $70 million for to feed his edifice complex (yes, I know that it since has been temporarily postponed); and

Passed another of their notorious midnight bills (remember the one attempting to give state pensions to teacher union officials?) - this time effectively banning Governor Carcieri from privatizing any public sector union positions - protecting the unions and handing the bill to the taxpayers.

The Democrat General Assembly has given us a national reputation for corruption; cratered roads and collapsing bridges; and multi-billion dollar deficits for public sector benefits.

All that, and the people of Rhode Island continue to reelect them - and without complaint!

I've resigned myself to the reality that it will take a total collapse in Rhode Island before change will come. The RISDIC collapse prompted the depositors to demonstrate on the state house lawn - obviously it's going to take an even greater collapse to stir the average citizen.

I suppose that the one ray of hope is that the Democrat General Assembly has made the occurrence of such a collapse virtually inevitable.

Posted by: Tom W at May 14, 2008 1:10 PM


Excellent writing!

My feeling is RI needs to know where it stands at this moment in time and also to understand where it’s been and how it got to where it is now.

Once there is an understanding then RI can understand what actions it must take to resolve the budget deficit which is growing daily.

Don't forget, some programs are tied to federal matching dollars so killing the state side of the funds wipes out the federal matching dollars. Plus there is the enormous amount of unfunded city/town and state mandates by the federal government. I have a good document on that also.

This would be very hard in the state due to politics and continued finger pointing which isn’t going to solve any problems but prolong the agony and make matters worst.

I am amazed at statements made that as financial budget personnel they didn’t know RI was the only state in New England with a negative growth and definitely in a recession and surprised to find income tax receipts down and sales tax receipts down to combined tune of $50-$55 million (it’s not like this happened over night because discussions on this topic have been continuous on Anchor Rising, other blogs and in the newspaper since last year and before).

One problem I currently see is lack of addressing or acknowledging (on Smith Hill) the subprime foreclosures which RI leads the New England states and the reported estimated loss of approximately $1.7 billion (includes devaluation of adjacent properties) in state and local property taxes.

First to feel this loss sting is cities/towns and school departments. Couple this with the rising cost of gasoline, diesel fuel, heating oil, natural gas, electric, food, goods and services, the budgets will get blown out at the local level before you get to the state level.

To get a feel for where RI state government has been and where it’s heading, The American Legislative Exchange Council, 1129 20th Street, N.W., Suite 500, Washington, D.C. 20036 has a very good report titled “Rich States/Poor States ALEC-Laffer State Economic Competitiveness Index”; copyright 2007 which tracks the states from 1990s up to 2007 policies, laws, taxes, budgets and spending.

Posted by: Ken at May 15, 2008 4:01 AM

Good link Ken.

RI, as is usual, is ranked 48th out of the 50 states for economic competitiveness.

It seems no matter the survey, no matter the source, RI is in the bottom five ... except for "comprehensive" welfare benefits and "comprehensive" public sector pay and benefits, in which we're without a doubt in the top five or ten states.

All the above results reflecting the priorities of the Democrat General Assembly - take care of the public sector unions and welfare industry, and screw everyone else.

Posted by: Tom W at May 15, 2008 8:48 AM

I question the assumption that a major obstacle to change happening in RI is that citizens just don't understand the why they need to change, and specifically how and when that change must be accomplished.

An alternative hypothesis is that people understand the situation quite clearly. Many people have and are "voting with their feet" because they recognize that RI is, to apply a foreign policy term to the domestic situation, a "failed state" (where meaningful change is impossible because competing factions out to loot it efectively control the government).

As they leave, they worsen the problem for those left behind, as they further solidify the power of the factions in control of the government (in this case, the combined forces of the public sector unions, poverty industry, and private sector individuals and businesses whose profits depend on "knowing a guy" who helps them in their dealings with the state). Looking at the number of public sector union members and other state and town workers, welfare beneficiaries (including state subsidized childcare and RIte Care, not just FIP), employees of the poverty industry, committed progressive ideologues and some upward bump for family members connected to the above, you have an effective electoral majority.

That majority seems bound and determined to see how far they can raise taxes before they give an inch on the spending side. It is depressingly easy to see how Vallejo (or, perhaps, many Vallejos, as cuts in state aid to local governments triggers a wave of bankruptcies)must occur here before the current logjam breaks.

A pretty bleak and dismal picture, to be sure, but there are precious few signs that it isn't an accurate forecast of what lies ahead.

Posted by: John at May 15, 2008 1:48 PM

>>An alternative hypothesis is that people understand the situation quite clearly. Many people have and are "voting with their feet" because they recognize that RI is, to apply a foreign policy term to the domestic situation, a "failed state" (where meaningful change is impossible because competing factions out to loot it efectively control the government).

You're probably on to something John. And in a related sense:

Back in the corporate "re-engineering" / "right-sizing" fad of the 1990's, companies offered severance packages to "incentivize" people to leave voluntarily.

In another entry in the annals of the law of unintended consequences, what they discovered is that many of their best and brightest took the incentive and left.

The companies realized after the fact that the best and brightest were the ones with mobility, for they were the most in demand and could readily get positions elsewhere - and did - often with competitors.

Arguably we have a similar drain of many of the best and brightest from Rhode Island. College graduates, unable to find suitable employment, have been leaving for decades (I have friends who left for the West Coast back in the early 1980's because of the lack of opportunity here).

How many of us, advising a young college student who is ambitious, honest and want to pursue the American Dream of upward mobility via hard work, would recommend RI as a state that is hospitable to such people? None of us (at least not if we were honest). RI is a state attractive to those who wish to be on the public payroll, either as an employee or welfare recipient ... everyone else is merely deemed to be a revenue source to be exploited.

Middle class and upper middle class people who aspire to upward mobility and the American Dream are decamping for the Sunbelt, lest they stay here and find that their years of hard work, resulting in a higher income, is now going to be confiscated via progressive taxation and onerous property taxes.

Certainly not all have the option of leaving - the vagaries of occupation, employer and/or family sometimes precludes relocation. Many of these would leave if they could (e.g., me).

RI is a great place to have a second home. Pursue success somewhere else; achieve it, then buy a second home here to enjoy the 4 months or so of good weather ... but by no means spend more than six months here, lest the tax people try to stick you with RI residency status.

Posted by: Tom W at May 15, 2008 10:36 PM
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