May 2, 2009

A Tax by Any Other Name

Justin Katz

Maintaining infrastructure is one of the basic tasks appropriate to government, but for that very reason — its clear importance — politicians in the state of Rhode Island tend to seek money for it independently, as a sort of deliberate afterthought. Rhode Islanders' ultimately don't want any bridges to collapse, and if they don't get incensed over the fact that the money wasn't already apportioned from taxes, they'll accept toll hikes even though they are, in effect, taxes for programs and giveaways that they wouldn't approve given the option:

The state Turnpike and Bridge Authority needs to raise tolls to pay for $50 million worth of repairs to the Pell and Mount Hope Bridges, Chairman David Darlington told a legislative committee Thursday.

Darlington asked the House Finance Committee to approve borrowing the $50 million through a bond issue for the work, which would include repairing rusted steel and doing painting on both bridges. He said that a toll increase would be needed to cover the bond issue, but that the authority wants to avoid raising tolls for Rhode Island residents.

Darlington said it would be the first toll hike in the history of the Pell Bridge, which opened in 1969. And if tolls are reinstituted on the Mount Hope Bridge, it would be for the first time since they were eliminated in 1998. Maintenance on the Mount Hope Bridge is now paid for with tolls paid by drivers crossing the Pell Bridge.

Of course, even the bond and toll gimmicks are beginning to raise hairs, so the plan is at least to double EZPass charges on the Newport Bridge for out-of-state drivers only. Of course, those paying cash — the majority, at least the last time I went back and forth over the bridge, last Saturday — would not be distinguished by their license plates and would pay the out-of-state fee. (It'd be interesting to see the data related to cash and EZPass payments; it's not inconceivable that doubling the toll will spur more Rhode Islanders to get EZPass, thus decreasing revenue.)

Perhaps the most important point to absorb from the linked article is the ultimate cost of this $50 million bond:

According to the legislation before the committee, the bond issue could actually cost as much as $132 million when the cost of 8-percent interest is added in, assuming a 30-year maturity for the bonds.

I'll reach across the aisle, here, and note that even Tom Sgouros has raised an eyebrow over the fact that Rhode Island currently pays $100 million in interest on Department of Transportation borrowing every year. This game can't go on; our government is going to have to find ways to keep the roads and bridges in good repair with money already in its budgets.

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Justin and team AR:

Let's not forget to mention this great new international publicity that The Economist has just given the Ocean State -- to a global audience.

The leadership of the General Assembly, the public sector unions, and the poverty industry must be so proud! On the other hand, for anybody who works in the global private sector, it is just one more reason to cringe when somebody hears you come from RI...

Little Rhody in the red
From The Economist print edition

America’s smallest state has mammoth economic problems

THE mansions of Newport, one of Rhode Island’s most popular tourist attractions, were once the mere summer “cottages” of the industrialists of the Gilded Age. Marble House, playhouse of the Vanderbilts, is said to have cost $11m, $7m of which was spent on 500,000 cubic feet of marble.

Today almost no homes, opulent or otherwise, are being built in Rhode Island. Only 16 permits for single-family dwellings were issued in February in the whole state. In March 633 homes were in foreclosure. The job front looks even worse. Last September Rhode Island had the highest unemployment rate in the country, exceeding even Michigan. In March the rate was the sixth-highest in the country, 10.5%, compared with 8.5% nationally.

Almost every sector has been affected. Jobs are so scarce that 200 people turned up recently at a job fair hosted by Foxy Lady, a Providence strip club. But the current misery comes on top of long-term decline. The state’s once thriving manufacturing industry has been fading for decades, with production slowing and working hours cut. Manufacturing lay-offs were persistent, even during good times; and good times have not been seen in the state for almost two years. Rhode Island entered the recession six months before the rest of the country.

Lose your job and your house

The subprime crisis hit early and hard. Jennifer Weiner, of the Federal Bank of Boston, says housing prices rose more steeply than in the rest of the country and began to drop sooner. Though New England has mostly avoided huge numbers of foreclosures, Rhode Island was not as fortunate. Its foreclosure rate in 2008 was 35% higher than in Massachusetts and 64% higher than in Connecticut. That first wave has been followed by a second, as the unemployed and the underemployed find it hard to pay their mortgages. Unfortunately, many of the homes now being foreclosed are three-and four-family houses. Tenants are often given only two or three days to leave.

The Housing Network of Rhode Island is seeing an increase in people seeking help. One in ten Rhode Islanders is enrolled in the food assistance programme and plenty more are eligible. Immigrants, many of them Dominicans working mostly as cleaners or maids in the service industry, are especially vulnerable. The monthly current conditions index, produced by Leonard Lardaro of the University of Rhode Island, indicates that service employment jobs, a leading labour-market indicator, dropped by 20.5% in February.

People are leaving the state in droves to find jobs. Others are being taxed out. The state government has been putting more pressure on a dwindling pool of taxpayers. The state has only 1m residents, of whom only 465,000 are working. Some 8,300 families, with incomes of around $485m subject to tax, left the state between 2005 and 2006. Anecdotal evidence suggests that the exodus has continued since the downturn began.

The state’s budget problems are chronic. Deficits are not unusual. Rhode Island has a budget gap of $372m for the year that ends on June 30th. This is about 11.4% of the state’s total budget. According to the Council of State Governments, it is among the highest in the country. The future looks bleaker. Revenue collections are down by $13.8m. The Rhode Island Public Expenditure Council, an independent research group, says the state faces long-term deficits over the next decade. The 2011 fiscal year will probably show a $156m deficit. The gap will continue to widen to a potentially crippling $482m in 2014.

The Tax Foundation, a non-partisan public-education outfit based in Washington, DC, has consistently judged Rhode Island’s tax climate to be one of the worst in the country. Donald Carcieri, the state’s governor, is pushing a plan to phase out the 9% corporate tax rate. This would improve the state’s ranking from 46th to 16th in friendliness towards business—which might create job opportunities and retain talent. At present, though 80,000 students attend college or university in the state, few stay once they graduate.

Ed Mazze of the New England Economic Partnership places the blame for the mess firmly in the hands of the governor and the legislature. He is angry that they wasted time trying to coax some big firms to move to the state, while jobs were leaving. But Laurie White, of the Greater Providence Chamber of Commerce, notes that “despite the cruelty of the economic times, or maybe even because of the cruelty of the economic times…[job-creating] projects are gaining traction.”

Greenery to the rescue

The state’s Economic Development Corporation (EDC) sees Rhode Island as a leader in green technology. It is working with Deepwater, a windpower company that will manufacture wind turbines in the state. Michael Saul of the EDC thinks the skills of boat-builders (as Rhode Islanders used to be) will translate to building wind turbines, and hopes that these will eventually appear all along the eastern seaboard.

The state also wants to become a biomedical centre. The warehouses of Providence’s Jewellery District, once home to hundreds of costume jewellers who have since moved south or abroad, are filling up with small laboratories, mostly specialising in neural and genome research. The highway that currently cuts off the district from the rest of central Providence is being moved elsewhere; this will open up 19.5 acres (7.9 hectares) for lab development and commercial space. Attracting talent shouldn’t be a problem: Providence is just 45 minutes away from Boston and three hours from New York. And Rhode Island has a tradition of bringing tourists in.

The state may have hit bottom already. Unemployment remained steady from February to March. As Mr Lardaro dryly notes, “We can see the light at the end of the tunnel. Let’s hope it’s not a train.” If things don’t look up, the state may reconsider a 1971 proposal to impose a $2 levy on each act of sexual intercourse performed in the state. Only men would pay.

Posted by: John at May 2, 2009 3:45 PM

Click here, if you're wondering what that last two sentences in the comment above refers to.

Posted by: Andrew at May 2, 2009 7:16 PM

I have just taken a look at what's on RI Future. Not surprised to find no mention of the Economist article on RI. Just like no mention of the NYT article on RI a while back. And, just like we saw no letters to the editor of the NYT from Crowley, Matt the Magnificent, the public sector union leaders, the Poverty Institute, Ocean State Action or Kids Count crowd, I don't expect to see any letters to the editor of the Economist from them either.

That raises a number of interesting -- and telling -- questions. Do they not read these publications? Doubtful. Do they doubt their reach and influence on RI's reputation? Equally doubtful. So why the lack of letters from the RI Democratic Party's "usual suspects" to the NYT or Economist vigorously refuting the very negative articles these two GLOBAL publications have recently run about RI?

Perhaps they were written, but rejected by the editors. Either because said editors "have it out" for RI, or because said editors are smart and worldly people who can discriminate between a fact-based. logical argument and a piece of pure ideology. Or perhaps the letters weren't written, which begs the question of why our erstwhile voices of the left seem to loose their confidence on the global stage. Could it be that they realize that a more critical and discerning audience would see right through the garbage they've been shoveling at Rhode Islanders all these years?

Ultimately, this is a painful choice -- either they don't read the NYT or Economist (which speaks ill of their alleged cosmopolitan views), their leters were rejected (which speaks ill of their arguments), or they never even attempted to refute the slams on Rhode Island which recently appeared in two of the world's preeminent media publications -- which speaks volumes about what is really going on in this state.

So, Matt, Pat C., Kate, Kate, Ellen, Tom S., Frank M. Dennis, Bob W., etc., we're dying to know which one of these theories is true...

Posted by: John at May 3, 2009 12:22 AM

John, John, John. The Economist is part of the conservative dominated mass media. No response is required.

(They probably got all their facts wrong, anyway ...)

Posted by: Monique at May 3, 2009 2:55 PM

--"So, Matt, Pat C., Kate, Kate, Ellen, Tom S., Frank M. Dennis, Bob W., etc., we're dying to know which one of these theories is true..."

They are ideologues. Their collectivist / utopian worldview cannot be bothered with reasoned argument based upon facts and historical experience (given it historical record, what rational person would support collectivism)?

So ...

If it fits their worldview, it is credible.

If it doesn't, decry it as propaganda.

If it's half and half, cherry-pick out what supports your worldview, and ignore the remainder (and/or take things out of context).

And, whenever necessary, lie and keep repeating the lie.

Here, now you have the template of their methodology - Crowley being the most superficial with this.

Posted by: Ragin' Rhode Islander at May 4, 2009 9:17 AM
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