Rhode Island is at it again. It’s only been a little more than three months since the Providence Journal published a scathing editorial that took aim at Connecticut’s unfunded state employee pension liability and the abject failure on the part of elected officials here to adequately confront it.
“How could this be?” we asked ourselves. Isn’t Rhode Island an economic basket case? Well, turns out the new governor, Democrat Gina Raimondo, had taken meaningful steps to reform the public employee pension system.
Now, after taking the sorts of actions on pensions that we were unwilling to take, it looks like Rhode Island has picked up one of our bad habits — namely the strategy of bribing companies to relocate to the Ocean State or remain there.
According to a recent story in the Journal, Little Rhody is “back in the game of courting businesses.” The Rhode Island Legislature has been generous lately ($41 million this year alone) in freeing up piles of cash for Raimondo to spend on tax credits and other funds to attract and retain companies.
And the latest example involves a Connecticut company Raimondo wooed away. Ivory Ella, a small T-shirt and accessories company, received $360,000 to consolidate its three locations, including its Mystic headquarters, into one facility over the border in nearby Westerly. The move probably won’t be much of a job creator for Rhode Island because most of Ivory Ella’s Connecticut-based employees can easily make the commute to Westerly, but at least those employees will soon become Rhode Island taxpayers, as will the company itself.
And other larger companies have received even more generous seven-figure packages, including Ocean State Job Lot, and of course drugstore giant CVS, which had threatened to leave the state because of high taxes and former Gov. Lincoln Chafee’s indifference to its plight. That is until the state sweetened the pot with more than $25 million in tax credits in 2015.
Rhode Island also spent $1.9 million to help the Lincoln-based A.T. Cross pay for the $2.1-million move of its headquarters to Providence and hire 35 new employees, even though the company had received a higher offer from Connecticut, where many of its top brass live.
Bear in mind that Rhode Island is a little gun shy on lavishing funds on businesses after the Curt Shilling debacle. For those who may have forgotten, a gaming company headed by the legendary Red Sox pitcher defaulted on a $75 million loan from the Rhode Island Board of Economic Development in 2012, leaving taxpayers in a Democratic state holding the ball for a multimillionaire Republican who preaches the virtues of small government. Ouch!
But in Rhode Island, as in Connecticut, there are those who object to the government picking winners and losers. Just as the libertarian-leaning Yankee Institute rails against government activism in the private sector from its perch down the street from the Capitol in Hartford, so too does Gary Sasse fume about “an inbred system of crony capitalism [where] we have tax loopholes that make no sense.”
Sasse is founding director of the Hassenfeld Institute for Public Leadership at Bryant University in Smithfield. Sasse was the one who exposed the fact that in 2012, 90 percent of the $35 million the state awarded in tax credits went to the CVS behemoth and two companies located in California.
As have the Yankee Institute and the Connecticut Business and Industry Association, Sasse has argued persuasively that, rather than “using the tax code to pander to the well-connected,” his state should over three years reduce its highest-in-the-nation corporate tax to 7 percent from the current 9 percent, and finance it by closing tax loopholes of the sort enjoyed by CVS, which rakes in billions in profts every year.
There might be some lessons here for Connecticut. Our corporate income tax sits at 9 percent, tied for fifth highest with New Jersey. Rhode Island’s is now at 7 percent and is still offering incentives. Rhode Island is getting its public employee pensions in order; we’re not.
To paraphrase Rhode Island’s ill-fated marketing slogan (”Cooler and Warmer”), the Ocean State isn’t hot, but it’s getting warmer.
DISCLAIMER: The views, opinions, positions, or strategies expressed by the authors are theirs alone, and do not necessarily reflect the views, opinions, or positions of CTNewsJunkie.com.