THERE'S WISDOM IN ALMOND'S BUDGET

The Providence Journal, Editorial Page, February, 2000

BY NOW, just about everyone in this state is aware that Rhode Island's current economic performance is the best it has been in a decade. Examples of economic strength abound: Retail sales continue to be "off the chart"; existing home sales just set their fifth annual record, and Rhode Island is currently at full employment.

Rhode Island has now been a service- and information-based economy for more than a decade. The rapid pace of technological advance and heightened globalism that have accompanied this structural transformation have redefined what we must do to survive and flourish in this type of economic climate. Fortunately, or unfortunately, the prerequisites for success today are very different and far more demanding than they were back in the good old days when Rhode Island was a manufacturing-based economy.

One of the reasons for this concerns the ever-present structural changes that we face: As businesses continue to introduce labor-saving technology and "state-of-the art" managerial methods that benefit us in the long term, we experience the persistent negative of layoffs that slow our momentum in the short term. As a result, judging where we are at any point in time and the appropriate policies that we need to adopt to get where we want to be in the future has evolved into a far more complicated exercise.

Education, educational funding and a viable tax system have moved to center stage. How well has Rhode Island performed in this climate? The answer to that question depends greatly on the perspective one takes. When I first began to analyze and forecast Rhode Island's economy in the early 1990s, I felt that it was appropriate for me to adopt a parochial perspective, based on the mitigating circumstances of major defense cutbacks and the lingering effects of a serious banking crisis.

As the justification for continuing that perspective faded, I moved toward what I feel very strongly is the most appropriate way to view Rhode Island at present, comparing it to both New England and the United States. This has brought about a very noticeable change in the tone of my comments about the Rhode Island economy. Why? Because Rhode Island's economic performance is as different as is possible when viewed in terms of these alternative perspectives.

Based on a parochial view, we should break out the champagne, since Rhode Island is performing the best it has in a decade. But from a comparative view, maybe we should get the Excedrin: Not only does Rhode Island continue to lag both the nation and New England in terms of job growth, it is projected to have the slowest job growth of any state through 2003!

Until now, any in-depth analysis of Rhode Island's fundamentals that I undertook caused me to become ever more pessimistic about Rhode Island. After all, we had finally arrived at the window of opportunity we were dreaming about back in 1991, a strong economy and full employment, and yet we seemed to lack the mindset and the political will to make the most important changes needed to assure our success as a service-based economy.

The "prime-time players" for success in this era, educational quality, a mechanism for funding education that is independent of the whims of the business cycle, and a viable tax system, seemed more like wishes than anything that we could expect to attain any time soon.

But, as I said, that was until Governor Almond announced his proposed budget last week.

Governor Almond, I applaud you for taking several critical steps that are necessary for Rhode Island to progress more rapidly toward success in the service era. As the result of your leadership, Rhode Island's investment in education would be increased at the expense of the consumption-oriented auto excise tax, whose phaseout is not only unaffordable, but would also claim all of our budget surpluses in just a few years. Ending that phaseout now would be the correct thing to do.

I honestly can't think of any program in this state that produced so few tangible benefits at so great a cost. The good news is that our ability to provide a funding mechanism for education that is immune to the business cycle is also attainable, even in the short term. Not only could we claim the ill-directed resources that would have gone to the auto-tax phaseout, but, with the DEPCO debt just about paid off, about $40 million to $50 million from the excess sales-tax revenue will soon be available annually.

Diverting this excess tax revenue to education would provide Rhode Island with a direct link between consumption and investment (in education). So, in good times such as now, when sales-tax receipts are high, some of the funds generated would permit us to afford quality education in lean times. More importantly, this added funding would allow Rhode Island to more closely approximate the 60 percent educational funding rate from the state that it aspires to without the need to add a state property tax. And, the leverage of providing these funds to cities and towns could be used to impose restrictions on their ability to increase property-tax rates.

If the the auto-excise-tax phaseout were not suspended, the soon to be available excess sales-tax revenue would more than likely have been diverted to that phaseout -- a travesty that Mr. Almond's actions would allow us to avoid.

His decision could eliminate the hypocrisy of those who have bemoaned the lack of educational funding while supporting continued funding for the excise-tax phaseout.

Once again, let me applaud Governor Almond for taking the first steps to move Rhode Island along the path it can and should go. There is no reason whatever for Rhode Island's economy to continually lag the nation's or the region's. Neither Mr. Almond nor I have ever been willing to accept those rankings as inevitable. Mr. Almond's actions have once again restored my faith in Rhode Island's economic future.

by Leonard Lardaro