IN ALMOND'S BUDGET
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
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
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