The Poverty Institute’s Budget Rhode Map began with Jeff Thompson’s presentation "Rhode Island and the New England Economy: The Current Crisis and the Road Ahead."  Jeff Thompson is an economist with the Political Economy Research Institute at the University of Massachusetts.  He first gave an overview of the current economic situation in the state, and the information isn’t all that surprising to anyone who has been living in the state for the past 3 years.  Toward the end of his discussion, however, was the real meat (to be discussed below).

As far as the state’s employment situation, we’ve lost over 41,000 jobs in the past almost three years.  The state has gone from a high of 496,400 in January of 2007 to 455,200 as of November 2009, a loss of about 8.3%.  The December statistics will be released later this month.

Viewed another way, the unemployed population has grown from 27,751 in January of 2007 to 72,356 in November 2007, an increase of about 161%.

What was really striking, and incredibly refreshing to hear, was Thompson’s assessment of preferential tax treatments and incentive programs - all those things politicians love to praise as magic job creation tools.  All the corporate subsidies we’re giving away every year do NOT “pay for themselves” and do NOT generate enough additional tax revenue to cover the expenditures.  And they don't even really create any jobs.  Tax cuts NEVER have. 

What has been largely missing in Rhode Island is the critical examination of these incentive programs.  This is really important for lawmakers to understand, but far too many of them don’t get it.  Tax incentive programs and corporate subsidies are just one of many strategies to generate job growth in the state, and unfortunately it’s a very bad choice if the goal is to actually create jobs.

Thompson lays out some important factors that should be considered when thinking about any tax incentive program:

1. Accept they are unlikely to “pay for themselves.”
2. Would these resources be better spent elsewhere? 
3. How much is each of those jobs costing?
4. How much of the money will stay in RI?
5. Should RI give advantages to certain firms or sectors?
6. Is this activity/investment going to happen even without the tax cut?
7. Does luring firms from CT or MA really benefit RI?

The hundreds of millions of dollars the state spends every year on corporate subsidies will not generate sufficient revenue to cover the cost, and all the while the state is facing a $219 million deficit for FY 2010. Stated another way, every dollar we give away in corporate subsidies does about as good for the economy as if we flushed it down the toilet.  Maybe if we flush enough of them, we'll have to call a plumber and create at least one job.

The Governor is proposing cutting aid to cities and towns by about $111 million, including $65 million in excise tax payments and $21 million in general education funds, cutting $10.6 million from Human Services, unilaterally changing teacher pensions, cutting employee medical benefits, cutting funding for uncompensated care, among other things.  These changes would annihilate municipal budgets, force an increase in property taxes (again), and further strain our education and social service systems.  Moreover, the Governor’s proposals do nothing to fix the state’s future year deficits.

Yes, it’s quite obvious that the corporate subsidies would be better spent elsewhere.

It is absolutely critical that the General Assembly finally get serious about solving the state’s long-term structural imbalance.  One huge step in the right direction would be to place a moratorium on the various tax incentive and corporate subsidy programs which are supposed to generate jobs in the state, but have done anything but.  The state can’t afford to keep doling out free money to businesses for no reason.

Let's take a break from tax breaks.

Below is a video clip of Thompson talking about the effects of tax incentive programs, and the importance of critical analysis.

If you'd like to watch Thompson's entire presentation, here you go.  It's about 40 minutes in length.