Study: Taxes, K-12 dropouts holding back RI economy

PROVIDENCE, R.I. (WPRI) - Rhode Island's economy is being held back by problems that include relatively high taxes, a maze of regulations, too many dropouts and a lack of funding for startups, according to a new study commissioned by the Chafee administration.

The study was done by Fourth Economy Consulting, a Pittsburgh-based firm, as part of a $1.9 million grant Rhode Island received in 2011 from the Obama administration's Sustainable Communities Initiative to develop a long-term economic plan for the next 10 to 20 years.

"Rhode Island’s tax structure compares poorly, both to its peers and nationally, and this is an issue that has already received and must continue to receive attention," the study concluded.

• PDF: Read Fourth Economy's full RI study
• PDF: Read Fourth Economy's RI summary
• PDF: Read the full Equity Profile of RI

"However, Rhode Island does have cost advantages, as compared to its peer states," the study continued. "From housing to energy to high-skilled labor, businesses can access all at - relatively - bargain rates, in comparison to Massachusetts and Connecticut."

The study's authors said they saw three market opportunities for Rhode Island: advanced marine vehicles; biotextiles, implants and devices; and culture, fitness and recreation. Fourth Economy CEO Rich Overmoyer emphasized that the state should focus on homegrown industries, describing the approach as  "economic gardening."

A separate Equity Profile study also released Wednesday by the EDC suggested Rhode Island leaders should do more to improve the economic situation of minority residents. That study was done by PolicyLink, a California-based nonprofit, and the University of Southern California's Program for Environmental & Regional Equity.

"Communities of color are the driving force in Rhode Island’s population growth and essential to the state’s economic success now and into the future," the equity study found. "Despite the state’s many economic strengths, wide racial gaps in income, education, health, and opportunity coupled with a shrinking middle class place the state’s economic future at risk."

Governor Chafee received the two studies at a State House meeting along with members of the  Sustainable Rhode Island Consortium that is overseeing the $1.9 million grant from the Obama administration. The governor said he welcomes the findings.

"This is very, very important work - really upgrading our economic plan and incorporating all the latest aspects of how you should grow your economy," Chafee said. "Our effort is to have everybody at the table."

"America's changing," he said later. "By 2042 we're going to be a majority people-of-color country, and if anything Rhode Island is going to be an accelerated version of that." He added that the state should "accept and embrace" its growing minority population.

Scott Wolf, executive director of Grow Smart Rhode Island, questioned Fourth Economy's suggestion that Rhode Island's housing is relatively affordable, saying lower-income residents would disagree.

"I think we're one of the more affordable-housing-stressed states in the country," Wolf told the authors. "I don't think we should view your findings as a reason not to invest strongly in affordable housing." Another speaker said the state's housing stock built before 1940 is "affordable but not desirable" because much of it is in poor condition.

The Fourth Economy study is the latest in a litany of reports, workshops and other initiatives done since the collapse of Curt Schilling's 38 Studios to study why Rhode Island's economy continues to struggle with the highest unemployment rate in the United States.

It also comes amid ongoing turmoil at the R.I. Economic Development Corporation, which gave the $75 million taxpayer-guaranteed loan to Schilling's company.

The EDC's last executive director, Keith Stokes, resigned after the 38 Studios debacle, and last week Governor Chafee's pick to replace him, longtime EDC staffer William Parsons, backed out of taking the job. Chafee told reporters Wednesday he hopes to nominate a new executive director as well as new EDC board members soon.

Fourth Economy Consulting partnered on its study with Providence-based Britt Page Consulting and Kevin McAvey of Economic Partners Inc.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi