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Prepared forRHODE ISLAND GOVERNMENT FINANCE
OFFICERS ASSOCIATION
The Rhode Island Economic Outlook
Edinaldo Tebaldi, Ph.D.Assistant Professor of Economics
C f t M N E l d E i Co-forecast Manager, New England Economic Partnership (NEEP)
The Great RecessionCurrent economic conditions in RI are significantly worse than Current economic conditions in RI are significantly worse than that in the 1970s, 1980s, 1990s and early 2000s’s recessions
Unemployment Rates
RI,
12.9
RI,
13.5
0.7
.38 0 , 9.0
nd,
9.4
13
15
RI,
9.7
RI,
8.9
U.S
., 1
7.6 U
.S., 9
.7
U.S
., 1
0
Engla
nd,
7.8
w E
ngla
nd,
8.0
5.5
New
Engla
nd
New
Engla
n
11
nt
Rate
(%
)
R
RI,
5.4
U.S
.,
U.S
., 6
.1New
New
New
Engla
nd, N
7
9
nem
plo
ym
en
R N
3
5
Un
Source: New England Economic Partnership (NEEP)
Q4 - 1982 Q3 - 1992 Q2 - 2003 Q1 - 2010 Trough (Q3-2010)
RI U.S. New England
Changes in Nonfarm Employment, Rhode Island(thousands)
Significant job losses since Feb/07
42 300 j b h b l t
1
2
0
0.8
1.3
ou
san
ds)
42,300 jobs have been lost since the recession began
-1
0
0.3
-0.3
0
-0.4
-0.4
-0.5
0.2
-0.
-0
-0.
-0.3 -0
-0.4 -0 -0
nt
Ch
an
ge (
Th
o
-3
-2
-1
-1.9
-1.2 -1
.7
-1.4
5 6 .7
-2.5
6
-1.5
-1.3
0.8
-
-1.6
-2.4
-2.2
0.8
0.8
-
-1.2
-1.4
-1.3
rm E
mp
loym
en
-4
3
Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep Oct
Nov
Dec Jan
Feb
Mar
Apr
May Jun
Jul
Aug
Sep
t
Oct
Nov
Dec
5 -2.9
-3 -3.2
2.8
-3.8
No
n-f
ar
2007 2008 2009
Source: Author’s compilation using data from the U.S. Bureau of Labor Statistics
NEEP forecasts that an additional 3,000 jobs will be lost by mid-2010
..and the recovery is expected to be very slow
490
510
(1,0
00
)
Q1 2007
450
470
mp
loym
en
t (
Q2 1990 Forecast
410
430
No
n-f
arm
Em
Q3 1981
370
390
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
To
tal N
Source: Author’s compilation using data from the U.S. Bureau of Labor Statistics
Quarters Since Beginning of Recession 1980s 1990s Current
Slow recovery and weak job creation in the near term.
Nonfarm employment is forecasted to be 458,000 in 2011, and 471,000 in 2012
S t ddi j b i 2011 Sectors adding jobs in 2011 –1,800 jobs in Trade, transportation and utilities–700 jobs in Information800 jobs in Leisure and hospitality–800 jobs in Leisure and hospitality
–500 jobs in Education and health services. –800 jobs in the High technology sector
N ti th i 2011 Negative or no growth in 2011 –Manufacturing(1% decline)–Mining (no growth)P f i l d b i i ( th) –Professional and business services (no growth)
Source: New England Economic Partnership (NEEP
Major Factors affecting the speed and Intensity of the Economic Recovery
Weak regional and National growth–Rhode Island depends on the economic performance of its
i hb i t t d th ti l neighboring states and the national economy;–Forecasts for economic recovery are quite dismal
The Rhode Island government has very limited “d f f d ” t ti l t th t t “degrees-of-freedom” to stimulate the state economy;
–Structural budget problems
Public services are too costly (local and state level)
High Cost-Structure for Business and Poor Regulatory System
The Unsolved Problem: Growing Budget Gap and Dependence from Federal money
7,000
8,000
The Budget gap is expected
Total State Expenditures and General Fund Revenues, Rhode Island
4 000
5,000
6,000
on
$)
to keep growing and reach about 0.5 billion by 2015.
2,000
3,000
4,000
(Millio
0
1,000
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
Total state Expenditures Total General Fund
Source: Author’s compilation using data from The National Association of State Budget Officers
PROJECTED MID-YEAR FY2010 BUDGET GAPSPercent of FY2010 General Fund Budget
16%
18%
20%
19.7
% 14.3
%13.0
12.9
11 1
8%
10%
12%
14%
16%
% 0% 9%
1.8
%11.1
%10.4
%9.6
%9.0
%8.8
%8.4
%8.1
%8.0
%7.7
%7.7
%7.6
%7.5
%7.0
%6.8
%6.8
%6.0
%5.7
%5.5
%5.5
%4.4 3 3 3 3
0%
2%
4%
6%
A I R K N V H O I M W F C M N S K G C M I N A U N A M N W C D V L N I M P W M S O T
% % % % 4%
3.6
%3.5
%3.4
%3.2
%2.9
%2.7
%2.5
%2.4
%2.4
%2.2
%2.1
%1.7
%1.7
%1.4
%1.4
%1.1
%0.9
%
Arizo
na
Illinois
Rhode Islan
dKen
tucky
New
Mexico
Virg
inia
Haw
aiiO
klahom
aIo
wa
Mississip
pi
Wash
ingto
n*
Florid
aColo
rado
Misso
uri
Nevad
aSouth
Caro
lina
Kan
sasG
eorg
iaCalifo
rnia
Marylan
dId
aho
New
York
Alab
ama
Utah
Neb
raskaArkan
sasM
aine
New
JerseyW
est Virg
inia
Connecticu
tD
istrict of C
olu
Verm
ont
Louisian
aN
ew H
ampsh
irIn
dian
aM
assachusetts
Pennsylvan
iaW
yom
ing
Min
neso
taSouth
Dako
taO
hio
Ten
nessee
um
bia
e
Source: Center on Budget and Policy Priorities
And it may get worseAnd it may get worse
Most federal Recovery Act assistance will end halfway through this coming fiscal year
–Further job losses
Tightening assistance to towns and Cities;Cuts to budget
–Limited recourses to job creation
restricted capacity to stimulate and attract business projects
–Cuts to Social Assistance
Unfunded Pensions–$6.8 billion to cover $11.2 billion in liabilities for state-administered pension plans (Pew Charitable Trusts Center)
Major Factors affecting the speed and Intensity of the Economic Recovery
–
–
–
Public services are too costly (local and state level)
Public services are too costly in RIPublic services are too costly in RI
Expenditures Per CapitaU.S. Rhode Island Connecticut Massachusetts
Amount Amount Rank Amount Rank Amount Rank
p p
Fire 123 233 1 136 15 152 8 Medicaid/Vendor Paym. 957 1,679 2 986 18 1,599 3 Governm. Admin. 401 557 5 480 12 396 22 Police 281 308 12 261 20 284 15 Housing & Comm. Dev. 154 169 12 195 6 265 3
Source: RIPEC, FY 2007
•Affect the state’s capacity to make the investments needed in infrastructure and increase the tax burden•Increase cost of living and cost of business operations
Major Factors affecting the speed and Intensity of the Economic Recovery
–
–
–
High Cost-Structure for Business and Poor Regulatory System
Lack of Incentives to attract and retain business and entrepreneurs
Economic transformations over the last three decades changed the business and gemployment models and demanded a new regulatory system.
The so-called knowledge-based economy– The so-called knowledge-based economy
…and Rhode Island failed to provide the right regulatory system, impacting the g g y y , p gincentives for attracting and retaining business and promoting economic growth.
The State Ranks Low in Key Indicators
State
Best State For
Business,
Best State For
Business,
Regulatory Environment
2009a
Economic Climate
2009b
Business Costs 2009c
Labor2009d
Growth Prospects
2009 d
Quality Of Life
2009e,2006
,2009 2009a 2009b 2009c 2009 d 2009e
New Hampshire 20 19 46 26 41 5 5 4
Massachusetts 36 34 22 33 48 16 40 2
Connecticut 33 35 33 31 45 18 37 3
Maine 46 41 32 39 44 25 28 19
Vermont 36 47 44 49 43 13 42 9
Rhode Island 45 50 50 48 40 35 18 21
a Measures regulatory and tort climate, incentives, transportation and bond ratings.b Reflects job, income and gross state product growth as well as unemployment and presence of big companies.c Index based on cost of labor, energy and taxes.d Measures educational attainment, net migration and projected population growth.e Reflects projected job, income and GDP growth as well as business openings/closings and venture capital investments.
Source: Forbes
p j j g p g g pe Index of schools, health, crime, cost of living and poverty rates.
State Business Tax Climate Index
State FY 2010 FY 2009 FY 2008 FY 2007 FY 2006
N H hi 7 7 7 7 6New Hampshire 7 7 7 7 6Maine 34 40 35 37 43
Massachusetts 36 32 33 34 36
Connecticut 38 37 38 39 41
Vermont 41 43 43 44 46
Rhode Island 44 46 44 49 50
Source: Tax Foundation
Small Business Survival Index, 2007
State Ranking
New Hampshire 23p
Connecticut 38
Vermont 43
M h tt 44Massachusetts 44
Maine 47
Rhode Island 48Source: Small Business Entrepreneurship Council
and more bad indicators…and more bad indicators
Indicator Source Rank ScoreUS
Average Score
E-Gov't (utilization of digital technologies in state governments) Kauffman 41 4.45 5
Technology in Schools Kauffman 45 3.73 5
Per Capita State Appropriations for Higher Education
Milken Institute 45 167.77 250.00
% university R&D from State and local gov't own 41 3 50% 6 40%local gov t own 41 3.50% 6.40%
% university R&D from Industry own 40 3% 5.40%
Source: Author’s compilation
The Path Aheade a ead
There is light at the end of the tunnel
Housing affordability is currently at the level observed in the end of 2001
Source: New England Economic Partnership (NEEP), Moody’s Economy.com
Rhode Island Has strong Science & Technology Indicators
Indicator SourceRI
RankingRI
ScoreUS Average
Score2008 2008 2008
Business Climate For Technology-based Activitygy yHigh-Tech Industries with I.Q. Higher than 1.0 Milken Institute 11 9 -State Technology and Science Index Milken Institute 10 66.69 54Technology Concentration and Dynamism Milken Institute 13 66.44 54Industry Investment in R&D Kauffman 3 5.23 3.31R&D Inputs Composite Index Milken Institute 6 72.44 -
CyberinfrastructureBroadband Telecommunications Kauffman 2 8.7 5Health IT Kauffman 2 9.1 1.9Internet Domain Names Kauffman 30 3.52 5.09Online Population Kauffman 27 72.48 71.67
Source: Author’s compilation
Rhode Island’s has a significant pool of well-qualified workers
Indicator Source Ranking ScoreUS Average Score
Science & Technology WorkforceHuman Capital Investment Composite Milken Institute 15 62 1 52Human Capital Investment Composite Milken Institute 15 62.1 52Immigration of Knowledge Workers Kauffman 23 12 11.4IT Professionals Kauffman 25 1.25 1.37Migration of US Knowledge Workers Kauffman 6 14.1 13.1Percent of Age 25+ with Bachelors or higher Milken Institute 15 0.31 -P f A 25 i h PhD Milk I i 29 0 01Percent of Age 25+ with PhD Milken Institute 29 0.01 -S&T work force composite index Milken Institute 13 68.31 56
University Based S&T ResearchPercent of Bachelor Degrees in Sci & eng Milken Institute 18 0.17 -Percent of Grad Students in Sci & Eng Milken Institute 10 0.02 -Recent PHD Degrees in Sci & Eng per 1,000 workers Milken Institute 10 0.3 -Scientists and Engineers as a % of workforce Kauffman 5 0.49 0.34% university R&D from Institution funds own 13 27% 20%
Source: Author’s compilationp
An Agenda For the FutureAn Agenda For the Future
Build upon the state’s strengths
f h lReform the regulatory System
Reform the Tax System
Redefine the role of state and local governments. g–Focus on efficiency
Regulation MattersRegulation Matters
To compete for new jobs, new businesses and new markets (domestic and foreign) Rhode Island needs a regulatory system that:
–Promotes transparency and flexibility in public administrationL th di t d i di t t f d i b i–Lowers the direct and indirect costs of doing business
–Revises and simplifies the tax system–Supports small businesses A d i hi hl kill d k–Attracts and retains highly-skilled workers
Government Efficiency MattersGovernment Efficiency Matters
The problem is not the size, but rather the quality of local and state governments.
–Move away from ideological and nonproductive disputes
Reorganize the delivery of public services.–Consortiums
• pool local resources together for increasing scale and achieving efficiency.
• Work a backdoor when consolidation is politically unfeasible.–ConsolidationConsolidation
Search for market-driven solutions when appropriate.
–Properly regulated, private organizations can deliver public services efficiently.
What About Revenues?What About Revenues?
A strong economy will create opportunities that generate revenue to opportunities that generate revenue to
support local and state government expenditures in critical areas such as p
education and social services.
Let us fix the foundations of the economy, then the economy itself will economy, then the economy itself will
take care of revenues.
Supporting SlidesSupporting Slides
The current recession made RI’s fundamental economic problems more noticeable… but the state’s failure to problems more noticeable… but the state s failure to
create new jobs is not a new problem
0.44%
0.46%550
(%)
usa
nd
s
Forecastknowledge-based economy
0 38%
0.40%
0.42%
450
500
em
plo
ym
en
t (
ym
en
t -
Th
ou
0.34%
0.36%
0.38%
350
400
hare
of
U.S
. e
on
farm
Em
plo
0.30%
0.32%
300
80Q
181Q
182Q
183Q
184Q
185Q
186Q
187Q
188Q
189Q
190Q
191Q
192Q
193Q
194Q
195Q
196Q
197Q
198Q
199Q
100Q
101Q
102Q
103Q
104Q
105Q
106Q
107Q
108Q
109Q
110Q
111Q
112Q
113Q
1
RI
S
To
tal n
o
198
198
198
198
198
198
198
198
198
198
199
199
199
199
199
199
199
199
199
199
200
200
200
200
200
200
200
200
200
200
201
201
201
201
Nonfarm Employment RI share of US Nonfarm Employment
Source: New England Economic Partnership (NEEP), U.S. Bureau of Labor Statistics
Manufacturing is NO longer the engine of job creation in Rhode Island and the U.S.
20000
25000
120.0
140.0
t, U
S
nt,
RI Forecast
15000
20000
80.0
100.0
g E
mplo
ymen
t
g E
mplo
ymen U.S.
5000
10000
40.0
60.0
Man
ufa
cturing
Man
ufa
cturing
RI
020.0
1980Q
11981Q
21982Q
31983Q
41985Q
11986Q
21987Q
31988Q
41990Q
11991Q
21992Q
31993Q
41995Q
11996Q
21997Q
31998Q
42000Q
12001Q
22002Q
32003Q
42005Q
12006Q
22007Q
32008Q
42010Q
12011Q
22012Q
32013Q
4
MM
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2
RI US
Source: New England Economic Partnership (NEEP), Moody’s Economy.com
The New Engines of Growth and Job Creation:Education and Health Services
… but RI has been lagging behind the nation in terms of growth since the 1980s
Forecast100 0
120.0
erv
ices
0.80%
0.90%
100 0
120.0
du
c. &
erv
ices
60 0
80.0
100.0
al &
Healt
h S
es)
, R
I
Employment
0.50%
0.60%
0.70%
60 0
80.0
100.0
plo
ym
en
t in
Ed
h S
erv
.
al &
Healt
h S
es)
, R
I
Employment
20 0
40.0
60.0
t in
Ed
uca
tio
n(T
ho
usa
nd
0.20%
0.30%
0.40%
20 0
40.0
60.0
re o
f U
.S.
Em
pH
ealt
h
t in
Ed
uca
tio
n(T
ho
usa
nd
0.0
20.0
80Q
1
81Q
1
82Q
1
83Q
1
84Q
1
85Q
1
86Q
1
87Q
1
88Q
1
89Q
1
90Q
1
91Q
1
92Q
1
93Q
1
94Q
1
95Q
1
96Q
1
97Q
1
98Q
1
99Q
1
00Q
1
01Q
1
02Q
1
03Q
1
04Q
1
05Q
1
06Q
1
07Q
1
08Q
1
09Q
1
10Q
1
11Q
1
12Q
1
13Q
1
Em
plo
ym
en
0.00%
0.10%
0.0
20.0
80Q
181Q
182Q
183Q
184Q
185Q
186Q
187Q
188Q
189Q
190Q
191Q
192Q
193Q
194Q
195Q
196Q
197Q
198Q
199Q
100Q
101Q
102Q
103Q
104Q
105Q
106Q
107Q
108Q
109Q
110Q
111Q
112Q
113Q
1
RI
Sh
a
Em
plo
ym
en
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Educational & Health Services
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Educational & Health Services RI Share of U.S. Employment in Educ. & Health Serv.
Source: New England Economic Partnership (NEEP), Bureau of Labor Statistics
The new engines of growth and job creation:Leisure and Hospitality
… RI lost momentum the early 1990s, and since then the sector has been stagnant compared to the nation as a whole
0 40%
0.45%
0.50%
50 0
55.0
60.0
eis
ure
&
men
t - Forecast
0.25%
0.30%
0.35%
0.40%
35.0
40.0
45.0
50.0
plo
ym
en
t in
Le
. (
%)
tali
ty Em
plo
ym
usa
nd
s
0.10%
0.15%
0.20%
20.0
25.0
30.0
are
of
U.S
. em
ph
osp
ure
an
d H
osp
itTh
ou
0.00%
0.05%
10.0
15.0
980Q
1981Q
1982Q
1983Q
1984Q
1985Q
1986Q
1987Q
1988Q
1989Q
1990Q
1991Q
1992Q
1993Q
1994Q
1995Q
1996Q
1997Q
1998Q
1999Q
1000Q
1001Q
1002Q
1003Q
1004Q
1005Q
1006Q
1007Q
1008Q
1009Q
1010Q
1011Q
1012Q
1013Q
1
RI
Sh
a
Leis
u
1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2
Leisure & Hospitality RI Share of U.S. employment in Leisure & Hosp.
Source: New England Economic Partnership (NEEP), Bureau of Labor Statistics
No job creation in Trade Transportation &Utilities over the last two decades
0.36%
0.38%
80
90
Tra
nsp
. &
ho
usa
nd
s
EmploymentForecast
0.30%
0.32%
0.34%
60
70
men
t in
Tra
de.
Ts
(%
)
mp
loym
en
t -
Th
p y
0.24%
0.26%
0.28%
40
50
60
of
U.S
. em
plo
ym
Uti
liti
es
sp.
& U
tiliti
es
Em
0.20%
0.22%
30
40
980Q
1980Q
4981Q
3982Q
2983Q
1983Q
4984Q
3985Q
2986Q
1986Q
4987Q
3988Q
2989Q
1989Q
4990Q
3991Q
2992Q
1992Q
4993Q
3994Q
2995Q
1995Q
4996Q
3997Q
2998Q
1998Q
4999Q
3000Q
2001Q
1001Q
4002Q
3003Q
2004Q
1004Q
4005Q
3006Q
2007Q
1007Q
4008Q
3009Q
2010Q
1010Q
4011Q
3012Q
2013Q
1013Q
4
RI
Sh
are
o
Tra
de.
Tra
ns
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Trade Transp. & Utilities RI Share of U.S. employment in Trade Transp. & Utilities
Source: New England Economic Partnership (NEEP), Moody’s Economy.com
