High Cost of Doing Business Hurts RI in National Rankings

PROVIDENCE – Today, the Rhode Island Public Expenditure Council (RIPEC) released an updated review of the state’s business climate, including an analysis of how the cost-of-doing-business in Rhode Island compares to peer states and the rest of the country.  The report examines four business climate rankings – two from research organizations (The Tax Foundation, and the Beacon Hill Institute) and two by media outlets (Forbes and CNBC) – and two cost-of-doing-business studies: “Location Matters” by The Tax Foundation and KPMG, and “Competitiveness of State and Local Business Taxes on New Investments” by the Council on State Taxation (COST) and Ernst and Young.  Consistent with past reports, Rhode Island continues to rank in the bottom ten states in most business climate analyses, despite recent efforts to improve the state’s standing. The full report is available here.

The cost-of-doing-business – a category that broadly includes taxes, labor costs, utilities, and real estate costs – is weighted heavily in business climate studies and is an area in which Rhode Island has the most opportunity to improve its position in national rankings. Rhode Island’s relatively high tax burden and complicated regulatory system are two main factors driving the state’s poor performance in this area. “Taxes and the state’s regulatory environment are two areas in which the state has committed to making improvements, and reform efforts should continue; however, as these studies show, Rhode Island’s efforts have not been sufficient to move the state up in national rankings” notes John Simmons, Executive Director of RIPEC.  “The state should build on the efforts of the past year and move forward in a collaborative, strategic endeavor to change this dynamic.” 

A thoughtful plan to reinvigorate the state’s business climate, distinct from the piecemeal approaches of the past, will enable Rhode Island to compete in today’s increasingly competitive economic environment.  As a part of this effort, state and local leaders should consider developing a multi-year strategic tax plan with the objectives of: lessening the overall tax burden; ensuring a proper balance between state and local taxes; reducing tax inequities among localities in the state; equitably and efficiently funding public services, particularly education; and improving Rhode Island’s competitive position. 

In the 2012 CNBC study, Rhode Island’s overall ranking in the “states for doing business” index was 45th. The 2012 Forbes study ranked Rhode Island 41st highest nationally in terms of the cost-of-doing-business, while the Tax Foundation’s 2013 “business tax friendliness” index ranked Rhode Island 46th highest nationally. In a location-specific study by the Tax Foundation and KPMG, Rhode Island’s cost-of-doing-business ranked 44th highest for newly established firms and 46th highest for mature firms. Lastly, Rhode Island ranked 49th in the U.S. on a tax competitiveness index by the COST and Ernst and Young.  One bright spot in the analysis is the state’s relatively strong performance on the Beacon Hill Institute analysis, in which the state was ranked 19th overall.

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