On Tuesday, January 24, 2012, the Rhode Island Public Expenditure Council (RIPEC) will release an updated version of “How Rhode Island Measures Up: A Review of the State’s Business Climate Rankings”. The report examines five business climate rankings – three from research organizations (The Tax Foundation, the Small Business and Entrepreneurship Council, and the Beacon Hill Institute) and two by media outlets (Forbes and CNBC) – and finds that, in general, the state is not perceived as a good place to start or grow a business. However, although the state ranked in the bottom ten in four of the five analyses, the Beacon Hill Institute, which examines long-term competitiveness, ranked the state 20th in the country.
While there are broad signs that the national economy is recovering, Rhode Island continues to struggle with a weak personal income growth, a persistently high unemployment rate, the third highest in the country in December, and a declining population. If the state is to turn its economic outlook around it must move to create an attractive environment for businesses – especially businesses that offer high-wage, “knowledge economy” jobs. Clearly, businesses do not base location decisions on a single factor, such as the income tax rate, and a number of factors that affect site selection are out of the state’s control. However, states with high taxes, burdensome regulatory climates, and an overall high cost of doing business will be less attractive to businesses looking to relocate or expand.
Making improvements in the state’s business climate ranking is possible. Potential approaches include making focused changes to the tax system, continuing to improve regulatory conditions, fixing the transportation system, and fostering the development of new industries. The state should also focus on the bright spots in the analyses, such as the technology ranking in the Beacon Hill Institute’s study. Based on their analysis, Rhode Island ranks third in the country for science and engineering degrees awarded per 100,000 inhabitants, indicating a possible area of focus for business development.
Rhode Island is not alone in facing a challenging economic recovery. A late December poll by CNNMoney indicated that the chances of a double-dip recession in 2012 are at 20 percent. While this is down from an earlier estimate of 30 percent, growth estimates nationally remain modest at best. Improving the state’s economic climate in this context will represent a significant challenge to the state; however, Rhode Island has already demonstrated a commitment to improving the state’s business climate through revisions to the income tax structure and regulatory environment. The state’s ability to continue this momentum will go a long way in determining the future direction of Rhode Island’s economy.
