PROVIDENCE – Consumers and business leaders are growing confident that the economic rebound will continue in 2011, according to the annual outlook Sovereign Bank released Thursday morning during a Greater Providence Chamber of Commerce breakfast at The Westin Providence.
In an on-the-spot survey of approximately 400 attendees, about 60 percent said they believed their business would be better in shape over the next 12 months. And 40 percent said their company would be hiring in 2011.
But amid the optimism of that survey - and news from Sovereign of improving consumer confidence and stabilizing house prices - the fiscal woes of both state and local government hung in the air like a dark cloud.
With Gov. Lincoln D. Chafee set to unveil next week his state budget plan to close a $300 million projected deficit next year, Patrick Rogers, the governor’s chief of staff, told the gathering of local business leaders that the proposal would include “revenue components,” an apparent reference to Chafee’s much-discussed proposal for a 1 percent sales tax for currently exempt items.
But those “components” would be balanced with spending cuts, Rogers said during a panel discussion.
“I would just ask the business community to keep an open mind,” he said. “Look at the long-term picture, which isn't just what the budget looks like this year, but what are the long-term policy goals articulated in the budget.”
Another panelist, Robert Flanders, who is serving as the state receiver for financially troubled Central Falls, blamed certain budget problems largely on “outsized pensions” and other benefits promised to retiring public employees.
Asked by Laurie White, Chamber president, if public employees have a legal property-right to their pensions, the former R.I. Supreme Court justice said the courts’ view will depend on whether the benefits are in a contract or simply statutory.
Either way, Flanders added, “there’s a lot more leeway in dealing with the situation than people realize. No one wants to break contracts if we can avoid it … but the courts by and large have upheld those efforts when done thoughtfully and with the purpose in mind to avoid the much bigger catastrophe of complete default.”
Flanders said he hoped the financial problems will be used as an opportunity to perform some “fundamental restructuring” of budget.
“There’s going to be pain in the short run; there’s going to be [...] demonstrations and unrest [...]” he said. “I’m hopeful that out of this turmoil good things will come for the future.”
In contrast with the dire fiscal situation of state and local governments, Steven Andrews, a senior vice president at Sovereign Bank, told the breakfast attendees that consumer confidence on is “coming back in a big way.”
“I think that [the situation is] starting to lend itself to better spending,” Andrews said. “People feel a little more comfortable that we’re in better shape than we were a year or two ago….”
While house foreclosures continued to be a “huge issue” that is still weighing on prices and sales volume, prices are stabilizing, Andrews said.
In that way, he added, this economy differs from previous ones.
"The housing market isn’t leading us out of this - in fact, it’s the caboose, if anything,” Andrews said. “But it’s not being a drag either.”
In the commercial market, office vacancies peaked in 2008 and 2009 but the inventory has continued to grow, Andrews said noting that over the past five or six years, the greater Providence area has added about 1.5 million square feet.
As the recovery rolls on in 2011, he said, “we expect to see rents to increase a little bit.”
The survey at the breakfast – conducted for the first time through electronic remotes distributed to each attendee – indicated a sense of optimism about the future.
Fifty-nine percent said they expected the Rhode Island economy to be somewhat better in the next 12 months, 21 percent about the same.
Forty percent said their company would expand their work force slightly in 2011; another 44 percent said there would be no change.
When asked to identify the top challenges facing their businesses in the next two years, 26 percent of respondents said attracting new customers, while another 17 percent said the cost of health insurance and other employee benefits.
The regional challenges? Twenty percent said job creation; 18 percent said corporate and personal taxes; and 12 percent said the cost of health care. Only 1 percent said crime and corruption.
The low response for crime and corruption caught Lawrence F. Delp, executive vice president at Sovereign, by surprise. “Congratulations,” he said, which drew laughs from the gathering, “usually that’s a much bigger percentage.”
A spreadsheet file of the real-time survey results is available at www.provchamber.com.