General Assembly’s EDC reforms add complexity

Rhode Island lawmakers overhauled the R.I. Economic Development Corporation this summer more than a year after the agency’s ill-fated $75 million investment in 38 Studios LLC collapsed.
Now state officials are looking at another 18 months, or more, of debate over whether those changes have improved economic policymaking in the state or confused it further.
Last month, EDC officials and Gov. Lincoln D. Chafee began wrestling with the practical implications of the package of economic-development laws passed by the General Assembly at the beginning of the month.
At minimum, the new laws have assigned a significant amount of new administrative work for state officials and created a number of new advisory boards as they bulk up strategic economic planning.
“It is very convoluted, very difficult to understand until we get through all the detail,” EDC Executive Director Marcel A. Valois, told the board of dtirectors at a recent meeting. “We don’t know how all these things interrelate. Our role is to define how we make that work comprehensively.”
Chafee, who opposed the most far reaching of the EDC reform bills, called the bureaucratic structure put in place a “spider web of responsibility.”
“Unfortunately, 38 Studios is responsible for this,” Chafee said at the meeting. “It’s a shame.”
Although he wasn’t able to stop lawmakers from making changes to the state’s economic development apparatus, Chafee was able to convince them to stagger implementation of the changes and hold off on the biggest moves until 2015.
“It’s possible,” Chafee said when asked if some of the recent EDC changes would be amended before ever going into effect. “We did push it off till 2015. I was adamant about that – a new board here, let us get our feet on the ground.”
The most significant and controversial change pushed back to 2015 is the creation of an Executive Office of Commerce to absorb the current EDC along with state’s business regulation department, and housing and community development functions.
The new office would follow, at the start of next year, the re-naming of the EDC the R.I. Commerce Corporation, which will remain a quasi-public agency with similar functions, but with mandatory annual reporting to lawmakers.
Assuming the law is not amended, the new commerce secretary to be named in 2015 will become the CEO of the Commerce Corporation, but a new COO will be hired to handle day-to-day operations. The addition of an additional bureaucrat was one of Chafee’s primary objections to the bill during the year. Although the commerce secretary was the highest profile change in the new bills, much of the head scratching of EDC executives and board members stems from the smaller provisions adding a host of new advisory councils and planning groups.
The most prominent of these would be the 17-member Economic Development Planning Council, which will be responsible for making recommendations on long-term state strategic policy, including a quadrennial (coinciding with gubernatorial terms) Rhode Island economic plan. The state is currently using a $1.9 million federal grant to put a strategic economic plan together, and the new plans will start after 2015.
The planning council will be chaired by the commerce secretary and include state department heads, legislative appointees and a collection of industry representatives named by the governor. It will not be created until 2015.
The planning council’s recommendations will flow from information and analysis prepared by the nine-member Council of Economic Advisors, again led by the commerce secretary, this time with academics and research experts complementing government leaders.
Based on the system in place in Massachusetts, the planning council and economic advisors structure was a key recommendation of the Rhode Island Public Expenditure Council study that Chafee commissioned after 38 Studios. But the General Assembly didn’t stop there.
As part of the bill establishing the commerce office, it also created a Workforce Coordination Cabinet of state officials focused on labor and a 15-member Human Resources Investment Council with a mix of government and industry representatives.
A Made in Rhode Island bill will create a two-part, 18-member Manufacturing Collaborative to promote local products and set up a certification system for those products. One part of the group will have education and government leaders and an advisory council will have industry representatives. The collaborative is to be set up by next April. “[RIPEC] wanted to streamline things and get the department heads involved, but they are in all these different groups – they are going to be in meetings all the time,” said EDC board member and Vibco Vibrators President Karl Wadensten.
Valois said the manufacturing certification program, which the EDC will operate, could be a particular strain on resources. Similar programs in other states had cost $400,000 to $500,000 annually, he said.
Directly within the EDC (or R.I. Commerce Corporation), another newly passed bill requires the establishment of a Business Development Center by the start of next year to act as a customer-service hub for companies looking for help.
Valois said fortunately the EDC will be doing this anyway as part of internal reforms that have been made over the past year.
The EDC is now seeking bids for a Customer Relationship Management System that will facilitate and track all inquiries, responses and interactions between businesses and the agency.
Rounding out the General Assembly’s new economic planning regimen, a bill requires the Office of Revenue Analysis to conduct a cost-benefit analysis of all tax incentives by the beginning of next year.
Many of the new safeguards and measurements the General Assembly put in place were meant to prevent another poor investment of public money like 38 Studios, but by the time they arrive the EDC may not be able to make risky bets anyway.
The $125 million loan guarantee program used for Curt Schilling’s video-game company was canceled by lawmakers with $43.5 million in guarantees unused.
Since 38 Studios, EDC investments have been very small and come from the revolving Small Business Loan Fund and utility-bill-funded Renewable Energy Fund.
RIPEC Executive Director John Simmons said while the new provisions may require some effort on the part of the EDC, they should bolster what have been areas of weakness in the state.
Although all of the new coordinating bodies may seem confusing, he said they are fulfilling separate tasks and all work toward the goal of keeping everyone in state government pulling in the same direction on the economy.
“I think if you take the totality of it, there have been a lot of pieces, but they are in an organized fashion,” Simmons said. •

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