The hunt for wasteful spending

NEW TO THE PARTY: Previously best known as the Moderate Party founder, Ken Block is running for Rhode Island governor as a Republican in 2014. His economic plan focuses on several taxes he says are stifling business growth. / PBN PHOTO/MICHAEL SALERNO
NEW TO THE PARTY: Previously best known as the Moderate Party founder, Ken Block is running for Rhode Island governor as a Republican in 2014. His economic plan focuses on several taxes he says are stifling business growth. / PBN PHOTO/MICHAEL SALERNO

If elected governor, Ken Block promises to do for Rhode Island on a large scale what his company, Simpatico Software Systems Inc., tries to do for government clients on a smaller scale: wring waste and fraud out of public services.
The Moderate Party founder running for the first time as a Republican in 2014, Block has assembled an economic platform geared toward making Rhode Island more competitive and less expensive for businesses.
Block’s economic plan includes six separate cuts on taxes he argues are stifling growth and would pay for them exclusively by seeking out and eliminating wastefulness from programs and agencies.
Through reforms such as consolidating state human resources staffing, rescuing the R.I. Department of Motor Vehicles database project and cracking down on temporary-disability-insurance abuse, among other things, Block said he can find the savings he needs to pay for his tax cuts.
“The problems we have had in our economic climate, and by that I mean the taxes and regulations that make doing business in Rhode Island far more expensive than other places, have been with us a long time unaddressed,” Block told Providence Business News in a recent interview about his plan. “We have to start by examining all our big areas of spending and asking if the money is achieving its intended purpose.”
Exactly how much savings Block would have to find to pay for his proposed tax cuts is difficult to say. Only two of the six cuts in the plan come with a cost estimate ($60 million combined).
Although pinning down the cost of the entire package is difficult, it would likely be more than $100 million and may be closer to the $200 million tax-cut plan proposed by Republican rival Allan Fung.
Block’s tax cuts would start, unlike a number of other current tax-cut proposals by candidates and sitting politicians, with the vehicle excise tax, a levy the state doesn’t even collect.
Block proposes raising the current $500 minimum car-tax exemption – how high is undetermined – and offering cities and towns up to two-thirds of the revenue they would lose from that higher exemption if they can find the remaining one-third through shared services with other communities. He would cap the state reimbursement at $50 million total.
How interested cities would be in the plan is unclear, but Block casts it as a way to attack two problems – the state’s high car taxes and duplication of services – in one fell swoop. Like his opponent in the Republican primary, Allan Fung, Block proposes lowering the state corporate tax, estate tax and sales tax.
Block’s plan drops the corporate tax rate from 9 percent to 7 percent at an estimated cost of $26 million annually. (Fung would push it down a half percentage point lower to 6.5 percent.)
To make Rhode Island more attractive to wealthy residents, Block would raise the tax exemption for estates from $921,655 to $2.5 million and reduce the top estate tax rate from 16 percent to 12 percent. (Fung hikes the exemption to $5.34 million.)
Rhode Island has the lowest estate tax exemption in New England (Massachusetts is roughly $80,000 higher) and has budgeted $31.8 million in collections for the current fiscal year.
The Block campaign said it did not have an estimate of how much the estate tax change would cost.
And on the sales tax, Block would create as-yet-undefined tax zones near the Massachusetts and Connecticut borders to test whether increased sales from customers crossing the border in those areas would offset lost revenue. If that proves the case, the cuts may be expanded statewide.
(Fung would cut the sales tax rate for the entire state all the way to 5.5 percent over three years.)
But Block also includes two more tax cuts specifically designed to attract startups and high-growth firms.
He would eliminate the corporate minimum tax for startups, except for real estate entities, in the first two years of their existence to encourage company formation. The state collects approximately $25 million in minimum corporate tax annually, and the Block campaign said the most recent estimate of eliminating the minimum, for a bill that would exempt the first three years of a firm’s existence, would cost $6.9 million annually. Because his proposal is for two years, it should cost less than that, according to the campaign.
And finally, to grow the startup scene, Block would exempt from taxation capital gains from new investments in Rhode Island companies, provided the investment lasted at least three years.
Because Rhode Island’s venture-capital activity is so small compared to states like Massachusetts or California, Block argues that if the incentive encouraged just a few companies to locate here for tax reasons it would be a net revenue positive. “There is little to no long-term cost for this proposal since few startup businesses are choosing to locate in Rhode Island,” according to an economic plan provided by Block’s campaign. “Any new startup activity would likely not have occurred without this change in tax policy, so there is no lost revenue. Imagine if the next Google decided to set up shop in Rhode Island because of this program.”
The state collected $58.2 million from personal capital gains from residents in 2011, said Paul Dion, chief of the R.I. Office of Revenue Analysis, but how much of that came from investments in Rhode Island businesses – or what Block’s proposal would cost – he couldn’t estimate.
For a candidate who four years ago ran in the Moderate Party, Block’s economic plan adheres closely to the Republican playbook of tax and spending cuts.
But Block says he is not like previous Rhode Island Republican candidates, especially former Gov. Donald L. Carcieri.
“Carcieri was a big-business guy; I am a small-business guy,” Block said. “There is a colossal difference between someone who is on the doing end of things with my direct experience and someone who has a vision but doesn’t really know how to get us there.”
Even at the high end of cost estimates for his tax plans, Block argues that there is plenty of wasteful spending ready to be identified and redeployed for taxpayers.
For years he’s argued the state’s Temporary Disability Insurance program is exploited by workers faking illnesses or their duration, making the system much more expensive than private insurance or better-run public plans.
Although the claim in Block’s plan that “nearly 9 percent” of the state’s workers claim short-term disability each year has contradicted state figures since last summer, Rhode Island’s program is more expensive and utilized more than the most-similar programs in other states.
To make sure disability claims are legitimate, Block would scrutinize them more and provide consequences for doctors who sign off on questionable requests.
Another program Block targets is unemployment-insurance usage by seasonal businesses. His plan would prohibit workers from collecting on a repetitive, annual basis.
He blamed the failure of past reform efforts on unemployment insurance – including a push with the Smaller Business Association of New England – on opposition from Senate President M. Teresa Paiva Weed. Although he says he couldn’t provide specifics until in office, Block believes there is also likely savings in the $2 billion Medicaid budget and in focusing state social-service dollars on nonprofits that have proven their effectiveness.
A large chunk of the Block economic plan is dedicated to the government reforms he’s pushed to clean up corruption, such as a line-item budget veto, an empowered ethics commission and abolishing the “master lever,” or straight-party voting option. (The state House this month unanimously approved elimination of the master lever.)
Outside of his official platform, Block has promised to challenge current leadership positions on a number of the largest and most controversial issues affecting the economy.
He wants a detailed analysis of the long-term cost of not paying the 38 Studios bond and, if it proves less expensive to default, he would take that option.
“My visceral reaction is that was foisted on us, and we should not have to pay it back on principle,” Block said. “My head tells me we should only do that as long as we don’t pay a greater price through higher borrowing costs than what the cost of the bonds was in the first place. We have to get that answer.”
Block would stand in the way of any state investment in converting the Industrial Trust building, also known as the “Superman Building,” into apartments, but would consider incentives for office rehabilitation.
In another tax proposal that never made it into his official economic plan, Block would be willing to create special “Superman Building” and Interstate 195 economic zones with a 2 percent state corporate tax for any businesses that occupy them, as long as the city is willing to lower citywide property tax rates.
How low the city would need to cut property taxes to qualify is not yet defined.
A Barrington resident, Block opposes any tolls on the Sakonnet River Bridge, but would keep the tolls on the Newport Pell Bridge and pay for upkeep of Sakonnet through DMV fees.
On whether the state should provide public financing to grow local companies or incentives to lure businesses from other states, Block said only in special circumstances or if necessary to counter other states.
“It doesn’t mean we have to do it, unless it is right,” Block said about incentives. “If someone is willing to come with 10,000 jobs and we want to take the field and compete for that, we have to be willing to do what other states are willing to do to us.” •

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1 COMMENT

  1. Block does not address a few significant and cultural based economic issues. For example, the case of many companies closing is not a problem unique to only Rhode Island and focusing on business closings masks the real problem which is clearly the low birth of new industries. For this latter to occur, you have to have a good representation of entrepreneurial, risking taking, talented individuals. When you have a population that is low on initiative, that has low education and does not support higher ed like other states, how can government turn this culturally based problem around?

    Also, RI is a city state and recognizing that fact and taking action to change the prevailing fragmentation of services requires bold action and this kind of action does not play to the strengths of conservatives who have hide bound ways, often protect the status quo and are change adverse.