mazze

On top of the continuing bad national and global news about the financial markets, Rhode Island is reporting that the executive branch of government ended FY2008 with a deficit of over $30 million, there is already a shortfall in state tax revenue for the first quarter of FY2009 of $34 million and the state unemployment rate is at 8.5 percent, its highest level since January 1993.

The state has lost jobs every month in 2008 and will be losing more jobs for the rest of 2008 and into early 2009. The job market continues to be bleak as a result of additional anticipated state and local government budget cuts, slowing down payments by government agencies to vendors who may need to lay off workers, state revenue targets not met and the national credit crunch making it more difficult to borrow money.

Twelve hundred more jobs were lost in August, among them 400 jobs in manufacturing and 400 jobs in financial services. On a year-over-year comparison, the number of employed Rhode Islanders fell 23,600 between August 2007 and August 2008 and the number of jobs declined by 12,800. It has become more difficult for the unemployed to get a job because they are competing with recent high school and college graduates, retired individuals reentering the marketplace at lower salaries and state employees who took retirement but plan to enter the private sector.

The employment sectors with the largest job losses in August were in manufacturing and financial services and the sectors increasing were transportation and utilities, construction and education and health care. It is expected that there will be layoffs in the health-care area during the fourth quarter of 2008 as health agencies are unable to “free up” revenue owed to them by state agencies.

The state’s FY2009 budget is already in a deficit mode which is sure to get bigger since most of the promised savings never came about. The credibility and leadership of the executive and legislative branches of government are in question again.

In October, Rhode Islanders see weakening economic trends nationally with their own investments declining rapidly as the stock market reached new lows. Nationally, the credit markets are in a state of flux even with federal intervention. The rescue plans will take months before most of the corrections in the financial services industry will be seen. Many troubled banks and financial institutions closed, became part of a stronger financial institution or were put in conservatorship by the government.

In Rhode Island, the fiscal problems are getting worse, which could eventually put the state into receivership. Bold actions need to be taken to reduce expenses, increase revenue, create jobs and bring about realistic economic development. The state has a fiduciary responsibility to its citizens and businesses. Without taking this responsibility seriously, we will not be able to retain and attract businesses or population and the state will collapse.

The state is not creating jobs, the value of homes continues to decline, sales of homes have dropped, the number of vacant homes due to foreclosures has increased, Twin River is having financial problems and could easily be in bankruptcy by the end of the year, the state’s public transportation system is running out of money and funds are needed for highway and bridge reconstruction before there is a major tragedy.

Rhode Island has been in a recession for more than a year. The state may hit bottom before a turnaround takes place. In the past, four major events have brought Rhode Islanders together — snow storms, the failure of the savings and loan associations, a major fire and winning basketball teams. Now, we have two more events — the collapse of the job and housing markets.

What can be done to turn around the state? National economic events such as those that are taking place in October that affect the financial markets and Rhode Island’s current economic situation present significant challenges to creating jobs in the state. We need to take both a short-term and long-term approach to solving the economic challenges to Rhode Island. In the short term, we need to do what we can to make businesses and consumers feel confident in the state, and in the long term we need to cut taxes, remove the personal estate tax, redo public labor contracts, invest more in public higher education and introduce economic programs that support and attract businesses.

We need to create a pool of higher education and economic development funds to create knowledge-generated jobs. On Oct. 7, the findings of a study chaired by Robert Flanders were issued on the need for the University of Rhode Island to play a greater role in economic development through research. We need to invest in three areas as is being done in other states: established industries, emerging industries and investment in job-producing research centers and academic programs at our colleges and universities. Ideas for new products and services and for new and existing businesses often come from academic institutions. Also, states that are able to create and support entrepreneurs lead in creating new companies with higher-paying jobs.

We must provide funds to help workers gain the skills they need as their current jobs in sectors such as manufacturing disappear. We need programs that invest in the state’s infrastructure. The funds to accomplish these activities should come from restructuring state and local government and the centralized management of public education at the county level.

Our greatest opportunity for economic growth for the state will come about in the future if we begin to make progress today.

Edward Mazze is Distinguished University Professor of Business Administration at The University of Rhode Island