Study says demote EDC after 38 Studios

WPRI 12

Updated: Sep 26, 2012 12:24 PM

PROVIDENCE, R.I. (WPRI) - The R.I. Economic Development Corporation would be demoted and supplanted by a new secretary of commerce who reports directly to the governor if Rhode Island officials embrace the recommendations of an independent study ordered in the aftermath of the 38 Studios debacle.

The Rhode Island Public Expenditure Council said nobody in state government has direct responsibility for promoting economic growth because of a decision made in the mid-1990s to outsource that job to the EDC, a quasi-public agency chaired by the governor that has been frequently criticized over the years.

PDF: Read the RIPEC EDC study Related: Chamber says act fast

Governor Chafee asked RIPEC, an influential business-backed think tank, to review the EDC's operations and the state's broader economic development strategy after 38 Studios collapsed in May. The resulting study, delivered to Chafee on Tuesday, proposes organizational changes that would reduce the role of the EDC, which would be renamed the R.I. Commerce Corporation.

During a press conference on Tuesday, Chafee thanked RIPEC for its "terrific, hard work" in putting together the study, which involved 75 interviews with more than 100 people. But the governor didn't embrace its findings - and left the event without listening to the presentation by John Simmons, RIPEC's executive director.

Chafee said members of his administration "still have to digest exactly what the recommendations are," but suggested at least some of its suggestions could be implemented through executive order rather than legislation.

Chafee also expressed a new optimism about the EDC, signaling he may not want to make major changes there. The governor said he thinks Paul McGreevy, whom he assigned to oversee EDC last spring, has "steadied the ship" at the agency since former executive director Keith Stokes resigned over 38 Studios.

"I'm very impressed with what has happened in the last few months down at EDC," Chafee said. The governor later added: "We're moving forward. ... I have full confidence in what is occurring at EDC right now."

But Simmons said the EDC is too damaged in its current form to be effective. "The brand is not the best that it could be, and needs to be changed," he said. The agency needs to become more customer-focused and more reliant on metrics to determine its effectiveness, he said, citing as a model the recent changes Chafee has made at the Department of Motor Vehicles.

The proposed secretary of commerce would oversee three existing departments that regulate companies: the Department of Business Regulation, the Department of Environmental Management and the Department of Labor and Training. It would also take over the Office of Regulatory Reform.

A new public-private Council of Economic Advisers would advise the governor, while a new Commerce Coordinating Council would include many state department leaders. The renamed EDC board would still exist. All the suggestions can be carried out without additional money by shifting other budgets, according to RIPEC.

Simmons said he found significant management failures at the EDC. But he also argued many agency employees had done "the best they could" to promote economic development considering they have no control over the taxes and regulations which shape Rhode Island's business climate. The agency has relationships with roughly 160 outside organizations.

"Through the reorganization, the government will serve as a partner and not a barrier to businesses and will promote long-term sustainable growth," Simmons said. Private-sector leaders see state government as a roadblock to growing their businesses, he said.

It's unclear whether state lawmakers will support RIPEC's ideas, particularly the proposal that the new secretary of commerce be appointed by the governor unilaterally without Senate confirmation, unlike the current process for choosing the EDC's executive director. Simmons said that would mirror Massachusetts' approach and clarify responsibility.

Greg Pare, a spokesman for Senate President M. Teresa Paiva Weed, declined to comment on the proposal to exempt the commerce secretary job from Senate confirmation. But Paiva Weed issued a broader statement applauding RIPEC for its work on the study.

"There is no higher priority for the Senate than our state's economy," she said. "I look forward to working with all parties to create a plan and embrace a clear vision that will place Rhode Island on a path to a strong and vibrant economy." The Joint Committee on Economic Development will hold a hearing on the study Tuesday afternoon.

Laurie White, president of the Greater Providence Chamber of Commerce, applauded RIPEC's recommendations and called on Chafee and lawmakers to act on them within 90 days. "We need a very dramatic, aggressive effort to change the path that we're on," White told WPRI.com.

At the same time, Simmons emphasized that changing the EDC would not be enough to improve the business climate in Rhode Island, which has one of the nation's highest unemployment rates and has seen its residents' incomes fall behind those of their Massachusetts neighbors since World War II.

Simmons said a package of legislation should be developed that lawmakers can take up in January to change tax policy and reduce the cost of doing business locally. Rhode Island should also develop a broad statewide economic plan to guide state agencies in their work, he said.

The General Assembly created what is now the EDC in 1974 as the quasi-public R.I. Port Authority, giving it the power to borrow money and develop property. Shortly after he took office in 1995, former Gov. Lincoln Almond privatized what was then the Department of Economic Development by moving its functions to the authority, which was renamed the Economic Development Corporation.

Simmons suggested that Almond's move had left the state with a disjointed approach to economic policymaking, with the EDC seen as neither part of state government nor fully private.

RIPEC thinks a separate study should be done to examine whether the state's multiple quasi-public loan entities should be merged into one, as Massachusetts has done. In the wake of 38 Studios, Rhode Island also needs to adopt stricter standards for vetting proposed taxpayer-backed loans to private firms, the study suggests.

"There's always a possibility of a 38 Studios," Simmons said, but changing the structure the way RIPEC is suggesting would put up "hurdles" to avoid another major calamity. Taxpayers could owe as much as $100 million to pay off bondholders who loaned money to the EDC to help Curt Schilling's video game company, which filed for bankruptcy in June.

The state's economic development strategy should focus on nurturing existing, homegrown companies founded in Rhode Island rather than on attempting to lure out-of-state firms to relocate to Rhode Island, Simmons said, citing research showing that organic in-state growth is a better approach. He also expressed optimism that Rhode Island has assets and advantages that can turn the economy around with a better approach.

Chafee also made a pitch for positivity. "There's too much emphasis on what went wrong," he said. "We're making some positive steps forward and the biggest evidence of that is our revenues are up in the state. ... We still have hard work. I'm not naive about the challenges."

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi

An earlier version of this story misstated Laurie White's title.

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