America's Top States For Business

Bottom state Rhode Island struggles to move the needle

CNBC's bottom states for business
CNBC's bottom states for business

The smallest state once again has the smallest score.

Rhode Island, the Ocean State, hits the bottom of our America's Top States for Business rankings for the third time in four years. The poor showing comes despite a sweeping package of reforms approved last year, including more than two dozen pieces of legislation aimed directly at Rhode Island's standing in our study.

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"Among the issues frequently cited by these rankings is an onerous regulatory environment in Rhode Island, the condition of the state's infrastructure and a high cost of doing business," said a state-commissioned policy paper that recommended the reforms.

In 2012, demonstrators in Cranston, Rhode Island, protested the layoffs of 67 Department of Labor and Training workers, most of whom worked at the agency's unemployment benefits division.

For 2014, we found Rhode Island remains an expensive state, finishing 43rd in our all-important Cost of Doing Business category. Rhode Island has the eighth-worst tax burden in the country, according to the conservative-leaning Tax Foundation. Utility costs are high, according to the U.S. Department of Energy.

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With the nation's highest unemployment rate, an anemic housing market and a less-than-stellar bond rating, Rhode Island finishes 44th in our Economy category.

And Rhode Island comes in 45th for Business Friendliness, our category measuring the legal and regulatory climates.

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"Rhode Island is one of the least free states in the country," said a 2013 analysis by the Mercatus Center at George Mason University in Arlington, Virginia.

Rhode Island also has the worst infrastructure in America, according to our 2014 study. For example, of the 766 bridges in the state, more than half—433—are deficient, according to the Federal Highway Administration.

In fact, in our 10 categories of competitiveness, Rhode Island finishes in the top half in just two this year: Education at 18th and Quality of Life at 19th.

Improving Rhode Island's business climate is the senate's single-highest priority this session.
Teresa Paiva Weed
state senate president

After the last time we ranked Rhode Island 50th, in 2012, Teresa Paiva Weed, the state's senate president, declared that enough was enough.

"Improving Rhode Island's business climate is the senate's single-highest priority this session," she told The Associated Press. "We must improve our image as a place to do business."

Specifically citing CNBC's America's Top States for Business rankings, she directed the Senate Policy Office to figure out why the state fares so poorly year after year.

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In a joint report the following January, called "Moving the Needle," the policy office and the Rhode Island Public Expenditure Council (RIPEC)—a nonpartisan think tank—said the rankings failed to give Rhode Island full credit for efforts the state had already made, including tax and regulatory reforms passed in 2010 and pension reform in 2011.

The Station Six fire station in Woonsocket (built in 1928) closed in 2009 as budget difficulties for the city created the need for austerity. The city is a designated "distressed" municipality.
Michael S. Williamson | The Washington Post | Getty Images

But the authors conceded that despite all of that, "barriers to vibrant and sustained economic growth continue to be identified."

RIPEC Executive Director John Simmons said Rhode Island's low rankings—in the CNBC study and others—are taken very seriously.

"We use them as benchmarks," he said in an interview, "because they measure what people believe is important."

More important, he acknowledged, they have merit.

"We found that we needed to make some substantive changes over time to our business climate," he said.

Reformers on the march

So last year, the legislature passed 28 "Moving the Needle" bills, revamping the state's economic development office, beefing up job training and further reforming regulations. One bill would free at least some businesses from an often-criticized requirement that they pay their employees once a week instead of every other week.

But Rhode Island is finding that truly moving the needle takes time.

"You can't change the environment—the ecosystem of the business climate here—instantaneously," Simmons said.

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Asked to compare the state's progress to a football game, Simmons said reformers are two years into a four-year timetable, so "every year is a quarter." But he said that doesn't necessarily mean this is halftime, because while most agree on the need to change, not everyone agrees on the timetab

"There is some question in the state of how far and how fast things need to occur," he said.

Besides, some of the provisions, like the biweekly pay law, only took effect at the beginning of the year. Others are longer-term initiatives to rebrand the state, led by a newly formed Rhode Island Commerce Corporation, replacing the old state economic development corporation. Part of the new body's mission is to improve the state's image by accentuating Rhode Island's positives.

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How we determine the Top States for Business
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"The geographic size and population of Rhode Island, while often derided as an impediment to economic growth, are potential assets, not a handicap, to economic development," the legislation says.

Simmons acknowledges Rhode Island needs far more than just better branding.

"This is an evolving, ongoing alteration of the business climate in Rhode Island in order to be more competitive," he said.

But some things are moving uncharacteristically fast for Rhode Island, like a proposed cut in the corporate tax rate to 7 percent from 9 percent. If the legislature approves it, the cut would go into effect in January, well ahead of next year's Top States rankings.

—By CNBC's Scott Cohn