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Top States for Business

Why Rhode Island is the worst state for business in 2019

Key Points
  • Rhode Island finishes last in CNBC’s 2019 Top States for Business rankings, its fifth time as bottom state.
  • The state does poorly in the categories of Infrastructure, Economy and the Cost of Doing Business.
  • The governor insists the state is on the comeback trail as job growth returns for the first time in more than a decade.
America's bottom state for business in 2019 is Rhode Island — Here's why

Rhode Island is a picturesque enough tiny state, nestled along the New England shoreline. It has a rich history and a population so small that people tend to look out for one another. But Rhode Island is also this year's bottom state for business in CNBC's 13th annual America's Top States for Business competitiveness ranking.

Rhode Island has been here before — this is its fifth time in last place. It has also never been far from here. The state has never finished higher than No. 45, the ranking it achieved in 2017 and 2018.

The state's issues have been remarkably consistent throughout. State finances have been in poor shape, sapping Rhode Island's ability to tend to basic things like maintaining its aging infrastructure. The tax and regulatory climates have been rough, and economic growth has been sluggish. But at least the rankings have managed to edge a little higher in the last couple years.

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That trend — and, far more important, a recent string of competitive successes — has led Gov. Gina Raimondo to start wielding a word that is not terribly familiar to Rhode Islanders: comeback.

"We have stopped the decline," said Raimondo, a Democrat, in her Jan. 15 State of the State address. "We have stopped the decline, and together we have ignited a comeback of this great state and our economy."

Gina Raimondo, governor of Rhode Island, speaks during a panel discussion on Tuesday, Feb. 13, 2018.
Andrew Harrer | Bloomberg | Getty Images

So far, however, no comeback is showing up in the numbers.

Rhode Island still has America's worst infrastructure. Half of the state's roads are in less than acceptable condition, according to U.S. Department of Transportation data. That is by far the worst in the country. More than 23% of the state's bridges are in poor condition, also the worst figure in the nation.

Fixing the state's infrastructure has been at the heart of Raimondo's recovery plan.

"There's more roadwork going on in this state than at any time in our lifetime," she said in January.

Paying the price

Under her signature program, known as RhodeWorks, the state has begun collecting tolls on tractor-trailer trucks traveling on Interstate 95. The maximum toll for a single trip through the state is capped at $20, with a daily maximum of $40. This being such a small state, it is not unheard of for trucks to crisscross the state multiple times in a day. The plan relies on the tolls to fund about 10% of a $4.9 billion, 10-year budget for road repairs.

Traffic heading south along Interstate 95 into Providence in Providence, Rhode Island.
Darren McCollester | Getty Images

Not surprisingly, the trucking industry is furious about the law, which specifies that cars, pickup trucks, vans and even dump trucks are exempt from the tolls.

Michael Collins, owner of North Kingston-based M&D Trucking, says the law unfairly singles out his industry, and he says it could put him out of business.

"We're the most taxed industry in the country, for them to come up and attack on us," he said. "When we employ 18,000 people in the state of Rhode Island."

The American Trucking Association sued over the law's trucks-only provision, calling it unconstitutional. But a federal judge dismissed the suit earlier this year, saying that the state's ability to tax is beyond the court's jurisdiction. The ATA has appealed.

In the meantime, the Rhode Island Commerce Corp., the state's economic development arm, says the state has completed $1.5 billion in infrastructure projects in the past three years, repaved 100 miles of roadway and repaired or replaced 180 bridges.

A long way to go

Rhode Island's poor performance in state competitiveness rankings, including CNBC's Top States study, has long been a sore point with state officials. After the state finished in last place in 2012, the legislature passed a package of bills under a program dubbed Moving the Needle, aimed squarely at improving the state's rankings. But the needle barely budged.

More recently, Raimondo, who won a second term last fall, has called on her own experience as the founder of private equity firm Point Judith Capital to bring more business sensibility to state government. But even her handpicked Commerce Secretary, Stefan Pryor, acknowledges the effort is still in its early stages.

"We still have a long way to go, but we're making tremendous progress," Pryor told CNBC in an interview before this year's Top States rankings were released.

Infrastructure is not Rhode Island's only problem. The state finishes near the bottom of the Economy category at No. 48. The state's gross domestic product grew by a paltry 0.6% in 2018, the third lowest in the nation. State finances are improving, but the public employees' pension plan was just 53.7% funded in 2017, according to the Pew Charitable Trusts.

A protester, who refuesed to be identified, displays a placard calling for pension reform during a rally at the Statehouse, in Providence, R.I.
Steven Senne | AP

Pension reform was a signature achievement of Raimondo's when she was state treasurer, but the system may not be out of the woods yet.

Rhode Island's unemployment rate — 3.6% in May — now matches the national average, which is no small achievement for the state. It is the lowest unemployment rate in Rhode Island in 30 years. And Pryor points to job growth last year, though it was only about 0.6%, according to the U.S Bureau of Labor Statistics. Even he acknowledges it is the first full-year job growth in Rhode Island in 13 years.

Other issues involve costs. Rhode Island had the nation's seventh highest cost of doing business last year, according to our study, including the third highest natural gas prices. The cost of living was the nation's 10th highest.

On the right track?

But there are some glimmers of hope.

Pryor notes that 30 companies have moved to the state in the past three years — no minor feat in a small state with fewer than 100,000 total firms, according to the U.S. Census Bureau.

The state has been focusing its economic development efforts on "leaning into the future with investments in innovation," he said. That includes fostering relationships between companies and the state's colleges and universities. Rhode Island's Innovation Voucher Program offers businesses with fewer than 500 employees grants of up to $50,000 to fund research and development in cooperation with research institutions in the state.

In 2018 Amgen announced it would invest $200 million on a next-generation biomanufacturing plant in West Greenwich — the first of its kind in the U.S. — that will employ 120 skilled workers. And biotech firm Rubius Therapeutics began renovations on a former pharmaceutical plant in Smithfield that it plans to open as an advanced manufacturing facility next year.

Amgen Rhode Island Site V.P. Tia Bush, right, listens as R.I. Gov. Gina Raimondo, at podium, addresses the audience prior to a groundbreaking on the Next-Generation Biomanufacturing Plant, Tuesday, July 31, 2018, in West Greenwich, R.I.
Stew Milne | AP Images

To be sure, some of Rhode Island's problems are beyond its control as a small state: It has no railroad network to speak of and few higher-education institutions. Both of these factors cost the state points that it cannot afford to lose. But at the same time, the state fails to capitalize on functions of its size that could give it an advantage, like the ability to be more nimble and business-friendly than larger states.

For now, Rhode Island can at least be happy with its trajectory, which its leaders say puts the state on the right track.

And that is no small thing.