Category Archives: Government Intervention

In case you missed it, and so you don’t

In case you missed it, we had a quick response to the recent ProJo article on the Jack McConnell nomination to the U.S. District Court. These all follow our PR on the subject issued the day before.

The Journal reported that Senator Whitehouse defended answers to the Judiciary Committee by U.S. District Court nominee Jack McConnell as “accurate in every respect.” We beg to differ, as did Senator Grassley, the ranking Republican (“Senate panel endorses McConnell for R.I. judgeship, ”April, 1).

McConnell said, “My law firm entered into an agreement with the State of Rhode Island that set forth the attorney fees as 16 2/3% of any recovery obtained as a result of the litigation.” In fact, the contract says: “In the event the litigation is resolved, by settlement or judgment, … the parties hereto agree to seek . . . compensation.”

The fee agreement is triggered not by “any recovery” but by “settlement or judgment,” neither of which occurred in the DuPont Deal by the testimony of both Dupont and then Rhode Island Atty. Gen. Patrick Lynch. In the event of “in-kind” payments we would not be obligated to pay a fee.

Continue reading HERE.

And so you don’t miss it, I’ll be on Channel 10 news this evening (6:00) interviewed by Bill Rappleye on the recently reported raises given out at the State House.

It is difficult to say exactly which 10 second quote will be taken from the 10 minute interview, but here’s the point I made, I don’t begrudge anyone making money from hard work, but it is understandable why people are outraged by these raises as we suffer in an economy where benefits are being cut and people are leaving our state because of the onerous taxes (see our Leaving RI study for documentation of this fact).  Handing out raises to anyone in government in this environment is offensive. But I think the ire is misguided when you consider the fact that teachers in Rhode Island who happen to be in the first 10 years of employment get close to a 9% raise NOT because of their job performance, but simply because they were employed another year.  Those and other exorbitant contractual raises based solely on seniority that apply to everyone are the real budget deficit driver.

Of course, if more government services were provided by private entities, who have “competition” to ensure compensation is judiciously allocated, then all these problems would go away, now, wouldn’t they…


OSPRI Suggests Alternative Before Rushing Through Health Insurance Exchange Legislation

OSPRI Suggests Alternative Before Rushing Through

Health Insurance Exchange Legislation


Speculation Surrounding Federal Law Should Give Lawmakers Pause

Providence, RI – April 7, 2011 The Ocean State Policy Research Institute (OSPRI) cautions RI legislators to consider all factors and options before rubber-stamping the health insurance exchange legislation that is currently working its way through the General Assembly.


The RI House of Representatives will soon debate a very important issue regarding health care for our citizens; the formation of a health insurance exchange, as provided for in the Obama administration’s controversial Patient Protection and Affordable Care Act (PPACA). A bill to create such an exchange in Rhode Island  has already breezed through the RI Senate, without any serious opposition, and will soon be taken up by the House.


According to OSPRI’s Executive Director, Mike Stenhouse, there is a better path for legislators to consider, “All Rhode Islanders want to see more options and lower prices for health insurance. Instead of conforming to a massive, federal government controlled system, Rhode Island should consider Health Insurance Compacts, which will allow free-market competition to reduce prices and consumers to have more choices.”


Health Insurance Compacts are agreements between states that authorize out-of-state insurers to compete for business, in much the same way that auto and property insurance are purchased.


“The insurance compact model would create larger markets, more competition, more choices, and lower prices”, continued Stenhouse. OSPRI will be publishing a comparison of the two systems within a few days. “With regard to the PPACA model, the federal law is in a very unstable political and legal state. As recently as April 5 Congress passed changes that rewrote the way health exchange subsidies will be paid for; and more changes to the law are expected. Why should RI rush into creating a new, costly infrastructure that is based on a controversial federal law that is in such a state of speculation?


There are many arguments why this particular government-controlled system should not be implemented at this time in Rhode Island:


  • Federal policy is in a precarious state of flux: Even President Obama recently announced that he favored significant changes to his health care reform, and there is much uncertainty about what future changes might come down the road from Washington. PPACA is also under attack by conservatives in Congress, with strong threats to deny funding. There is a real fear that if RI implements an exchange in the PPACA mold, that the federal government, being the unreliable financial partner, would never be able to provide the federal funds that our legislators may anticipate.


  • Federal health care reform legislation may be unconstitutional: PPACA has been ruled unconstitutional by federal courts in Florida and Virginia. This legal uncertainty underscores the danger or RI taking the time, expense, and risk of implementing an exchange system based on federal legislation that could be thrown out as unconstitutional. While these decisions are currently being appealed by the Obama administration, if a new administration were to be elected in 2012, it is almost certain that the new Department of Justice would drop its appeals, meaining PPACA would remain “unconstitutional”.


  • Impact on businesses. Has our General Assembly evaluated how businesses will react? OSPRI has spoken with many business owners who honestly believe that PPACA will increase health care premium costs to the point where it may be more prudent for them to dump health coverage for their employees and pay the federal fine. How would this make RI a more competitive state for business? We are not aware of any local studies that have looked into this important part of the issue.


  • Federal Strings. The RI legislature is chasing federal funds, which of course means a multitude of federal regulations and mandates. Given all the uncertainty surrounding the PPACA, it would be unwise for RI to implement one of its major components at this time, especially when the funding – or the law itself – could dry up at anytime. Furthermore, it is highly likely that additional federal guidelines will evolve about how these exchanges should operate in order to be compliant with this volatile federal law. As recently as April 5, 2011 Congress passed changes that rewrote the way health exchange subsidies will be paid for.


  • Lawmakers should avoid painful and pointless votes. With all of the other problems our state confronts, and the multitude of choices our General Assembly must make in the coming months, why would we risk wasting debate on an issue that could have profound positive or negative effects on so many people, where federal funding may never be provided, and while there is so much uncertainty.


  • Government vs Free Market: the very idea of a government controlled exchange is antithetical to our nation’s historical and more effective free-market principles, which is the only proven way to consistently deliver a quality service at the lowest possible rate. A true free-market “is” an exchange in itself! If we simply allowed open competition via interstate compacts, a wider variety of affordable plans would be available for consumers and businesses. There is not a universal consensus that PPACA would achieve the savings it portends … many believe it could actually raise health care costs.


“If Rhode Island wants an effective insurance exchange, we should craft our own interstate compacts, based on free-market competition, with no federal strings attached, and utilize our own funds so that we have some form of self-ownership and free ourselves from all the uncertainty and errors caused by the hasty passage of the federal health care reform in the first place,” said Stenhouse.


If pressed by advocates of immediate action on health care reform, lawmakers and concerned citizens should ask: Why – for something this important – shouldn’t we make these decisions only after the uncertainty around PPACA has played itself out and interstate compacts are thorouhgly investigated as a potential viable alternative?


OSPRI does not believe that RI should risk wasting the valuable time of our General Assembly and the health of our citizens, while such legal, financial, and legislative risks are inherent. We should not risk jamming tens of millions of additional liabilities into our already strained state budget.


“Right now, PPACA is presenting major problems for the Obama administration. Our lawmakers should take all precautions to ensure that it does not become Rhode Island’s problem as well,” concluded Stenhouse.


The Ocean State Policy Research Institute (OSPRI) is Rhode Island’s leading research and educational institution promoting free market solutions for our state’s critical issues.


OSPRI is grateful to Dan Greenberg and our friends at the Advance Arkansas Institute, which provided valuable research for this brief.

For more information, go to or contact the Institute at 401.228.6691 or

If RI citizens were Red Sox fans!

Why don’t we demand a winner?

Rhode Island is a last place team. The Red Sox (for the time being) are a last place team. Most of our RI citizens are resigned to doom. Red Sox nation is outraged. If only RI citizens were like Red Sox fans.

In the race for people, wealth and business, RI simply is not competitive with other states. Yet we find little leadership from our elected officials and far too few jeers from the public. Most reform advocates debate less important issues. Nobody seems to be focused on winning!

With the budget debate in RI and the Red Sox season now under way, we can clearly see why RI never improves its standing. The contrast is stunning.

The current tax reform policy will actually make Rhode Island LESS competitive. In RI, we debate balancing our budget and how to raise enough revenues to do so. We debate the merits of trading this tax rate for that tax rate. We debate whether we should keep funding this promise or amend those rules and regulations. We keep debating everything as a one-off item, yet we do not have a master plan or a strategy to win. And we always seem to end up in the same place … last place.

We all know that RI ranks at or near the bottom in far too many areas when it comes to education and economic outlook. Our perpetual poor rankings indicate the utter failure of the status quo team. But, we cling to what we have, we put the same players back on the field with the same rules, and we seem pleased with ourselves if we can just figure out how not to worsen the situation.

But we are indeed worsening the situation. OSPRI’s revealing “Leaving Rhode Island” study proves that our current collective, oppressive tax structure is driving people and wealth out of our state. Recent headlines about our education are equally disturbing. To build a sustainable economy, we need educated, productive citizens as well as capital. To successfully compete with other states, we need more of both. Maintaining the status quo means we will continue to hemorrhage even more of these valuable resources.

Even the Governor half-agreed with our study’s findings on a recent television show, stating that raising taxes on the wealthy would cause them to move. True. But our study also showed that non-rich Rhode Islanders will also go to other states if they are over taxed. The same is true, I’m sure, with businesses and consumer purchasing.

Raising taxes – any taxes – in order to balance our state budget will only server to make us LESS competitive!  We will continue to lose citizens and money;  and we will squander yet another opportunity to improve our chance of winning. Balancing the budget is the wrong game.


Are Red Sox fans settling for a last place team? Would they be mollified if the team could only balance its books? Would they really care how much players were paid? Would they be satisfied if the manager merely shuffled the same old lineup? Would they accept increased ticket prices for a perpetual last place team? Nothing else would matter much if the team were a winner. But this is exactly what our public officials want us to accept about the state of our state.

In RI, little else should matter unless we grow the economy and reform education for the prosperity of our citizens and the future of our children. The primary standard should be whether or not we are improving our competiveness with other states … not balancing the budget.

As long as we continue to play by rules that decrease our competitiveness, and because we lack a clear vision from our leadership, RI will continue to be a cellar-dweller, even if our economy recovers to some small degree.

In the sports world, where competition and free market principles mainly prevail, a last place team will embark on a “rebuilding” strategy, where it’s “out with the old” and “in with the new”. This may mean a few years of potential struggles here and there while the “new” takes hold, but when it does, if the plan is designed properly, the situation will improve.

Trouble is, in our ocean state world, we don’t seem to have many strategic thinkers with the courage to admit that long term reform can only happen with some near term pain. And you won’t hear much from our state’s ‘fans’ (we the citizens). Nor do we find cutting commentary from the media demanding a better team or an improved standing. Imagine the Boston Globe endorsing a perennial last place Red Sox team that refused make wholesale changes.

Red Sox nation demanded a winner and the Red Sox successfully broke its “curse” by winning two world championships! It took the vision of a young and talented GM. The state of RI must do the same … but we are left to wonder where we will find that kind leadership and that kind of public outrage.

How do we bring out the Red Sox fan inside each of us?

Mike Stenhouse is Executive Director of the Ocean State Policy Research Institute

Licht says Felkner got it wrong, but Walsh confuses issue

In OSPRI’s recent OpEd in the Providence Business News, “Rhode Island spending well above documented need,” we use a comment from Richard Licht to make the point summed up in the title. Here’s what we said:

Rhode Island Department of Administration Director Richard Licht nailed it at the New England Public Policy Center at the Federal Reserve Bank of Boston presentation recently, when he pointed out that the cost of government in Rhode Island is so far above the calculated “need” that if we just lowered it to that level, our deficit would be gone. (March 3, 2011, The Rhode Island Foundation) At that point, I considered the day a success.

Mr. Licht’s statement came in reaction to the presentation, “How does New Hampshire do it,” which diagrams the Granite State’s ability to operate at a cost 20 percent below the New England average. New Hampshire also spends well below the “Expenditure Need,” a metric calculated by a state’s poverty rate, prevailing wages and other demographics, weighed against the New England average. No surprise, Rhode Island spends well above that calculated “need.”

Licht quickly, with a back of the napkin calculation, said that the amount we spend above that need threshold is about the same amount of our current deficit – approximately $295 million. That’s right! Rhode Island spends more than we “need” to. But how do we spend less?

Much to our surprise, Licht took exception to this piece on the Dan Yorke show yesterday (podcast available here).  Compare the bold sections above where I paraphrase the comment made by Mr. Licht at the event to the bold section below where Mr. Licht describes on the Yorke show what he meant to say.

“First of all, I did not say what Mr. Felkner said, or, first of all I didn’t use the words he said- secondly, I did make a comment it’s totally out of context and has no, didn’t understand the tone of which I said. . . I did, without an envelope, because I didn’t need an envelope I could do it in my head, it showed a little, that we spend close to 8 billion, and it was a bar graph so it didn’t have exact, but the amount of space it looked like it was a $300 million difference, so I said, by the way, this difference of 300 million, I deal with every day, that’s our budget shortfall and if just had that I could solve our budget problems, I said it lightly, and I said it jokingly everybody laughed in the room, and I went on to say, really what my point was…  How do you define need?  I was giving an explanation that I’m hard pressed to repeat because I didn’t understand it. I went up to the women (who gave the presentation) afterwards, Dan, and said,  your numbers on need are based on 2007 fiscal yr, which was from July 06 to June 07, I said, that was at the height of the economic boom, have you done an analysis for 2010? “

YORKE: “Gotcha, so you’re suggesting that’s he’s completely misinterpreted your reaction to the presentation.”

I never said, nor did I imply, that Richard was deadly serious about using this analysis as a template for cutting the budget.  I  apologize if he took offense (but I’m not sure why).  Yes the observation he made was obvious and off the cuff — if not the back of an envelope.  But taken under the rule that one’s first intuition is best, it is clear that the presentation had an impact. Indeed he goes on to say he followed up afterwards looking for updated figures, implying that “need” may have risen as the economy cooled.

This doesn’t impress me as the response of someone who thought Rhode Island’s overspending relative to a low tax neighbor unimportant, or the comparative approach nothing but a joke. If you think people aren’t telegraphing when they joke, think again. Bob Walsh of the NEA followed up Richard’s comments by pointing out that Rhode Island fairs better by comparison to Southern New England, so maybe we should be spending $100 million more.  Yeah, people laughed at Bob’s comment too, but do you think he was kidding?

I’m not suggesting that Licht came into the room as a tax and spender and left as a fiscal conservative. But even a joking acknowledgment of the obvious relation of our deficit to overspending is a step in the right direction. I know that when he is not joking Licht is a consummate administrator and I hope he will take the message of state competition seriously as he helps guide the Chafee administration through budget negotiations.

It does appear that Mr. Licht, or perhaps the Chafee administration in general, wants to distance itself from the idea of cutting the RI budget by reducing the number of people we provide government services to – which was the point of my article. But, I didn’t imply the administration supported the changes to Medicaid eligibility I outlined. I did take advantage of the subject of spending beyond need being raised to open the tough discussion of trimming our priorities.

Even if the “need” is higher in 2010, I believe Rhode Islanders think it is no joke that we are overspending, indeed if our services, benefits and eligibility have been relatively generous, they should be trimmed in order to insure that our safety net remains available to those actually facing real poverty. To be faced with a proposal for $160 million dollars in structural tax increases with no structural cuts in expenses has not distinguished the Chafee effort coming out of the box. The general economic rule is that you can’t tax yourself out of a structural deficit. You must cut $3 for every $1 raised. I’m a no new taxes guy and I’m bidding against myself by pointing this out, but if frank discussion is necessary at this juncture, so be it.

I trust the administration is actually committed to the same. True, the figures at that presentation were for 2007, but are they willing to consider cuts based on 2010 figures?

PS. If they are interested, may we suggest reviewing our report on Medicaid spending – Doing Long Term Care RIght.

Getting the middle class and wealthy off welfare

Today’s Human Events has an article from John Gizzi on the Wyden Brown bill being supported by President Obama. This bill would allow individual states to craft their own style of ObamaCare. The only freedom states have is in the type of universal healthcare they create, not whether or not to make this radical change in the first place.

“In other words, this will allow the states to follow their own path toward health care so long as that path leads to the same goal that is reached by the ‘Affordable Care Act’-ObamaCare,” said Bill Felkner, director of policy for the Ocean State Policy Research Institute, the Rhode Island-based think tank that has long been in the forefront of calls for waivers for the states to work out fresh solutions to the problems of Medicaid and other health care issues.

Felkner explained that the measure the President endorsed yesterday (and Carney later explained) “will allow states to set up an exchange, or set up a single-payer program or anything else, as long as they end up in the same place as set out in ObamaCare.

“And that means dictating to the provider, taking the consumer out of the picture, and no free-market competition.

You can read the entire article HERE.

It probably shouldn’t surprise us that Democrat Senator Wyden (Oregon) and Republican (the only R co-sponsor) Senator Brown (Massachusetts), with co-author Socialist Senator Sanders (Vermont) come from states that already have some form of “ObamaCare.” This bill would allow them to continue with their own version, which is fine, but it also requires all other states to create their own programs that will meet the Affordable Care Act goals.

And most importantly, as I point out in the article, the bill does not allow substantive freedoms to the states such that they may deal with the largest driver of healthcare costs – long term care via Medicaid.

One interesting note to make here is that when the Stimulus money flooded into the states, the Medicaid portion had a bonus of about 6% but it came with strings – the state could not change eligibility requirements of recipients. As an example, the current Medicaid system allows someone with millions of dollars in a trust fund to qualify for taxpayer funded healthcare because they technically have a low “income” (and, yes, this is happening right her in RI). We may all agree this is silly, but we can’t change the rules of eligibility.

This is only one example of how the state uses tax dollars to provide healthcare for the middle class and wealthy – we outlined much more in our report, Doing Long Term Care RIght, released last  year.

But as the stimulus strings go away, ObamaCare takes up the slack.  The Affordable Care Act also restricts states from altering the eligibility requirements. This means that the number of people on the system will continue to increase and leave few options for saving money.

In short, there are three things legislators can do to save money on healthcare
1) cut the payments to providers – results in poor quality providers.
2) cut services provided – results in poor quality care.
3) cut the number of people given services –  results in only using taxdollars for those who really need it.

Interesting fact we outlined in our report – “Over 80 percent of seniors own their homes and over 70 percent of these own their homes free and clear. State staff told us 1,140 LTC recipients (Medicaid) or only about 12.7 percent of the caseload still own homes.”

Where did all those homes (assets) go????  The “disappearing asset” issue is a result of the perverted system of Medicaid, which says if you can hide your assets (simply by transferring ownership to children sometimes) then the taxpayers will pay for your healthcare.

We must remove those who can afford to take care of themselves from the Medicaid roles. Otherwise we will all be doomed to healthcare provided by inferior providers only offering limited services.

Read (or re-read) our report, Doing Long Term Care RIght, and talk to your friends, neighbors, and legislators about it. We can’t ignore the problem any longer.

Selling a stimulus bill of goods

Our friends at Americans for Tax Reform remind us of promises made, but not kept, by the president when he was selling the Stimulus Act, and a group of people doing something about it.
Promise: Absent an infusion of “stimulus” cash, unemployment would skyrocket to 8 percent.
o       Two years later: Over the past 21 months, unemployment has yet to drop below 9 percent, with over 150 economists urging the President to stop his spending binge to spur real economic growth.
Promise: Using the creative, but totally unverifiable metric of jobs “saved or created” the President claimed the “stimulus” plan would “save or create” 3.5 million jobs.
o       Two years later: the economy has almost 6 million fewer jobs than the Administration promised it would with the passage of the “stimulus” package.
Promise: “…every American will be able to go online and see where and how we’re spending every dime.”
o       Two years later: After an $18 million overhaul, remains as useless as the day it first launched, unable to track where federal funds have gone. Between the White House, Congress, and agencies tasked with monitoring “stimulus” funds, no consensus has been made on how much of the “stimulus” has been spent. Estimates of funds left over range from $5 billion to $160 billion.
Promise: The federal infusion of cash would shore up state budgets that had fallen victim to a struggling economy.
o       Two years later: Not required to face their fiscal reckoning from overspending, state and local budgets accepted “stimulus” funds from the federal government, increasing obligations at a time they should have been cutting their bottom lines. As a result, the states face a $72 billion shortfall heading into 2011 and are scrambling to fund the promises made with short-term “stimulus” handouts.
Americans for Tax Reform is joined by Let Freedom Ring, Restore the Dream Foundation and a strong coalition of activists in urging Congress to rescind all of the unspent “stimulus” money. The RESET Act, sponsored by Rep. Sean Duffy, would send all unspent “stimulus” funds back to the Treasury for deficit reduction. The language of this bill has been included in the Continuing Resolution, currently being debated on the House floor. Sign the petition today to tell Congress to DEFUND THE STIMULUS.

Shocking numbers from Rasmussen

60% Recognize That Government Spending Has Increased Every Year Since 1954

In 1954,the average new house cost just over $10,000, a new car was under $2,000, gasoline was under 30 cents a gallon, and you could buy a magazine for 20 cents.

That was also the last year that government spending in America declined from one year to the next. The numbers are documented in the Historical Tables of the United States budget, but a new Rasmussen Reports national telephone survey found that only 60% of Americans believe it to be true. Thirteen percent (13%) said it was false and probably assumed there must have been some year in between the government spending slipped. After all, we’re talking about years that included the tax revolt, the Reagan Revolution, the Perot movement, and Bill Clinton’s declaration that the “Era of Big Government” was over.

Thirty-one percent (31%) aren’t sure if it’s true or not. But the stark reality is that despite voting for candidates who promised lower spending and taxes in just about every election for the past half century, total government spending has kept going up every year since Bill Haley was topping the charts with Rock Around the Clock and a young singer named Elvis Presley made his first commercial recording. That’s the same year the very first edition of Sports Illustrated was published, the Milwaukee Braves welcomed Hank Aaron as a rookie, and the shot clock was invented for a new basketball league, the NBA.

Ray Kroc met the McDonald brothers to make fast food and franchising history in 1954 and the first Burger King was opened in Miami. It sold burgers and milkshakes for 18¢ each.

The Tonight Show aired for the first time in 1954 with Steve Allen as host and J.R.R. Tolkien’s Lord of the Rings was published.

Other polling released recently showed that only a bit more than half of all voters know that the U.S. spends six times as much on defense as any other nation in the world.[LINK] Like that poll, the recognition that spending has gone up every year since Joe DiMaggio married Marilyn Monroe is spread across partisan, ideological, and demographic lines. Sixty-seven percent (67%) of Republicans recognize that it’s true along with 54% of Democrats. Fifty-nine percent (59%) of conservatives believe it and so do 54% of liberals.

The impact is staggering.

1954-2010: Comparison of Actual Government Spending With Amount Needed to Keep Pace With Population Growth Plus Inflation

(data from 2011 Federal Budget, compiled by Scott Rasmussen)

The lower line on the graph shows what would have happened if, since 1954, government spending had grown just enough to keep up with the population and inflation. If that path had been followed, government spending would have totaled approximately $1.2 trillion in 2010.

The top line shows the actual history of spending since 1954. You can see that the two lines weren’t far apart in the 1950s and early 1960s. Then, starting in the Johnson/Nixon years, government spending began to grow faster and faster. As a result, rather than spending $1.2 trillion in 2010, governments in America spent four times that amount–$5.2 trillion dollars.

All figures include federal, state, and local spending.

It’s important to note that from 1954 to 2010, Republicans controlled the White House for 34 years and Democrats for 22. Democrats controlled Congress for 44 years and the Republicans for 12. So this long-lasting spending spree was enabled on a completely bi-partisan basis.

That bi-partisan spending spree began in the year that the plane carrying the President of the United States was called Air Force One for the first time.

It was that same year that, a young woman of character and color was arrested in Montgomery, Alabama. Rosa Parks’ refusal to give up her seat on a bus launched a Civil Rights Movement that challenged our nation to live up to our highest ideals. In that same year, the U.S. Supreme Court finally declared that separate educational systems for white and black were “inherently unequal” and unconstitutional.

1954 was also the year that year France gave up its colonial ties in Indochina. Vietnam was divided with the North going to the communists and the South destined to create heartache for the United States.

Perhaps most stunning of all, the fact that 1954 was the last year to see government spending decline in America means that about eight-out-of-ten Americans living today have never been alive when government spending went down.