Good News for RI Businesses

7/6/2010
Business owners in RI have finally caught a few breaks

Business owners in Rhode Island have finally caught a few breaks


John Kostrzewa: Some good news for R.I. businesses
Providence Journal: 01:00 AM EDT on Sunday, July 4, 2010 


Last week, about 8,000 small companies learned that their workers’ compensation rates are being reduced. Anytime a company can save money on built-in expenses is a good day. 

On the same morning, Governor Carcieri signed several pro-business bills, including changes designed to ease government regulations. That followed the approval of a state budget that included no new sales or income taxes and other legislation that simplified the tax code and reduced the rate for high wage earners. 

All that should be welcomed by Rhode Island’s job creators who have suffered through a three-year recession and one of the worst tax and business climates in the country. 

Before anyone breaks out the champagne, business owners should be wary that election year changes may look good in the short term but can be reversed. 

But first, more on the good news. 

The Beacon Mutual Insurance Company, the state-chartered, workers’ compensation insurer that dominates the market, announced a rate cut for about 8,000 mostly smaller companies. The reductions will average about 17 percent for qualifying companies and will start with new policies and renewals after Oct. 1. 

The rates of the remaining 4,000 policyholders covered by Beacon will stay largely unchanged. But about 300 policyholders who do work in high-hazard areas may see a rate increase. 

Beacon was able to reduce rates for several reasons. 

First, the recession has caused layoffs and cutbacks at companies and reduced the exposure and payouts of workers’ compensation claims. 

Also, Beacon has restructured by adding automation and new processes to cut expenses. Operating costs have dropped from $73 million in 2006 to $49.6 million in 2009. The company also said its financial position, including a $4.4-million profit in 2009 and $153 million in reserves, allowed it to cut rates. 

At the same time, Beacon reviewed its policyholders’ claims and exposure to risk and reorganized its customers into four tiers of coverage, rather than two. That’s allowed bigger rate reductions in the lower risk categories. 

“Because we have taken proactive measures to ensure Beacon’s financial strength, we have been able to fulfill our mission to bring stability to Rhode Island’s workers’ compensation market and can continue to offer our policyholders affordable insurance without jeopardizing the quality of our service,” said James Rosati, president and chief executive at Beacon. 

The improvements and rate cuts have gone a long way toward cleaning up Beacon’s reputation, tarnished during its scandal-ridden days in 2005-2006 when top executives were fired after findings that the company was part of an insiders’ network that granted preferential rates to some companies and perks to favored agents. 

The changes at Beacon aren’t the only good news. Besides the cuts in workers’ compensation costs, many business owners may also benefit from the tax and regulatory changes enacted by the General Assembly and signed into law by Carcieri. The idea is to make Rhode Island more competitive with neighboring states to attract more investment, businesses and jobs. That should bring in more taxpayers, reducing the burden for everyone and putting more companies in a position to expand and hire more workers. 

While the changes offer hope, there are some cautions. The same legislators who made some positive moves during their reelection year have also left behind some huge problems that could come back to haunt businesses. 

To balance the state budget, state legislators counted on $108 million from the federal government for Medicaid assistance. But Congress has not approved the spending and may not this year. 

That leaves a huge gap in the state budget for the fiscal year that started July 1. 

With the recession still lingering, and the jobless rate forecast to stay in double digits well into next year, the state deficit could grow even wider. 

That will put pressure on the new governor who will be elected in November and the next General Assembly to consider raising taxes. 

New revenue will have to come from somewhere to close the gap because legislators have failed to enact significant spending cuts. 

This year was a golden opportunity to restructure state government but the legislators approved a bloated $7.86-billion spending plan that preserves expensive social welfare programs while only trimming public pension costs. 

To make the budget work, they made deep cuts in aid to local education and municipal governments, putting more stress on city and town leaders to cut services or raise property taxes. 

That’s not the way to attract or expand businesses, and it runs counter to the goal of making Rhode Island more competitive. 

Summer’s here. Rhode Island, for now, has taken a step forward. But there’s real danger that after the seasons change the state will fall a few steps back. 

John Kostrzewa is assistant managing editor/commerce and consumer issues. Reach him at 277-7330 or at jkostrze@projo.com