Josh Barro writing for Forbes suggests it might be in Rhode Island’s best interest to merge with Connecticut.
According to Barro, because of Rhode Island’s lower per capita income, the state has higher taxes AND lower government spending than both its neighbors.
As of 2009, Rhode Island collected 10.1 percent of state GDP in taxes, outstripping Connecticut (9.9 percent) by a little and Massachusetts (8.9 percent) by a lot. But despite that, Rhode Island governments had only $4,638 in per capita tax revenue to work with, less than Massachusetts ($5,014) or Connecticut ($6,434).
Things must be pretty bad next door if they are looking to Hartford for fiscal rescue. Apparently it is the cities and towns in Rhode Island that are heading for a fiscal cliff.
More from Barro:
Last year, the New York Times profiled fiscally troubled Rhode Island as “Greece on the Narragansett.” Like Greece, Rhode Island faces problems with runaway public sector liabilities, particularly for pensions and retiree health care, that may exceed governments’ ability to service them.
A major pension reform last fall significantly improved the state’s finances, but municipal governments, already more troubled than the state, still await a fix. Providence is talking about bankruptcy, and other cities, like Woonsocket and Cranston, are tottering; the small city of Central Falls is already there.
But Rhode Island has another similarity to Greece: a lot of its problems could be fixed through fiscal union with its wealthier, more productive neighbors.
Within New England, Rhode Island faces a major structural disadvantage. Rhode Island’s per capita income in 2010 was $27,700. That’s actually slightly above the national average, but it’s far below Massachusetts ($33,200) and Connecticut ($35,100).
The threat of bankruptcy should put persistent whining from the Connecticut municipal lobby into context.
Read the rest here.
Update: This post has been corrected to properly spell Josh Barro’s name.