5/6/12

Budget Decisions Looming

Legislators on Smith Hill are hard at work passing bills which Governor Chafee is dutifully signing into law, but discussion and debate on the Governor’s all-important budget proposals for the next fiscal year are nowhere to be heard, at least publicly. Yes, you can’t help but see and hear continuing protests against the Governor’s two-percent meal tax hike from the restaurant industry, but his $88 million request to raise taxes and fees also includes a whole lot more than just the meals tax increase. After all, he’s talking about an almost $8 billion tax and spending state budget plan. In typical fashion, the General Assembly will tackle the budget last, and it’s going to be interesting to see what they do this time around to plug yet another whopping $115 million plus deficit.

Chafee has again returned to raising taxes to meet his policy goals, focusing on a menu of select taxes: in addition to the meals and beverages tax, his administration is seeking to raise taxes on b&b and vacation rental stays, tobacco products, car washes, taxi and limousine rides, moving, storage and warehousing, pet grooming services, and clothing and shoes that cost more than $175.00 – so-called “luxury items.” His tax increases amount to $68 million in new revenue. He also seeks to raise license and registration fees by $30 each (totaling almost $14 million) and place new toll booths on the Sakonnet River Bridge.

In return the Governor wants to direct the meals tax revenues (some $40 million a year) to the state’s cities and towns in the form of increased school aid, providing an additional $11 million than the state was already obligated to provide under the new school funding formula. A number of Rhode Island cities and towns are desperate for this funding and welcome Chafee’s intent to make 2012 “the year of cities and towns.”

While the Governor wants to increase state spending by a total of $241 million, he also seeks to cut $44 million, coming from the state’s Medicaid program (operating currently under a federally approved “universal waiver” mandate meant to save money over a multi-year trial period), elimination of dental services for over 21-year olds receiving state assistance, increase the co-pay for low income families’ childcare costs, and ax the subsidy to WSBE Channel 36, potentially sending the Ocean State’s PBS station into the arms of WGBH in Boston.

If lawmakers again prove unwilling to embrace the tax increases (which an election year makes even more attractive to them), then they have to make cuts even beyond what the Governor is proposing, and that’s going to be equally unpalatable. That’s why what talk there has been on Smith Hill of late about the meals tax indicates the leadership is going to have to take a long hard look In the meantime we can expect to see a renewed push by the state’s hospitality association to drive it from their minds, if possible.

In addition to the thorny dilemma the budget poses, lawmakers will have to wrestle with a $2.6 million grant to Central Falls’ retirees to give them enough to live on for the next five years, considering their gutted pensions, and consider the Governor’s request on his “distressed communities” rescue plan that would allow struggling municipalities with deeply underfunded independent pension plans to scuttle their COLA obligations to retirees as well as lift state imposed mandates, reduce disability pensions for police and firefighters, and suspend teacher step increases. And then there are the calls, now transferred into bills introduced in both the House and Senate, to raise taxes on the state’s more affluent citizens, a seriously wrongheaded move that will hurt Rhode Island far more than the additional revenue it might produce. Lawmakers would be wise to resist the siren calls of raising taxes on one element – and a very productive one at that – of the population and reverse tax policy in place for barely two years.

It all adds up to a very contentious and quite critical year for struggling Rhode Island. There are no magic bullets in the form of federal or legal windfalls or quick fixes that will help us muddle through – only hard choices and tough trade-offs that will affect all of us in our pocketbooks.