News Column

R.I. House Finance Committee quickly OKs proposed $8.7 billion state budget

June 6, 2014

By Randal Edgar, Katherine Gregg and Michael P. McKinney, The Providence Journal, R.I.

June 06--PROVIDENCE -- Looking to spark economic growth and close a $67-million deficit, the House Finance Committee approved an $8.7-billion state budget unveiled Thursday evening that lowers the corporate tax, raises the threshold for the estate tax and avoids tolls on the Sakonnet River Bridge.

The tax-and-spending plan, passed on a 14-to-2 vote shortly before midnight and scheduled for a House floor vote on Thursday, also provides $12.3 million for the next payment due to the investors in the failed 38 Studios video-game venture and a $38 million increase in education aid as called for by the state's education funding formula.

But it provides no state dollars for a redevelopment of the so-called Superman building at 111 Westminster St. in downtown Providence, nor does it provide money for raises Governor Chafee's administration negotiated with state employees.

Instead, state agencies will be asked to find "the resources" in their own budgets, said House Finance Committee Chairman Raymond Gallison.

The proposed budget for the year that begins July 1 averts an unpopular Sakonnet Bridge toll by creating a $28-million statewide road and bridge infrastructure fund -- one that comes with increased vehicle inspection fees, increased court fees for motorists who contest fines and next year, the first of what are planned as recurring increases in the state's gasoline tax.

Starting July 1, the plan raises vehicle inspection fees from $39 to $55, and the court fee motorists pay to contest fines for traffic violations from $25 to $50. It also shifts the money raised from those fees out of the general fund and into the new infrastructure fund, along with fees from motor vehicle titles and rental surcharges.

And starting July 1, 2015, the plan raises the state's gasoline tax by an estimated 1 cent, to 34 cents per gallon -- a move Gallison said will produce about $4 million a year and allow the state to provide more money to the Rhode Island Public Transit Authority. That increase will be followed every two years by increases based on the rate of inflation.

The gasoline tax in Massachusetts is 24 cents per gallon, and in Connecticut it is about 45 cents per gallon.

Gallison, a Bristol Democrat, was one of several legislative leaders, along with House Speaker Nicholas A. Mattiello and Senate President M. Teresa Paiva Weed, who gathered at a 5:30 p.m. news conference in the House lounge to announce the plan.

"This is a very important issue, as you know, for the entire East Bay area," Gallison said. "We've heard from the business community that some businesses were actually going to move out of the area, and this will allow them to stay in that area."

Added Mattiello: "I guess the headline is going to be no tolls on the Sakonnet River Bridge, but what we've accomplished is greater than that .... I think everybody has felt for a while that it was unfair to burden the East Bay with the toll expense .... What we have accomplished is we are going to better our infrastructure across the state."

The corporate tax cut will lower the rate from 9 percent to 7 percent starting in tax year 2015, and it comes with a companion plan that allows the state to consider the income some corporations are making in other states when calculating the tax owed in Rhode Island. The plan is expected to produce a net gain in state revenue, but it was among the first pieces of the budget to draw opposition.

A group called the Blackstone Valley Independent Business Alliance, representing 160 businesses, said it supports the new way of taxing corporations but opposes the corporate tax reduction.

"Some day, when our state is on sound financial footing, cutting our overall corporate taxes might make sense," the group said in a letter to Mattiello. "But now is not the time; not with the need to pay the 38 Studios debt or the need to invest in immediate job-creation opportunities."

The Economic Progress Institute, meanwhile, opposed the plan to raise the threshold for the estate tax, now $921,655, to $1.5 million and eliminate the so-called cliff that allows the entire value of an estate to be taxed when it exceeds the threshold by even $1.

The institute said the change will "cost at least $10 million in state resources every year" to help the state's "wealthiest taxpayers."

"There is no evidence to suggest that estate tax cuts will improve Rhode Island's economy," the group said. "Research on migration patterns and the estate tax, in particular, have challenged the assertion that estate taxes cause wealthy people to move. At most, some studies have found that estate taxes have a small effect on the decisions of extremely wealthy individuals; but the number is so small that any revenue losses resulting from out-migration were small compared to the revenue generated through the tax itself."

Details were still emerging on how the budget would eliminate the $67-million deficit.

Eliminating the raises appears to cut $24.3 million, and state officials have said they will plan to restart Medicaid re-certifications that were on hold as the state set up its Obamacare health exchange, a move expected to that state officials have said could save $15 million.

The budget also puts the kibosh on Chafee's attempt to make $52 million in historic tax credits available in the new budget year for the rehabilitation of former mills and other historic buildings.

Still unclear was the extent to which the budget writers went along with the vast majority of the $43 million in Medicaid savings that Chafee had in the budget he proposed in January.

For example, Chafee's budget sought to charge premiums to parents in the Katie Beckett Program for severely disabled children. The program allows parents, regardless of income level, to keep their children home by paying for services not covered by private insurance. Chafee proposed raising $1.5 million by charging parents $250 a month, but lawmakers rejected the proposal.

Chafee said he will "evaluate the budget" and understands that "the budgeting process is an exercise in compromise, collaboration and cooperation." He applauded the move to lower the corporate tax rate -- an idea he has championed -- and also expressed support for the road and bridge infrastructure fund.

In other areas, the budget extends to May 1, 2015, a prohibition on the state's education board granting final approval for non-emergency school construction projects, and other Chafee ballot question proposals are largely intact, including borrowing $125 million to build a new engineering school and renovations at the University of Rhode Island.

The lawmakers who voted no -- Reps. Karen MacBeth, D-Cumberland, and Patricia Morgan, R-West Warwick -- cited the $12.3 million included to pay off the state's failed investment in 38 Studios.

"Without a thorough investigation into why it happened, and who caused it ... I can't vote for the budget," Morgan said.

MacBeth, who chairs the House Oversight Committee, said she also wanted more time to digest the big budget bill handed out, for the first time, at 10:27 p.m, for a vote a little more than an hour later.

This story was initially published at 12:26 a.m. and updated at 1:05 a.m.

@randyedgar1 @mikemckwrite

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(c)2014 The Providence Journal (Providence, R.I.)

Visit The Providence Journal (Providence, R.I.) at www.projo.com

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Source: Providence Journal (RI)


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