Chafee’s $8.5B budget holds tax rates, boosts K-12

Gov. Lincoln Chafee delivers his 2014 State of the State address. (photo: Ted Nesi/WPRI 12)

PROVIDENCE, R.I. (WPRI) – Gov. Lincoln Chafee on Wednesday proposed a state budget that keeps Rhode Island’s current tax rates the same while providing more education and infrastructure funding – and, in his final State of the State address, he gave Taylor Swift the last word.

Chafee, a Democrat who isn’t seeking a second term in November, used the televised speech – which he delivered to lawmakers and other officeholders assembled in the R.I. House of Representatives’ State House chamber – to make the case that his administration has improved the state’s battered economy.

“There is no question that this has been a difficult period for Rhode Island, but we are poised to emerge from it more resilient than before,” Chafee said in his prepared remarks. “Rhode Island is getting stronger with each day, each week, and each year – that is the state of our state.”

Chafee, who is known for his quirky personality, finished the speech with a quote from Swift, who recently bought a house by the ocean in Westerly. “I’ve been in Rhode Island a lot,” the governor quoted the singer as saying. “Man, Rhode Island’s a good place. It’s a really good place.”

The governor used the speech to reflect on the 50th anniversary of President Lyndon Johnson’s “War on Poverty” declaration, saying he believes “government has a role to play” in helping Americans achieve their potential.

“Unfortunately, the Tea Party and so-called conservatives have waged a war of their own on beneficial social programs that have proven to grow our essential middle class,” Chafee said. “Meanwhile our national economy sputters and the wealth disparity grows larger.”

House Speaker Gordon Fox and Senate President M. Teresa Paiva Weed, who will play influential roles in deciding how much of Chafee’s proposal becomes law, gave the speech mostly positive reviews.

“It’s your typical Chafee style – back to basics,” Fox said, citing the governor’s support for education funding, infrastructure and job training. “We’re obviously going to vet it, but the themes that he’s spoken about is exactly, very Chafee-esque, in terms of the basics,” the speaker said.

Others felt differently. “I like nothing about his budget, and I’m going to tell you why: because the people in this state that need it the most are not going to get anything,” Rep. Doreen Costa, R-North Kingstown, said after the speech. She also criticized Chafee for continuing to blame former President George W. Bush for Rhode Island’s economic problems when Democrats have controlled the General Assembly for decades.

The governor’s proposed budget would increase Rhode Island’s state spending by 4% to $8.5 billion in the 2014-15 fiscal year that starts July 1, with about a third of the money coming from the federal government. Chafee would close a projected shortfall of $149 million using higher-than-expected tax revenue, about $16 million in policy changes he described as mostly closing loopholes, and spending cuts.

“My revenue plan is very simple – taxpayers have already shouldered enough of the cost of government, and the recovery we are in today should not be derailed by any tax increases,” Chafee wrote in the budget’s introduction.

However, the proposal does require bed-and-breakfasts and hotel-room resellers such as to pay the state’s hotel tax; blocks individuals from renewing their car registrations if they have outstanding tax bills; and cracks down on state workers who don’t pay their taxes.

One of the biggest winners in Chafee’s budget is once again education, which together with social services makes up more than half the $8.5-billion budget.

The governor proposes spending another $38 million for K-12 schools, the full amount called for under the new school funding formula. He also proposes freezing tuition at the state’s public colleges for a second year in a row, and giving them $10 million to make up for it. Chafee said with the latest increases included, his four budgets will have added $190 million to the state’s education spending.

“My budgets have been a course correction from the deep cuts imposed by the previous administration toward public education,” Chafee said in his speech.

Chafee wasn’t so generous with social services.

The governor’s budget would continue a multiyear push to hold down growth in Medicaid spending, calling for $43 million in savings from health and human services. Hospitals and nursing homes would have to forego a planned increase in their payment rates, and families with disabled children in what’s known as the Katie Beckett Program would be asked to share in the cost of their care.

Paiva Weed expressed some concern about the cuts to safety-net programs. “We always have to look at what the impact of the modifications to the human services portion of the budget will be,” she said, adding: “We always have taken a very close look at those.”

Infrastructure is another key focus for Chafee.

The governor proposes creating a new statewide bridge-maintenance program that would spend $80 million over the next five years. He also wants to put $10 million into upgrades at Fort Adams State Park and $2.5 million into fixes at Rocky Point in Warwick, among other projects. And he proposes offering an additional $52 million in historic-preservation tax credits.

Chafee wants voters to approve $275 million in borrowing when they go to the polls in November, with $125 million – the state’s biggest bond question ever – earmarked for the University of Rhode Island’s College of Engineering. In addition, $75 million would go to environmental projects, $40 million would go to mass-transit hubs such as Providence’s Kennedy Plaza, and $35 million would go to arts and cultural organizations.

Fox said the amount of proposed borrowing gave him pause. “What’s the future cost of that in the out-years?” he asked. “We have to crunch the numbers.”

The budget also includes money to make a full $12.5 million payment to bondholders who loaned money to the state to benefit Curt Schilling’s defunct 38 Studios. While many lawmakers have expressed skepticism about repaying the bonds because of their legal status, Chafee has argued forcefully that the state needs to repay the money despite his opposition to the original deal.

“Refusing to pay this debt does not punish 38 Studios – it punishes taxpayers,” Chafee wrote in the budget proposal.

However, the budget does not include money in two high-profile areas: a potential settlement of the union suit challenging the state’s 2011 pension law, or state funding for Rhode Island’s HealthSource RI Obamacare marketplace.

Richard Licht, Chafee’s director of administration, said if a pension settlement were to be reached the money for it would not need to be appropriated as part of the 2014-15 budget. As for HealthSource RI, the governor’s staff said he expects federal funding will be enough to get the new agency through June 2015, and lawmakers and the next governor will need to decide how to fund the agency after that.

“There really hasn’t been enough time to determine … how much it will cost to operate [HealthSource RI], and as we determine that and come to some decisions on how it will be financed, that will be put forward at a later date,” Thomas Mullaney, the state’s chief budget officer, told reporters.

Chafee noted in the speech that Rhode Island’s minority population has increased from 7% of residents in 1980 to 24% in 2010, and said the share is on track to hit 41% by 2040. “This is the future of Rhode Island,” he said. His budget includes funding for a new Office of Diversity, Equity and Opportunity to promote the hiring of minority individuals and contracting with minority-owned businesses.

Chafee also urged U.S. House Republicans to pass the Marketplace Fairness Act, which would require online retailers such as to collect sales tax from purchases made on the Web. Chafee proposed changing state law so that passage of the sales-tax measure at the federal level would reduce Rhode Island’s corporate tax rate from 9% to 6%; under current law, passage of the measure would reduce the state’s sales tax from 7% to 6.5%.

Chafee aides said under the administration’s budget proposal, Rhode Island’s projected deficit in 2017-18 would be $331 million, down from $469 million at this time last year. The projected shortfall would be much lower – $207 million – if it weren’t for the coming expansion of gambling in Massachusetts, which is expected to reduce the state’s proceeds from Twin River in Lincoln.

The governor emphasized that he was proud his budget was being submitted on time for the second year in a row, which before that hadn’t happened in 20 years. He also said his department directors have managed to keep spending in their agencies at or below their budgeted levels nearly across the board.

Chafee’s budget is now in the hands of the General Assembly, which often makes major changes to the governor’s blueprint. The state’s 113 lawmakers aren’t expected to vote on a final tax-and-spending plan until May or June.

House Finance Committee Chairman Helio Melo, D-East Providence, said his panel would hold its first hearing to review the budget on Jan. 29.

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