RI lawmakers’ budget cuts corporate, estate taxes

The Rhode Island State House in Providence.

PROVIDENCE, R.I. (WPRI) – Rhode Island lawmakers on Thursday night unveiled an $8.7-billion proposed budget for the 2014-15 fiscal year that would cut the state’s corporate and estate taxes but raise some fees, while allowing for increased spending on health care for lower-income residents.

“We believe this is going to grow our tax base and allow businesses to grow and create jobs,” House Finance Committee Chairman Raymond Gallison, D-Bristol, told reporters.

Gallison’s committee approved the budget Thursday evening on a 14-2 vote almost immediately after it was unveiled, with Reps. Karen MacBeth, D-Cumberland, and Patricia Morgan, R-West Warwick, voting against. The full House will take it up next Thursday, with the Senate to follow.

MacBeth cited the budget’s inclusion of a controversial 38 Studios bond payment as well as the late hour for her no vote. “I think it’s very difficult at quarter-to-12 at night to vote on something with this magnitude for the state,” she said.

The budget unveiled Thursday is a revised version of the tax-and-spending plan put forward in January by Gov. Lincoln Chafee. A roughly $67-million shortfall has opened up in the plan since then due to unexpectedly high Medicaid enrollment, unbudgeted employee raises and weak tax revenue.

“As most of you know, the governor had a very tough budget this year, and it only got worse,” Gallison said.

Lawmakers’ proposed budget would cut Rhode Island’s corporate tax from 9% to 7%, a long-sought goal of the local business community that had strong support from new House Speaker Nicholas Mattiello. The reduced revenue would be more than made up for by switching to a new form of accounting for corporate taxation known as combined reporting, Gallison said.

The proposed budget would also revamp Rhode Island’s estate tax, which is levied on the assets wealthier residents leave behind when they die. For those who die after Dec. 31, the exemption for estates will rise from around $922,000 to $1.5 million, and there will no longer be a so-called “cliff” that levies the tax on the whole estate once it gets triggered.

Rep. Teresa Tanzi, who opposes the changes to the estate tax, said House estimates show it would reduce state revenue by $18 million in the 2015-16 budget year, the first full fiscal year it will be in effect. She said the tax changes won’t have as much of a positive impact as Mattiello and Gallison say because the state still faces large future deficits.

“Businesses know if we don’t close that out-year deficit, those tax rates are going to have to rise,” Tanzi, D-Narragansett, told WPRI.com. “That’s looming, heavy, and I think that’s something that’s as big a barrier as any other for bringing businesses in.”

Before the budget’s release, Chafee issued a statement indicating he is likely to sign it. “I understand that the budgeting process is an exercise in compromise, collaboration and cooperation, and I hope that this budget will move Rhode Island forward,” he said.

Noting that he has repeatedly proposed cutting the corporate tax rate since taking office in 2011, Chafee said: “I applaud the General Assembly for taking this important step to making us more competitive.” The budget also fully funds the state’s new school-funding formula, as suggested by Chafee, who is not seeking re-election.

Lawmakers’ budget would get rid of a controversial toll on the Sakonnet River Bridge by creating a new infrastructure fund to pay for transportation repairs. The money for the new fund would come from existing sources, as well as newly automatic increases in the gas tax and a hike in some vehicle fees.

The proposed budget would make no changes to Rhode Island’s 7% sales tax and would not provide any financial support for the redevelopment of the “Superman building” in downtown Providence. As previously announced, the budget includes $12.3 million for the next payment on the bonds sold as part of the failed 38 Studios deal.

Gallison said state departments and agencies will be asked to find enough money in their existing budgets to cover the cost of employee raises that Chafee recently negotiated with the state’s labor unions. The pay increases will cost an estimated $25 million in the next budget year.

Gallison said the budget projects roughly $15 million in savings from speeding up the recertification process to check whether residents who are on Medicaid are still eligible for the program. The Economic Policy Institute, which advocates spending on low-income families, expressed concern about whether the state can meet the goal while ensuring accuracy.

Other changes were more obscure. For example, lawmakers would take $5 million from the Tobacco Settlement Financing Trust – which is funded by revenue from the historic 1998 legal settlement between tobacco companies and the states – and use that cash to balance this year’s budget.

Asked how lawmakers closed the rest of the budget gap, Gallison said they found a variety of ways to reduce spending. “It’s a lot of little small things,” he said. “We worked hours and hours on it.” The budget retains most of Chafee’s suggested cuts to social services but not the proposal to add co-shares to the Katie Beckett Program for disabled individuals, he said.

Gallison acknowledged Rhode Island faces large and growing state budget deficits in the coming years due to rising spending in areas such as health care and pensions, combined with declining revenue from gambling as casinos begin to open in Massachusetts.

“We’re going to have to deal with it when they come,” Gallison said. “We don’t know. It’s a concern. It’s always been a concern. We’re hoping Twin River can do better.” The budget includes additional money for the Lincoln-based gambling facility to use in marketing itself, he said.

The budget would put a combined $248 million in bond referendums on the November ballot for voters to approve. The four ballot questions propose $125 million for the University of Rhode Island’s engineering school; $35 million for mass transit hubs; $35 million for arts and culture; and $53 million for clean water, open space, and healthy communities.

The budget singles out nine specific organizations that would receive a combined $23 million from the arts bond if voters approve it: Trinity Repertory Company, the Rhode Island Philharmonic, the Newport Performing Arts Center, United Theater/Westerly Land Trust, the Chorus of Westerly, the Stadium Theater, 2nd Story Theater, AS220 and WaterFire. An additional $6.9 million would be available to similar organizations through a R.I. State Council on the Arts grant program.

The budget authorizes $45 million in revenue bonds to construct a parking garage at the Garrahy Judicial Complex in Providence, but stipulates that construction can only go forward when at least three parcels of the old I-195 land have been sold, Gallison said. It also authorizes a new state nursing school to be built at the old South Street Power Station.

The budget includes no state money for HealthSource RI, Rhode Island’s Obamacare marketplace, but keeps HealthSource for another year rather than shutting it down and switching to the federal HealthCare.gov system as some have suggested doing. Nor does it include roughly $52 million in additional historic tax credits Chafee proposed.

The budget raises the real-estate conveyance tax from $2 per $500 of property value to $2.30 to provide funding for lead-paint abatement and homelessness programs. It eliminates an existing cap on how much marijuana or how many marijuana plants a licensed compassion center in Rhode Island can have.

Tucked into the budget is a provision that would apparently bar any Rhode Island city or town from establishing its own local minimum wage, which would seemingly cut off an aggressive, high-profile effort by Providence hotel workers to get the City Council to approve a $15 minimum wage for them.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

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