Raimondo’s $8.96B budget boosts education, business incentives

No broad-based tax increases but marijuana, cigarettes targeted for new revenue

PROVIDENCE, R.I. (WPRI) – Gov. Gina Raimondo unveiled her second state budget on Tuesday, proposing to ramp up spending on education, worker training and business incentives while holding the line on broad-based taxes and social services.

Raimondo, a first-term Democrat, unveiled the $8.96-billion proposal during a televised State of the State speech to lawmakers at the State House. She said her focus in crafting the budget was on policies that will lead to “skills that matter and jobs that pay,” saying government needs to do more to position Rhode Islanders to succeed in the 21st century.

“I know that many Rhode Islanders are frustrated,” Raimondo said in her prepared remarks.

“We’re frustrated because government doesn’t work as well as it should, because there are too many potholes and crumbling bridges, and too many of our friends can’t find work, or are struggling with wages that aren’t increasing as fast as their bills,” she said. “But the good news is that we are making progress and our state is getting stronger by the day.” As evidence, she cited Rhode Island’s falling unemployment rate and ongoing job growth.

Full Text/Video: Gov. Raimondo's State of the State address »
Full Text/Video: Gov. Raimondo’s State of the State address »

Raimondo also thanked General Assembly leaders for working with her. “We’re at a time in America when the angriest among us often have the loudest voices, and politicians seem like they’re always shouting past each other,” she said. “Here in Rhode Island, though, we are showing that we can forge consensus, and achieve progress through collaboration and compromise.”

The proposed budget would increase Rhode Island government’s total spending by 3.5%, to slightly less than $9 billion, in the 2016-17 fiscal year that starts July 1 when compared with the budget lawmakers approved last spring. A third of the money would be provided by the federal government.

The biggest financial issue on Raimondo’s agenda at the moment – her toll-funded bridge-repair plan – isn’t actually in the budget, because the money from the program wouldn’t be available until future budgets. Still, Raimondo used the speech to make another pitch for it ahead of legislative hearings that begin Wednesday.

“[L]et’s reject the politics of procrastination and pass RhodeWorks,” she said. “Rebuilding our crumbling roads and bridges is essential to attracting great companies, and we’ll put thousands of Rhode Islanders to work in the process.”

But Republicans immediately renewed their criticism of how Raimondo is managing state spending, with House Minority Leader Brian Newberry arguing her plan was a “misguided” effort despite what he views as a correct focus on the economy.

“The bottom line is, do Rhode Islanders want a budget that takes their money and doles it out to connected insiders or a budget that trusts them to make their own decisions?” Newberry, R-North Smithfield, said in a statement.

The GOP leader later expanded on his points in an interview with reporters, describing the budget as a “vanilla” and “very safe” document that is “not going to offend anybody” – which he suggested is what the state’s ruling Democrats want in an election year.

Marijuana, cigarettes targeted for new revenue

Raimondo was faced with an estimated deficit of $49.5 million in the 2016-17 budget – a much smaller shortfall than in previous years, thanks in large part to an ongoing increase in tax revenue. “This is largely connected to some of these positive signs we’re seeing in the economy,” Jonathan Wormer, director of the R.I. Office of Management and Budget, told reporters.

The proposed budget would make no changes to Rhode Island’s income, sales, corporate or gasoline tax rates. But it does single out one group to cough up more money: smokers.

The budget would generate $10 million from a suite of changes to the state’s medical marijuana rules, such as licensing cooperative cultivators and tagging individual marijuana plants, as well as reducing the maximum number of plants individual patients can grow for themselves from 12 to six. And it would increase the cigarette tax by 25 cents to $4 a pack, which officials said would still leave the average price lower than in Massachusetts.

Businesses would get a roughly $30 million tax break under Raimondo’s budget through a restructuring of the state’s unemployment-insurance tax rate, which for years has ranked among the highest in the country. She proposes to lower the average tax on employers from $708 to $631 per worker while leaving benefits and eligibility unchanged. The trust fund that pays jobless benefits took in $113 million more than it paid out last year, according to the administration.

“We have to attack areas like this where we’re an outlier,” Raimondo said.

Brookings ideas slated for funding

On the spending side of the ledger, Raimondo’s chief of staff Stephen Neuman described the governor’s overall approach as “prioritizing investments over consumption.”

As expected, education is a target area for new spending in Raimondo’s budget. At the K-12 level, additional money would be added outside Rhode Island’s standard school-funding formula to compensate districts that have a significant number of students in charter schools – a red-hot issue at the State House. Students would also be able to take the SATs and PSATs for free, and new money would be provided for professional development.

The budget “levels the playing field between district and charter schools so that all schools can thrive,” Raimondo argued. “It provides that when a student moves from a district school to a charter school, some of the money stays behind at the district school.”

At the college level, the budget would freeze tuition next year at the University of Rhode Island, Rhode Island College and the Community College of Rhode Island. It would also increase funding for both need-based scholarships and fellowships that pay off student loans, while providing more funding for URI’s new engineering school and the new URI-RIC nursing center in Providence. There is also money for the Real Jobs RI and TechHire worker-training programs.

For the second year in a row, Raimondo is proposing to spend significant sums on programs she hopes will spur economic development in Rhode Island. Many of the new ideas come straight from the recent high-profile Brookings Institution study on the state’s economy, which advocated a new push to build up higher-wage advanced industries locally.

“It’s clear: if we want to grow high wage jobs in Rhode Island, we need to skate to where the puck will be,” Raimondo said. “We need our people to have skills that matter, and jobs that pay.”

Some of Raimondo’s proposals are simply more money for the programs created last year, including $21 million more for Rebuild Rhode Island real-estate tax credits and $5 million more for the First Wave Closing Fund. Also included is $5 million to expand and make refundable Rhode Island’s research-and-development tax credit; $2.75 million to encourage the hiring of “high-impact” college faculty members; and transportation funding to streamline rail travel between Boston and Rhode Island and to subsidize additional flights out of T.F. Green Airport.

Magaziner backs big major borrowing

With 2016 being an election year, Raimondo wants voters to approve $230.5 million in new state borrowing at the ballot box this November: $70 million to rebuild piers at Quonset; $45.5 million for higher education, including a $20-million competition to build one or more innovation campuses; $40 million each for affordable housing and school construction; and $35 million for environmental and health funding.

The size of the proposed borrowing immediately raised questions at the State House about whether Raimondo’s plan could push Rhode Island’s debt load to an unmanageable level. But General Treasurer Seth Magaziner, a Democrat and Raimondo ally, said his office has analyzed the $230.5 million figure and found it won’t breach state guidelines on bonds.

“Rhode Island must balance the urgent need to invest in our economy and repair our infrastructure with the responsibility to never borrow beyond our means,” Magaziner said in a statement. “The governor’s proposal strikes an appropriate balance between investment and fiscal responsibility.”

Newberry, the Republican leader, zeroed in on the business subsidies and the borrowing – as well as the toll proposal – in his criticism of Raimondo’s proposal.

“Rhode Island does not need more bonded indebtedness or millions of additional funding given to an unproven Commerce Corporation for corporate subsidies,” he said. “Additionally, the governor’s anti-business tolling plan sends a contradictory message about Rhode Island competitiveness.”

Another push for Medicaid savings

On social services, Raimondo said her budget proposal would continue efforts begun last year to rein in the ever-rising cost of Medicaid, the state-federal health insurance program for low-income people. Raimondo said the changes would save another $35 million on top of the more than $70 million she expects to be saved from the last round. The budget also adds money – including raises for workers – aimed at increasing the use of home care.

Raimondo is asking lawmakers to fund a wide variety of other initiatives in the budget, from $4 million to address the opioid overdose crisis and another boost to the earned-income tax credit to online voter registration and a switch to electronic timecards for state workers. She also urged them to raise the state’s minimum wage to $10.10 an hour.

Raimondo’s proposal would still leave the state facing large budget deficits in future years, with the annual shortfall projected to grow from $193 million in 2017-18 to $272 million in 2019-20. But the governor’s aides emphasized that the deficits would be even larger without various efforts she’s made to reduce spending, such as Medicaid changes and the 2011 pension law.

“We’ve been making some progress on bending the deficit curve,” Wormer, the Office of Management and Budget director, said. “Unfortunately, it’s not one of those things that’s really going to happen overnight.”

Tuesday night’s release of the governor’s blueprint kicks off the months-long budget process at the State House. The House Finance Committee, chaired by Bristol Democrat Ray Gallison, will spend the coming months evaluating and taking testimony on the proposal, while the governor and top lawmakers negotiate behind the scenes over what will make the final cut.

The General Assembly usually gives final approval to the budget around June.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes The Saturday Morning Post. Follow him on Twitter: @tednesi

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