PROVIDENCE, R.I. (WPRI) – House Speaker Nicholas Mattiello on Tuesday unveiled his long-awaited plan to get rid of the municipal car tax, proposing to eliminate it by 2023 and use state money to reimburse communities for the roughly $221 million it currently brings in.
If the first installment of his plan makes it into the new state budget, which will be finalized in the coming weeks, taxpayers would see their first car tax savings during the fiscal year that starts July 1. Communities that have already sent out tax bills will need to provide refunds, credits or abatements, the speaker’s office said.
“This is the people’s initiative,” Mattiello said in a statement. “I have been hearing complaints about the car tax for the 11 years that I have been a representative, and our citizens know this is an unfair, regressive and oppressive tax.”
Mattiello, a Cranston Democrat, has made cutting the car tax the central focus of his fourth year as speaker, following through on a promise made during his hard-fought 2016 re-election campaign. And he’s stuck by the pledge despite concerns expressed by fellow Democrats Gov. Gina Raimondo and Senate President Dominick Ruggerio that the state can’t afford to eliminate the tax altogether amid a $134-million budget shortfall and rising red ink expected in the future.
“This is really, one way or another, the people’s money,” Mattiello told reporters. “The people have demanded this. The people expect this. And we are here to serve the will of the people.”
Mattiello’s office could not provide an estimate of how much his plan would increase Rhode Island’s long-term budget deficits, saying a forecast will have to wait until the full budget is complete. Even before the car tax phaseout, Rhode Island is already projecting annual deficits of nearly $200 million a year starting in 2019-20.
Mattiello did not offer specifics on how the state should find the money to pay for the car tax phaseout, saying he hopes “leaner government” and stronger economic growth will help. The plan’s annual cost to the state would be $26 million in 2017-18, rising to about $221 million starting in 2023-24.
“I’m more concerned about the economy right now than I am looking at what the out-year deficits look like,” Mattiello said. “I think looking at it from that perspective would probably not be the best perspective to look at it.”
He added, “If you prioritize, this is not the most difficult thing in the world to do.”
Raimondo – who has offered a more modest plan to cut the car tax by about 30% starting in July 2018 – gave Mattiello’s proposal a lukewarm reception.
“I credit Speaker Mattiello for tackling an issue as big as the car tax and wholeheartedly agree that Rhode Islanders deserve a car tax cut,” she said in a statement. “His $220 million plan deserves a full public vetting, and I look forward to working with him to put money back in Rhode Islanders’ pockets.”
Ruggerio reacted similarly, noting he hadn’t even seen the speaker’s proposal yet. “I am supportive of efforts to provide car tax relief,” he said. “The communities I represent, Providence and North Providence, have among the highest auto excise tax rates in the state. It is my hope that any proposal be affordable and sustainable.”
There’s little doubt the underlying idea is popular. A Bryant University poll in March found majority support for cutting the car tax among Rhode Island voters, with 72% favoring Raimondo’s plan and 52% favoring Mattiello’s plan.
How the plan would impact you
The plan, which Mattiello outlined to reporters and introduced as a bill Tuesday afternoon, uses some complicated mechanics to achieve a simple goal: reduce how much taxpayers pay in car tax bills each year from now until July 2023, when the tax will disappear altogether.
According to a summary provided by the speaker’s office, there are four main components to the Mattiello plan – vehicle values, exemptions, tax rates, and vehicle age.
Vehicle Values: Under current policy, the value used to calculate a car’s tax bill is 100% of its clean retail value, regardless of its condition. Under Mattiello’s plan, that would be reduced to 95% of retail value in the 2017-18 fiscal year that starts July 1, then by another 5 percentage points each year after that, down to 70% in 2022-23. After that, the tax would disappear. (Gov. Gina Raimondo’s alternative plan uses the same lever – she would lower the value to 70% in 2018-19.)
Exemptions: Under current law, communities must exempt a car’s first $500 in value from taxation, and can set higher exemptions up to $6,000. (Many do.) Under Mattiello’s plan, the minimum exemption would be increased to $1,000 in 2017-18, then by another $1,000 each year after that through 2022-23. After that, the tax would disappear. Communities would be required to maintain their existing exemptions during the phaseout period.
Tax Rates: Under current law, communities set their own tax rates on cars, and the rates range from a low of $9.75 per $1,000 of value on Block Island to a high of $60 in Providence. Under Mattiello’s plan, the maximum rate would be set at $60 in 2017-18, then lowered in steps down to $20 in 2022-23. After that, the tax would disappear.
Vehicle Age: Under current law, vehicles are exempt from the car tax if they are more than 25 years old. Under Mattiello’s plan, that exemption would be expanded on July 1 to all cars that are more than 15 years old. Mattiello’s office says that will remove almost 150,000 cars from the tax rolls immediately. (His aides also note that the majority of the revenue the tax yields is from vehicles that are five or fewer years old.)
Municipal leaders have expressed concern that the absence of rising car tax revenue will force larger tax increases on homeowners. In response, Mattiello said that cities and towns will share a “fixed percentage” of revenue from the state sales tax starting in 2023-24.
The House Finance Committee – whose chairman, Newport Democrat Marvin Abney, is one of the Mattiello plan’s co-sponsors – is tentatively slated to hold a hearing on the plan Tuesday. It will then be incorporated into this year’s final state budget compromise, expected sometime in June.
Concerns about cost, failed previous phaseout
Because Mattiello’s plan would reimburse municipalities for each dollar in local revenue lost from the car tax phaseout, over time it would transfer the burden for varying amounts of their budgets from local taxpayers to state taxpayers. A Target 12 analysis earlier this year found six of Rhode Island’s 39 cities and towns would share about half the money, led by Providence ($32 million), Warwick ($25 million) and Cranston ($21 million).
House Minority Leader Patricia Morgan, R-West Warwick, has pushed back at that aspect of the plan, saying that while she supports eliminating the car tax, she thinks cities and towns should have to find savings to offset some of the lost revenue, rather than getting all the money back from the state.
“Let’s face it. Who are taxpayers? They pay the municipalities, they pay to the state,” Morgan said on WPRI 12’s Newsmakers in March. “So are we just doing a shell game?”
Pressed on what else will need to be cut from the budget to pay for the car tax phaseout, Mattiello said, “I can’t talk about any specific programs because we’re looking at the budget in sum total. I would say there’s not going to be a particular program that’s cut…. There are going to be some cuts to different areas already. So it’s not going to significantly have a major impact on any particular program or spending.”
Skeptics have noted this isn’t the first time General Assembly leaders have promised to eliminate the car tax. A previous phaseout plan was approved in 1998, only to be suddenly reversed in 2010 when the state faced major budget shortfalls following the recession. Mattiello insists, however, that history will not repeat itself this time.
The speaker told reporters he understood why then-Gov. Don Carcieri proposed rolling back the last car tax phaseout, noting that state revenue was falling by hundreds of millions of dollars at the time. But, he said, “I suspect if we looked at other areas back then, perhaps we may not have had to stop the phaseout.”
Brian Daniels, who heads up the Rhode Island League of Cities & Towns, said his group hasn’t taken a formal position on the plan yet but noted the League worked with Mattiello’s staff to help shape the bill. “We will now take a close look at the proposal with our members to get their feedback,” he said.