Mayors back Mattiello car tax plan, but critics fret over $221M price tag

PROVIDENCE, R.I. (WPRI) – Lawmakers on Tuesday heard the case for and against House Speaker Nicholas Mattiello’s proposal to eliminate the car tax, with supporters saying the move is overdue but opponents warning the plan is too costly.

The Mattiello plan – introduced last week and all but certain to be included in the new state budget, due out shortly – would eliminate the tax over the next six years, with the state reimbursing municipalities for the entire $221 million in revenue they’ll lose. While some have questioned how the state will pay for the tax cut in light of growing budget deficits, Mattiello has said it should be prioritized.

Mattiello wants to include $26 million in the new state budget to cover the first installment of the car tax phaseout – no small challenge with officials already projecting a shortfall of $134 million in the budget, which is currently being crafted behind closed doors.

The Mattiello plan got its first formal review on Tuesday night at a hearing of the budget-writing House Finance Committee, where many lawmakers appeared favorably disposed to their leader’s proposal.

Among the first to testify in favor were Providence Mayor Jorge Elorza and Central Falls Mayor James Diossa, whose communities are lined up to receive $32 million and $1.8 million under the Mattiello plan, respectively. “For years, the citizens of Central Falls have suffered from this regressive tax,” Diossa said.

Joining the two mayors was Tony Pires, a former chairman of the Finance Committee and now a top Pawtucket official. Pires sponsored the last attempt to phase out the car tax, in 1998, only to see the policy reversed a decade later when the state’s finances were devastated by the Great Recession.

A number of lawmakers expressed concern about whether the new phaseout plan will also be in jeopardy the next time the economy goes south, but Pires urged them to proceed anyway.

“Do not be afraid of the fact that the worst downturn in the world economy took place some six or seven years after that legislation went into effect,” Pires said. “That is … the responsibility of you or others who may represent you in the future, to make the necessary amendments.”

Sharon Reynolds Ferland, the House’s top fiscal adviser, acknowledged that nothing in the Mattiello plan would bind future lawmakers to stick with the phaseout. “You can adopt legislation, and someone after you can change it,” she said.

Also testifying in support were officials from the R.I. Public Expenditure Council think tank, the Greater Providence Chamber of Commerce, and the Rhode Island League of Cities & Towns. RIPEC’s John Simmons said the Mattiello plan would improve Rhode Island’s national rankings, and the Chamber’s Elizabeth Suever said the state’s taxes on property and for unemployment insurance are its biggest problems for businesses.

Brian Daniels, executive director of the League of Cities & Towns, argued that unless municipalities are reimbursed for all the lost revenue from phasing out the car tax, as the Mattiello plan would do, there would be a “devastating” effect on their finances. At the same time, he acknowledged that some local leaders are frustrated the policy will provide the most benefit to a small number of high-tax communities.

Another concern for municipalities: how to implement the reduction when it’s on track to become official just before the July 1 start of the new fiscal year, after most of them have finalized tax bills. Cumberland leaders have called that “a logistical nightmare,” while Elorza said he’s told his finance director to hold off on sending bills and Warwick Mayor Scott Avedisian has said he’ll provide credits against future tax bills.

Cost was a key concern for opponents of the Mattiello plan, particularly at the end of the six-year implementation period when the tax will be eliminated for wealthier individuals with nicer cars. James Kennedy, a transit activist, quipped that the plan should be called “the Jaguar tax cut” because of its benefit to upper-income residents, and noted that it will provide no benefit to Rhode Islanders who do not own cars.

“I think that it’s fiscally irresponsible to end up cutting the car tax without knowing where the money is coming from,” said Andrew Poyant, a Providence resident. He noted that Gov. Gina Raimondo’s proposal for two years of free tuition has been criticized for its cost, “even though that’s seven times cheaper than this plan is right now.”

The Economic Progress Institute, which advocates for lower-income individuals, came out against the car tax phaseout due to similar concerns, despite agreeing “that we should bring some relief to low and modest-income people and that there are inequities in the current [car tax] system.”

Doug Hall, an economist with the group, suggested Rhode Island’s leaders should not commit to such a large new expense when Republicans in Washington are looking at major cuts in the state’s federal funding and deficits are already projected in the future. It would be “really irresponsible” to pass the plan without detailing whether other taxes will be raised or other spending will be cut to cover it, he said.

“The public deserve to know, the General Assembly deserves to know, where those cuts would be coming,” he said.

Rep. Scott Slater, D-Providence, pushed back at Hall, noting that one aspect of the plan – eliminating the tax immediately for all cars older than 15 years – would be welcomed in his district. “This is significant relief to these families, and they’re on the margin,” he said.

“We are far more favorably disposed to the front end of this process,” Hall told Slater.

Perhaps surprisingly, prominent anti-car-tax activist Rob Cote also came out against the Mattiello plan in testimony Tuesday, saying it has “fatal flaws” and is overly complex. “I want car tax reform, but this bill is not going to do it,” Cote said.

The car tax phaseout will get more scrutiny on Thursday, when the Senate Finance Committee is scheduled to hold a hearing on the proposal. Speaker Mattiello has said he hopes a final budget compromise will come before House Finance next week. The new fiscal year starts July 1.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter and Facebook