Senators voice skepticism about $221M Mattiello car tax phaseout

Expert says proposal may be RI's biggest-ever tax cut; budget expected soon

PROVIDENCE, R.I. (WPRI) – Senators expressed skepticism Thursday about House Speaker Nicholas Mattiello’s proposed car tax phaseout, raising questions about the plan’s $221-million price tag and how much of the money will go to a handful of communities.

The senators at Thursday’s Senate Finance Committee hearing voiced more concerns about the plan than did their counterparts on the House Finance Committee when that panel reviewed it on Tuesday. Sen. Dan DaPonte, the committee’s former chairman, noted that the last phaseout attempt in 1998 was later reversed.

“How is this sustainable?” asked DaPonte, D-East Providence. “And when we get to the point that it’s not sustainable, how does the legislature when they have to make that tough decision not get blamed for it, as we did – those of us who were here – back in 2011?”

“The challenge with this is, ultimately it’s going to add a $220 million structural deficit to our budget,” added Sen. Lou DiPalma, D-Middletown, who along with Sen. Ryan Pearson, D-Cumberland, appeared especially dubious.

But John Simmons, executive director of the Rhode Island Public Expenditure Council think tank, said his group supports the plan as a way to reduce Rhode Island’s high-ranking property taxes, and argued lawmakers should view it like any other commitment they make, even if they aren’t yet sure how to fund it. “This is a policy choice,” he said.

The Mattiello plan was introduced last week and is all but certain to be included in the new state budget, which Senate Finance Committee Chairman William Conley said may be released next week. The plan would eliminate the car tax over the next six years, with the state reimbursing municipalities for the entire $221 million in revenue they’ll lose. Mattiello has said it should be prioritized as lawmakers deal with rising budget deficits.

Those deficits were a central worry for a number of senators at Thursday’s roughly three-hour hearing, even though the Mattiello plan in sponsored in the Senate by its leader, Senate President Dominick Ruggerio. DiPalma noted that Congress is currently considering bills that would cut Rhode Island’s future Medicaid funding by hundreds of millions of dollars.

“How do we factor that into this?” he said. “And we’re not right now.”

R.I. Department of Revenue Director Robert Hull, who testified at the hearing in support of Gov. Gina Raimondo’s more modest car-tax proposal, said her administration thinks the Mattiello plan’s general outline is “very, very logical, and makes a lot of sense.” But he acknowledged the senators’ concerns about cost, and was open to adding a trigger mechanism that would base the reductions on the state’s financial situation.

“A more firm trigger might protect the state,” he said.

Paul Dion, chief of the R.I. Office of Revenue Analysis, said the proposed car tax phaseout would “probably” be the biggest single tax cut in Rhode Island history. Asked about alternative ways the state could allocate $221 million in tax cuts, he said it would be enough to reduce the state sales tax from 7% to about 5.5%, or to eliminate the corporate income tax altogether.

Pearson suggested the need for a broader economic analysis of how that money could best be allocated. “If we’re going to do $220 million worth of tax relief, how do we best spread that around to get the best result?” he said.

A number of senators noted that some communities will see relatively little tax relief from the car tax phaseout, while residents of Providence and five other municipalities will receive about half the money. Pearson noted the amounts are all tied back to where the car tax stood in different communities when the first phaseout was attempted in 1998.

“It’s based on who was a higher taxer and spender in 1998,” he said. “That’s a particular concern, because … 25 of the 39 communities actually end up subsidizing the rest of the state. They’re going to pay more in taxes or forego more in services to subsidize the 14 remaining communities in the state that have higher tax rates.”

Brian Daniels, executive director of the Rhode Island League of Cities and Towns, said his organization supports the phaseout as long as municipalities are fully reimbursed for the revenue they currently collect, though he acknowledged some tax assessors are concerned about how to implement the cut when the fiscal year starts next month.

“I don’t want to say everybody’s thrilled with this proposal – there are communities who feel they are on the short end of the stick,” Daniels said. But, he said, Mattiello had made clear the goal was to eliminate the car tax, so they did not review alternative ways of distributing the money.

James Kennedy, a transit activist and Providence resident, was the only average citizen who testified Thursday, speaking against the plan again as he did at Tuesday’s House hearing. He said lawmakers should be spending more on mass transit and giving more attention to environmental and equity issues.

The Rhode Island chapter of the American Civil Liberties Union weighed in on behalf of the Mattiello plan, reiterating its long-stated argument that the existing car tax is “an inappropriate and unfair tax system that should not have been allowed to flourish in the first place, and should not now be allowed to continue.”

“Cities and towns should not benefit from a tax that preys on their residents, and the state should no longer defend or perpetuate such a flawed and unfair system,” the ACLU said.

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