What exactly is the pension bill’s contractors tax going to do?

As we reported on last night’s 11:00 news, legislative leaders stealthily slipped a new tax on state contractors into the final amendment to the pension bill before it passed both chambers last night. Unless I missed it, there wasn’t much – if any – discussion about the tax, though Rep. Larry Earhardt questioned it after it passed.

Since no hearings were conducted on the impact of the tax – which fulfills a long-sought goal of organized labor – it’s hard to figure out exactly what the impact will be, both fiscally and on businesses affected. No state official would speak with me on the record last night about whether the proposal was vetted by the state’s budget analysts.

Below is the text of the part of the leadership amendment that created the new tax (or “assessment,” in legalese) – the language is quite broad. On Twitter, the SEIU’s Phil Keefe emphasized to me that the money will go into the pension fund. “Wait and see,” he said. What do you think its impact will be? Leave your thoughts in comments.

24. On page 112, between lines 7 and 8, by inserting the following language:

“SECTION 23. Chapter 42-149 of the General Laws entitled “State Expenditures for Non-State Employee Services” is hereby amended by adding thereto the following section:

42-149-3.1. Assessment on state expenditures for non-state employee services. – Whenever a department, commission, board, council, agency or public corporation incurs expenditures through contracts or agreements by which a nongovernmental person or entity agrees to provide services which are substantially similar to and in lieu of services hereto fore provided, in whole or in part, by regular employees of the department, commission, board, council, agency or public corporation covered by chapter 36-8, those expenditures shall be subject to an assessment equal to five and one-half percent (5.5%) of the cost of the service. That assessment shall be paid to the retirement system on a quarterly basis in accordance with subsection 36-10-2(e).”

Update: Keefe added more details on Twitter. “Call it a pension tax,” he wrote. “It will be based on payroll. It’s a moneymaker for the state and could be changed to total contract [value] under new contract terms.” (I spelled out his Twitter-required abbreviations.)

Update #2: Common Cause Rhode Island’s John Marion expressed dismay about the sudden addition of the assessment on contracts. “The special pension session laudably avoided many of the last-minute changes that we see on significant legislation during the regular legislative session,” he said in an email. “Unfortunately we did see a significant change made in the final bill that was not vetted, and the public suffers because of that.”

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