Fox forced to postpone budget debate after pension rebellion

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – House Speaker Gordon Fox abruptly suspended Rhode Island lawmakers’ biggest debate of the year at 1:30 a.m. Wednesday after rank-and-file legislators rebelled and rejected his team’s plan to cancel a bonus payment into the state pension fund.

In a surprise move, a majority of lawmakers voted down a proposal backed by Gov. Lincoln Chafee but opposed by Treasurer Gina Raimondo to skip the $12.9 million payment into the retirement fund, despite pleas from top lawmakers who said the move would blow a hole in the budget. The measure failed on a 36-39 vote.

Fox, D-Providence, was forced to recess the House in the early hours of Wednesday morning to determine how to deal with the sudden budget shortfall of nearly $13 million; lawmakers may be asked to reconsider the issue when they reconvene Wednesday at 2 p.m.

“Ladies and gentlemen, if 38 Studios is a moral obligation that we have to pay back, what is this?” asked Rep. Larry Valencia, D-Richmond. He was referring to a controversial provision of the budget to make a $2.5 million payment on bonds sold to benefit Curt Schilling’s bankrupt video-game company.

House Majority Leader Nicholas Mattiello responded that the budget would still have Rhode Island make the full required contribution to the pension fund for 2013-14, as determined by its actuaries, and would only skip the bonus $12.9 million payment because the money is needed to fund other spending.

“We all have things that we care about, and they’re all differing,” Mattiello, D-Cranston, said. “The $12.9 [million] would have to come out of something. … It’s the best balance, and I believe it’s responsible.”

The scene was tense after lawmakers rejected the proposal to skip the extra pension payment. Fox paced the floor and repeatedly conferred with Mattiello and House Finance Committee Chairman Helio Melo as the chamber buzzed with speculation about their next move.

Followed out of the House chamber by reporters asking him what would happen next, Fox said simply: “We’ll see.” He quickly disappeared into his State House office without taking further questions.

The House’s 69 Democrats and six Republicans had begun the marathon debate over the $8.2-billion tax-and-spending plan at 3 p.m. Tuesday. Veteran State House observers said they couldn’t recall the last time the House had to adjourn without finishing the budget in a single marathon session.

Legislative leaders’ plan contains no significant tax increases but rejects Chafee’s proposal to lower the corporate tax rate. It would boost education spending by more than $30 million and provide millions more state aid to cities and towns, though less than Chafee requested for them.

“Everyone here is equally disappointed in the budget,” Rep. Stephen Ucci, D-Johnston, said at one point, arguing that all lawmakers were forced to give up some of their priorities.

Melo, D-East Providence, announced at the start of the debate that Democratic lawmakers had reached a compromise on the controversial Sakonnet River Bridge tolls. A proposed amendment to the budget would block tolls from being collected until a newly created study commission can look into alternatives, Melo said.

Before the surprise vote on pensions, the biggest debate of the session was expected to be about a relatively small amount of money: the $2.5 million payment to investors who purchased the bonds Rhode Island sold to benefit 38 Studios.

It’s the first of roughly $90 million in payments taxpayers will be asked to make over the next decade, and lawmakers began debating the issue around midnight.

A number of legislators said the state shouldn’t repay the high-interest bonds sold to sophisticated investors. Others echoed warnings from Chafee, Raimondo and House leaders that failing to make good on the debt could damage Rhode Island’s reputation for decades and raise the cost of borrowing for taxpayers.

House Minority Leader Brian Newberry, R-North Smithfield, criticized proponents of making the payment for “threats and Chicken-Little sky-is-going-to-fall pronouncements.” But Rep. Michael Marcello, D-Scituate, warned his colleagues: “If you want to play politics with the state’s bond rating, go ahead.”

The debate grew increasingly testy as the night wore on, with Rep. Charlene Lima, D-Cranston, telling a fellow lawmakers to “grow a pair” on the 38 Studios issue. Rep. Joseph Trillo, R-Warwick, grew red-faced as he bellowed that legislators hadn’t been informed where the money would go back in 2010.

“You want to scare Moody’s?” asked Rep. Spencer Dickinson, D-South Kingstown, referring to the credit-rating agency that has warned the state against skipping the bond payment. “Tell them we’re not buying any more bonds! That scares Wall Street!”

Shortly after 1 a.m., however, Lima’s amendment to block the 38 Studios bond payment failed overwhelmingly on a vote of 20-54. Legislators may be forced to deal with the issue again during Wednesday afternoon’s session if more proposals on 38 Studios are put forward.

Lawmakers also voted to kill the Job Creation Guaranty Program, which authorized the R.I. Economic Development Corporation to guarantee up to $125 million in loans to technology firms. It was passed the month before the EDC board authorized the $75 million guarantee for 38 Studios in July 2010.

They also voted to bring back historic-preservation tax credits for developers, with a maximum credit of $5 million allowed per project. Melo estimated that about $34 million in credits were available as of May dating to before the credits were suspended in 2008.

Morgan and Rep. Jared Nunes, D-Coventry, fought unsuccessfully to remove a requirement that only contractors who have apprenticeship programs could be used on projects with $10 million in construction costs that get the tax credits. They said it was included to benefit unionized companies.

“We’re turning a very good [budget] article … into a piece of crap,” Nunes said. At one point he asked Melo, rhetorically: “So, we put it in there because the union asked for it?”

Lawmakers approved a proposal by Democratic leaders to move about 6,500 adults from Medicaid – the government health program for the poor – to the new insurance marketplace created under President Obama’s health law that opens Oct. 1, although some expressed concern about whether they could afford premiums.

Fox also ruled out-of-order an amendment by Rep. Patricia Morgan, R-West Warwick, that would have required that the state’s new Affordable Care Act insurance marketplace sell lower-cost policies that do not cover abortion. The speaker won a vote upholding his ruling after Morgan challenged it. Fox later got into a shouting match with Trillo, as well.

Lawmakers agreed to create a one-year pilot program starting Oct. 1 that would use $3 million in federal welfare money to subsidize child care for working families who make up to 225% of the federal poverty level, higher than the current income limit of 180%.

They approved $10 million to capitalize a new revolving-loan fund proposed by Raimondo and Fox that would let cities and towns borrow money from the quasi-public R.I. Clean Water Finance Agency to pay for local infrastructure projects.

Some lawmakers questioned a provision in the budget that would tweak tax law to allow Newport Grand to keep an additional $2 million in gaming revenue over two years. The proposal passed after Melo said the move was necessary to help the gaming facility stay in business.

Mattiello suggested Newport voters may be asked to vote again on whether to allow table games at the facility, a proposal they rejected last November, to protect state revenue from the facility before Massachusetts’ new casinos open. Otherwise, he warned, “Newport Grand may not survive.”

Melo withdrew a proposal to create a new Capital Expansion Manufacturing Job program to give a tax credit of $500 per new full-time worker to companies that spend at least $10 million upgrading their facilities, a measure that was widely expected to benefit Electric Boat, the large defense contractor with operations in Rhode Island.

Lawmakers took a break from 8:25 p.m. to 9:59 p.m. for dinner.

Once House lawmakers approve a budget, it will be sent to the Senate, where the Senate Finance Committee had already announced it could vote on the measure as soon as Wednesday or Thursday if it cleared the House. From there it would go to the full Senate and then, if passed there, to Chafee’s desk for his signature.

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

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