State budget sticks to status quo, takes few risks

For many Rhode Island business groups, the $8 billion state budget lawmakers have begun debating and are expected to pass this week was notable for what it did not include:
• No meals tax hike.
• No personal income tax hike.
• No extension of the hotel tax to bed & breakfasts or vacation-home rentals.
• No funding for an advanced-nursing center in Providence.
• No new historic tax credits.
With a few exceptions, the budget drawn up by House Democratic leaders favors the status quo, eliminating many of Gov. Lincoln D. Chafee’s more daring proposals and restoring funding to areas cut during the recession.
Those moves were well-received by groups with funding restored, such as human-services organizations and industries that mobilized to fight Chafee’s latest sales tax expansion plans.
As of June 7, leaders in the House were hoping to vote on the spending plan that night or early the next morning with the Senate expected to follow this week.
“We are thrilled with the decision by the leadership in the General Assembly to eliminate the meals-tax proposal from the budget and to rescind the tax on scenic and sightseeing tours,” said Dale Venturini, president of the Rhode Island Hospitality Association. “Hospitality is the fourth-largest industry in Rhode Island and the legislative leadership recognizes that keeping our state a competitive destination is an important step to our economic recovery.”
But others have expressed concern that as Rhode Island fights to emerge from the recession, the 2013 spending plan isn’t as forward-looking as it could be and lacks investments in infrastructure, economic development and solutions to structural fiscal problems.
The Greater Providence Chamber of Commerce was mixed on the budget, unhappy that a proposed University of Rhode Island-Rhode Island College advanced nursing center wasn’t funded, but pleased there will be no 2 percentage-point hike in the meals tax or personal income tax hikes for high earners. “We believe that the tax code as structured puts Rhode Island in a competitive position and efforts to tinker with that would have been detrimental,” said Chamber President Laurie White. “The meals-and-beverage tax increase would have hurt the small-business community and the ability of Rhode Island to attract conventions and large groups. It might be pennies on a pizza, but if you multiply that by hundreds of banquet orders, it’s a lot.”
The exclusion of the joint advanced-nursing center from the budget, but inclusion of $50 million for building renovations at Rhode Island College, surprised URI officials and others hoping the former project would jump-start development in the Providence Knowledge District.
“We are disappointed that the nursing-education center is not in the budget,” said URI spokeswoman Linda Acciardo in an email. “We continue to feel a sense of urgency to make investments in the university’s nursing program. It would have been a great project for the state, and we still believe that the project would be a major economic stimulus in the heart of Providence. Moving forward, we will need to assess all the options.”
Asked after a news conference last week about what the removal of the nursing center from the budget meant for the project, Chafee could only shrug.
“Without the money, I don’t know,” he said.
The decision to abandon a proposed extension of the hotel tax to bed and breakfasts and vacation homes, 13 percent in total when combined with sales tax, was applauded by the Rhode Island Association of Realtors, which argued that the plan would further depress the housing market.
“It could have affected a lot of people, so we are grateful the leaders of the General Assembly saw this was not a tax we needed in Rhode Island, said association CEO Susan Arnold. “Massachusetts and Connecticut do not have it. We already have the fifth-highest property taxes and it is another tax on property.” Car-wash owners and taxi drivers, however, were irate at lawmakers for accepting Chafee’s proposal to extend the 7 percent state sales tax to their transactions.
“This proposal attempts to force a hundred or so cab-license holders to fill a half million dollar budget hole,” said Greg Manning, president of the Taxi Owners Association in a statement after the House Finance Committee approved the budget. “How can a cabbie earning $20,000 or $25,000 per year be expected to shoulder [more than] $1,200 in new taxes?”
On the flip side, cruise and tour operators were pleased to see the 7 percent sales tax removed from “scenic and sightseeing transportation” packages. Getting rid of the so-called “tourism tax” had been a priority of Senate President M. Teresa Paiva Weed, D-Newport, since it was adopted to the disdain of the tourism industry a year ago.
The status-quo budget approach did not favor some economic-development proposals that business groups had wanted, including the return of the state’s historic-tax-credit program.
A priority for developers, preservationists and smart-growth advocates, the historic-tax-credit program cut in 2008 has received conceptual support from Chafee, House Speaker Gordon Fox, D-Providence, and Paiva Weed, raising hope it could be brought back in the budget.
But questions about the program’s cost kept it out of the budget and bids to bring it back this year rest on last-minute compromise legislation gaining traction in the past week.
The historic-tax-credit plan being discussed would use a $25 million pool of old credits forfeited by developers of projects that never happened to finance new projects, said Scott Wolf, executive director of GrowSmart Rhode Island, a leading proponent. Overall, Wolf said from a smart-growth perspective, the budget was a mixed bag, sustaining funding for affordable housing and open-space preservation, but failing to address historic preservation and “the long-term structural budget problems at the R.I. Public Transportation Authority.”
Wolf said he worried that the lack of daring choices in the budget reflected fear created by the 38 Studios LLC loan-guarantee debacle.
“To the extent it is not bold because of reaction to 38 Studios is unfortunate,” Wolf said. “I don’t think the lesson from 38 Studios should be to retrench on investing in infrastructure and historic assets. If anything it underscores the prudence of investing in our strengths rather than in area we have no track record.”
Economic-development proposals from Chafee that did not survive the budget process include:
• $1 million to re-establish Project Status sales tax breaks for the purchase of building materials in job-creating, corporate-expansion projects.
• An unspecified level of funding for the Rhode Island Center for Innovation and Entrepreneurship.
• Money to plan and engineer the consolidation of state offices in the soon-to-be vacant Bank of America building in downtown Providence.
• An increase in spending on state tourism promotion.
One 38 Studios-related Chafee proposal that was accepted in the budget reforms the state’s film tax-credit program by capping credits at $5 million and barring production companies from double dipping by using state money to become eligible for tax credits.
The budget did include $3.9 million over three years for the redevelopment of the former Interstate-195 lands, including $900,000 for operations and the hiring of a staff for the I-195 Commission.
“We have done a lot with very little and now with this funding we are ready to move on to the more visible stuff,” said I-195 Commission Chairman Colin Kane. •

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