House plan endorses key business priorities
Shrugging off some of Gov. Donald L. Carcieri’s proposals while accepting others, the House Finance Committee last week approved a state budget for fiscal 2007 that avoids some proposed cuts to programs for the poor while cutting taxes for the state’s richest residents.
The $6.66-billion budget, which passed unanimously on Tuesday and is slated to go before the full House today, would draw $3.2 million from the state’s general fund. It would increase spending by 4.9 percent from the current year, and cut taxes on several fronts.
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In February, House Democratic leaders had proposed a comprehensive tax-cut package, backed by the Greater Providence Chamber of Commerce, that included a cut in the top personal income tax rate from 9.9 percent to 7.5 percent in 2007 and 5.5 percent in five years.
Facing a major budget shortfall, the Finance Committee opted for a more modest reduction in the first year, to 8 percent. Taxpayers would have a choice between the higher rate with deductions, or a flat 8 percent. The reduction is expected to cost $7.2 million in fiscal 2007.
Christopher “Kip” Bergstrom, executive director of the R.I. Economic Policy Council, said the flat tax would likely help economic development. Part of what hinders the state in attracting companies, he said, is the high income taxes that corporate executives face.
While the option does not make Rhode Island’s taxes lower than neighboring Massachusetts, which has a flat 5-percent rate, Bergstrom said, it will help.
“Our tax rate has been most out of whack at the top and the bottom,” Bergstrom said.
“This takes steps to fix both problems.”
Along with the top-tier tax cut, the budget also increases the state earned-income tax credit from 10 percent to 15 percent of the federal credit.
In addition, the budget would continue the car tax phase-out, raising the exemption from $5,000 to $6,000 of a vehicle’s assessed value. Carcieri had proposed to raise it to $5,500. Also, the committee approved raising the property tax credit for low-income seniors and disabled homeowners from $250 to $300.
Further efforts to reduce Rhode Islanders’ tax burden may still come through this year.
The same day the House Finance Committee approved its budget, the Senate Finance Committee approved a measure to cap annual municipal tax rate increases at 4 percent, gradually phased down from the current 5.5 percent.
Rep. Steven M. Costantino, D-Providence, the House Finance chairman, told reporters last week that budget discussions were continuing both with Senate leaders and with the governor’s office. There were some “philosophical differences” being worked out, he said, noting that taxation was one issue that still had to be agreed upon.
Greg Pare, a spokesman for Senate President Joseph A. Montalbano, D-North Providence, said last week that the Senate leadership was still gaining a consensus among its members and had not yet taken a position on the House version of the budget.
One hot tax issue that the House budget ultimately didn’t address was the state’s 30-percent historic tax credit, which Carcieri has said needs to be reassessed, Costantino has suggested is excessive, and developers and smart-growth advocates say is a major asset for Rhode Island.
Asked why the committee made no changes to the plan, Costantino replied, “We just didn’t.”
Scott Wolf, executive director of Grow Smart Rhode Island, said he was pleased by the committee’s decision. He said Grow Smart – along with a coalition of organizations and businesses that supported the initiative – were still monitoring the credit as it moves throughout the budget process, but didn’t expect any major changes.
“I think it is in part a reflection of the growing visual support that there is for this initiative,” he said.
However, another valued economic-development tool did take a hit in the budget: so-called “project status.” The R.I. Economic Development Corporation gives the designation to projects that are expected to add jobs and grow the tax base, and the companies involved get an exemption from the state sales tax when purchasing building materials and other items.
Costantino said the committee isn’t proposing to eliminate project status, but rather to change how it’s awarded. Instead of having the EDC do it, the General Assembly would review projects directly, as it does when approving smaller bond-supported projects.
The change is meant to provide more oversight, Costantino said. In the past, project status has been awarded to companies such as Fidelity Investments and Verizon, but also, quite controversially, to the Tim Horton’s coffee-shop chain.
“We do have some concerns that some of these projects did not meet the overall intentions of project status,” Costantino said, adding that there was a need to also examine companies that were “bundling” multiple tax credits.
Asked for an interview on Wednesday with EDC Executive Director Saul Kaplan to discuss this issue, spokesman Andy Cutler said Kaplan was unavailable for comment because he was preparing for his confirmation hearing on Thursday.
Two proposals included in the budget would impact affordable housing in the state. The first, a $50 million bond referendum question, is expected to help finance the creation of 1,667 new housing units in the state – most of them rental properties for people earning between $30,000 and $60,000. The second proposal includes $7.5 million in the budget for living units for people making under $30,000.
Susan Boddington, deputy director at Rhode Island Housing, said the money would go toward implementing the affordable-housing plans crafted by the 29 communities in Rhode Island that had to work to meet their affordable-housing goals.
One of the biggest changes the House Finance Committee made to Carcieri’s proposed budget was to preserve coverage under the RIte Care program for the children of illegal immigrants and for parents whose household income falls between 133 and 185 percent of the federal poverty line. Hospitals and community health centers had strongly objected to the cuts, as had advocates for the poor.
But Costantino said that the program will stop accepting illegal immigrants’ children at the end of this calendar year.
“We did not want to hurt anybody who’s currently insured,” he said. “We didn’t want to cut anything so abruptly that they didn’t have the ability to transfer to some other program.”
