The state House of Representatives will vote this week on a $6.35-billion budget that holds the line on broad-based taxes and slightly trims the car tax, but boosts state spending by 6.5 percent and takes a 1.25-percent “processing fee” out of historic preservation tax credits.
The budget is $97 million bigger than Gov. Donald L. Carcieri’s proposal, but reflects, to a great extent, the governor’s own priorities – especially his push for pension reform, which the House Finance Committee on Tuesday approved with only minor changes.
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Given this victory, Carcieri, who vetoed the first two budgets passed under his tenure, called himself “encouraged” by this one. He stopped short of assuring his signature, however, pending a review of the details by his department heads.
In a briefing with reporters, Finance Chairman Steven M. Costantino (D-Providence) said the budget reflects three “major themes”: “significant pension reform,” restoration of “some critical programs” Carcieri had trimmed, and property tax relief.
Just weeks ago, Carcieri and legislative leaders had been talking about income-tax relief as well, but then a $25-million budgeting error came to light, and a long-standing impasse with the state workers’ union was ended, making it likely that a contract will soon be in place for which the state needs to budget $43 million to cover raises – $33 million of it in fiscal 2006.
“We’re not going to be able to get there this year,” Costantino said of broad income-tax cuts. “We were put in a box when we lost the $43 million and $25 million.”
The House budget does boost the state’s earned income tax credit for the poor to 10 percent of the federal credit, up from 5 percent, and provides for a “circuit breaker” property-tax refund not only for senior citizens, who’ll be eligible for $250, but also for the non-elderly poor, who could get refunds of about $200 or $225, Costantino said.
And the car tax phaseout is being pushed forward, with a boost to the exemption from $4,500 to $5,000. For a Providence resident, that’ll mean a savings of $38.39 per car, but in lower-taxed towns such as Tiverton, the savings could be under $10.
Gary Sasse, executive director of the Rhode Island Public Expenditure Council and a longtime advocate of broad-based tax relief, said on such a small scale, the cut is “not significant.”
Sasse noted that in his hometown, East Greenwich, the town council has already raised property taxes by 2.9 percent, adding about $110 to the bill on a $200,000 house. RIPEC has always supported a car tax phaseout, he said, “but the increments have to be meaningful.”
The House budget does contain other good news for local taxpayers, however: Carcieri had proposed to level-fund general revenue-sharing, the payment in lieu of taxes (PILOT) program and distressed communities aid, but the House boosted them by a combined $17.6 million.
The House plan sticks with the governor’s $685.1-million local school aid figure, however, which local leaders, including Providence Mayor David N. Cicilline, have said is too low.
For the last decade, the General Assembly has always added to the governor’s school aid plan, so this is a first. State Rep. Paul W. Crowley (D-Newport) said the change “reflects a growing concern of the Assembly” that the extra aid isn’t resulting in property tax relief.
Still, Sasse said the combined impact of the $17.6-million local aid boost and the state’s offer to buy the Dunkin’ Donuts Center, which Providence is now subsidizing to the tune of about $700,000 per year, should put pressure on Cicilline to hold taxes down. “Providence came out really good in this budget,” Sasse said.
The mayor agrees to a great extent. Cicilline said he’s “very pleased” by the restoration of PILOT and other funds, and by the “very good” pension compromise, which will save the city millions of dollars each year, but said he’s “disappointed” by the school aid figure.
Asked if Providence would avert a tax hike, Cicilline said he is “very committed” to that, and will do “everything that is humanly possible.” As for the Dunk offer, he called it a “fair and equitable deal” that would benefit the city and state.
From the state’s perspective, the Dunk purchase would be a major investment: $28.5 million to buy the property, $62 million to revamp it, and $2 million to cover financing costs, for a total of $92.5 million to be borrowed by the Rhode Island Convention Center Authority.
Costantino said it’s worth it, because “that facility needs to be turned around… (so) it is looked at as an asset, not a liability.”
For broader economic development the House left most of Carcieri’s spending plan intact, except for a $75,000 cut to the R.I. Economic Development Corporation’s NASA “technology transfer center” and a $400,000 trim to local grants.
For affordable housing development, the legislators’ plan boosts the Neighborhood Opportunities Program budget from $5 million to $7.5 million. But the House plan also seeks to squeeze more than $3.5 million from housing and commercial developers refurbishing historic properties – a key part of urban revitalization.
Since 2002, the state has provided a 30-percent tax credit for historic preservation, complementing the federal government’s 20-percent tax credit. The two combined make it possible for a developer who spends, say, $1 million to refurbish a mill to get $500,000 worth of tax credits. Developers usually don’t keep the credits, but sell them to investors.
Under the House budget, to get the $300,000 in state credits on that project, the developer would have to pay a 1.25-percent ($12,500) “processing fee.” That’s still better than Costantino’s earlier talk of imposing a moratorium on the historic tax credit, an idea that got shelved after supporters came out in force to defend the program.
A study sponsored by Grow Smart Rhode Island in March estimated the state’s annual investment in the program at about $29.5 million, but said about 20 percent of that is offset before it’s incurred through construction-period tax collections. The rest, the study said, is offset over time by new income and sales taxes paid by the people who live and work in the refurbished buildings, and by additional property-tax revenue.
Between 2001 and 2004, the study found, the $145 million invested by the state had spurred $795 million in economic growth, much of which “simply would not happen” without the tax credits.
Asked why the House had picked this program, in particular, for a reduction, Costantino said Rhode Island has been “extremely generous” with historic preservation credits, and “we are still the most generous in the country even with a 1.25-percent processing fee.”
“This is a program of which we’re very, very supportive,” Costantino added. As for revising other, less well-regarded incentives, he said: “That’s why we’re setting up a tax policy office.
We’re hoping that type of discussion does happen.”
The House budget also keeps Carcieri’s proposal to eliminate the Beacon Mutual Insurance Co.’s exemption from the 2-percent premium tax, and pegs the resulting revenue at about $5.7 million from 2005 and 2006 premiums.
