Carcieiri prescribes ‘bold, <br> business-friendly tax reforms’

PROVIDENCE – “If we make the right choices, we will be positioned to exit this downturn stronger than ever,” Gov. Donald L. Carcieri said last night in his seventh annual State of the State address, presented in the House Chamber before a joint session of the R.I. General Assembly.

He spoke of the economic challenges facing the state and the nation, saying “we are in very extraordinary times, which call for extraordinary measures.” He blamed many of the state’s economic woes on its tax policies, saying “what Rhode Island needs now is more taxpayers, not more taxes.” He promoted his own “Economic Recovery Plan,” which calls for “bold, business friendly tax reforms.” And he announced the creation, within the governor’s office, of a new Office of Economic Recovery and Reinvestment to oversee his plan for the future and administer the anticipated federal stimulus funding.
“There is no question, these are hard times,” Carcieri said. “Last year at this time, I warned that Rhode Island was at a tipping point. Now, our condition is more fragile and perilous and we need to act boldly. … Too many R.I. families are painfully experiencing the loss of jobs, health care and their homes. But now, more than ever, we mustn’t lose our nerve or our resolve.
“I know that our proposed changes are difficult ones,” he said of his recent budget plans, which rely on deep cuts in many state services, “and I know there are many critics. But, the only alternative we hear from the special interests and lobbyists is ‘raise taxes.’ … Rhode Island Island has been increasing spending and taxes for decades. That’s why we are so distressed now,” he said.
“People have been voting with their feet: they’re leaving. In fact, we have almost 4,500 – 17 percent – of our [retired] state employees whose retirement checks are mailed out of state; over 2,000 to Florida alone. I don’t blame them – but it’s indicative of the problem.”
Businesses, especially manufacturing businesses, also have been fleeing Rhode Island, he said. “In the past 30 years, we have lost almost 100,000 jobs in businesses that added to the economic wealth of our state. … These manufacturing businesses made products, sold them elsewhere, and brought the money back to Rhode Island, in the form of more jobs and investment. That’s the type of business activity necessary to build our economy and expand our tax base.”
Companies weigh many factors in deciding where to site a factory or other facility, the governor noted: “available work force, energy costs, site readiness, overall business climate – and, yes, taxes. We have been working hard on the first four – but now we need to make significant changes in our tax competitiveness … with bold, business-friendly tax reforms.”
One sector that has added jobs in recent years is local government – but that’s not a good thing, Carcieri said. Although employment in Rhode Island state government has declined by 25 percent over the past 20 years – until “today, the number is below 14,400” – employment in municipal governments statewide has grown 38 percent over the same period, to 38,000. “Ladies and gentlemen, that’s why your property taxes are so high and keep rising,” the governor said. “That’s also why it is so imperative that we find ways to consolidate services, and reduce the burden on our economy and our taxpayers.”
Going forward, he said, “we need every department of every city and town to sharpen their pencils, tighten their belts, and be smarter about how they spend the taxpayers’ money.”
“We need the unions to realize that our cities and towns cannot afford business as usual. They cannot afford the wages, the pensions, the health care and the work rules” they have contracted to provide. “These costs are crushing our taxpayers – most of whom don’t have such pensions and health benefits,” Carcieri said.
State employees, he acknowledged, “worked with us last year, recognizing the difficult economic environment. They made major concessions.” But now, he is looking for more. “I encourage every public employee union to sit down with the mayors, town managers, the city and town councils, and the school committees to become a part of the solution. … “This is not about picking on anyone. Rather, this is about picking up the burden together, for the sake of our children, our seniors on fixed incomes and those truly dependent upon us.”
At the same time as he called for smaller government, however, he also praised some of the accomplishments of government in Rhode Island over the past year. Besides recent advances in elementary and secondary education, which are largely funded by the cities and towns, he spoke of:
• The “exciting investments in our colleges and universities, which will produce the future scientists, inventors and job creators that we need,” such as the “state-of-the-art” R.I. Science, Technology, Engineering and Mathematics (STEM) Center that opened last week at Rhode Island College, “where students and teachers will focus on math, science, engineering and technology”; the new “world-class” Center for Biotechnology and Life Sciences at the University of Rhode Island; the Inner Space Center slated to open this spring at URI’s Graduate School of Oceanography, “making us a leader in global ocean exploration.”
• Environmental and renewable energy advances in 2008, including “a record-breaking year for land protection in our state,” which saw 3,148 acres of farmland or open space come under protection; the completion of a $350 million phase of the Narragansett Bay Commission’s Combined Sewer Overflow project, including the trans-bay tunnel; and the state’s agreement with Deepwater Wind, “to make Rhode Island home to the first offshore wind project in the nation” and add “800 green-collar [manufacturing] jobs at Quonset, jobs that will help both the economy and the environment.”
• State infrastructure improvements, including the ongoing Iway highway relocation project, portions of which are now open to drivers; the opening of the new Route 403 connector between Route 4 and Quonset Point; and the long-awaited groundbreaking for the Warwick Intermodal project that will connect T.F. Green Airport (PVD) with a nearby commuter-rail and auto-rental facility off Jefferson Boulevard.
• The efforts of the Governor’s Tax Policy Strategy Work Group – within the R.I. Department of Administration’s Department of Revenue – which “is completing its final report to make our state more business-friendly and welcoming, and able to compete with our neighbors,” Carcieri said.
“I have encouraged them to be bold, because we need to radically change both the perception and the reality of our tax structure,” he added, saying that he aims to include radical new tax plan for Rhode Island as part of the fiscal 2010 draft budget he soon must submit to the Assembly.
The “immediate challenge,” Carcieri said, “will be to use the anticipated federal stimulus money wisely and sensibly. We must use the additional funding to bridge the deficit, support tax relief and structural reforms, grow jobs and grow our economy.” That, the governor said, is the purpose of his new Economic Development and Reinvestment Office – created in an executive order he signed before last night’s address – “to establish a transparent process” for administering the federal aid.
“To squander this stimulus by avoiding the hard decisions would be an enormous shame, and a great opportunity lost. I don’t want our children and grandchildren to pay the price for our lack of courage.”

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The governor’s comments drew a warm response from the Rhode Island Chamber of Commerce Coalition, a nonprofit alliance whose 11 member organizations – the Central Rhode Island, Cranston, East Bay, East Greenwich, East Providence Area, Newport County, North Central, Northern Rhode Island, North Kingstown, South Kingstown and Greater Westerly-Pawcatuck Chambers – represent more than 12,000 member businesses with 90,000 employees.

Carcieri’s “desire to provide income tax relief, phase out the corporate income tax and eventually eliminate the Rhode Island estate tax, and offered support for the principles” drew specific praise from the Chamber Coalition.

“We must reform our tax structure to become not only competitive, but rather the most attractive in our region,” said coalition lobbyist David R. Carlin III.

“The Chamber Coalition agrees with Governor Carcieri that reforming our tax structure will grow businesses, grow jobs and grow revenue,” Carlin added, noting that the business-advocacy group “has long supported budget and taxation policy crafted to allow Rhode Island businesses to remain competitive.”

News and information from the R.I. Governor’s Office are available at www.governor.ri.gov.