(Updated, 3:05 p.m.)
PROVIDENCE – Gov. Donald L. Carcieri on Friday said he would not sign or veto the $7.8 billion state budget for 2010-11 passed by the General Assembly, which means it will become law without his signature.
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Carcieri cited as a key reason for refusing to sign the budget its inclusion of $108 million in federal Medicaid payments that have not yet been approved in Washington.
Congressional Democrats removed the money from the U.S. House’s version of a job-creation bill because of concerns about the deficit, but this week Democrats in the U.S. Senate added the money back into their own version of the legislation.
The state budget includes a provision allowing the governor to institute across-the-board cuts to make up the difference if the Medicaid money is not approved. The General Assembly could make changes to the proposed cuts.
“While the budget includes a provision for the next governor to make reductions in spending should Congress not act, having this gaping hole in the budget is ill-advised,” Carcieri said in a statement.
Lawmakers in both houses of the General Assembly passed the budget plan last week. It will reduce state aid to cities and towns and pare back public-employee pensions but will not increase sales or income taxes.
The legislation was crafted to close both a $182 million deficit for the current fiscal year, which ends June 30, and a projected $386 million shortfall for the year that starts July 1.
Despite his unhappiness about the Medicaid money, Carcieri also had some praise for lawmakers.
“While these criticisms of the budget are warranted, it does not diminish the progress the General Assembly has made,” he said. “I am mindful and appreciative of the significant steps the General Assembly has made to rein in the state’s pension benefits and unfunded [pension] liability.”
He added: “I believe pension reform will again be before the General Assembly next year and every year thereafter until the structural deficiencies are addressed and the state moves to a defined contribution plan.”
The governor’s announcement followed a marathon overnight finale to the General Assembly’s annual legislative session, with lawmakers finally adjourning for the year shortly after 4 a.m. Friday.
The budget was not impacted by the overhaul of the state’s income tax structure that Carcieri signed into law earlier this week, because the changes were designed to leave total tax revenue unchanged. The tax law, which reduces the top rate from 9.9 percent to 5.99 percent, takes effect on Jan. 1.
Back in April, House and Senate leaders had passed two different deficit-reduction plans for the current fiscal year. They wound up deciding to deal with the problem as part of next year’s budget bill rather than in separate legislation.
In addition to another cut in aid to municipalities and school districts estimated at $150 million, the budget reduces pension payouts for state retirees by eliminating cost-of-living increases for retirement benefits above $35,000, among other provisions.
The budget does not dip into the state’s rainy-day fund or refinance its long-term pension obligations, two key sticking points in negotiations with the Senate earlier in the year. The proposal also repays $22 million borrowed last year from the state’s rainy-day fund.
The legislation could sharply increase how many people are required to pay vehicle excise taxes, cutting the exemption from the first $6,000 of a vehicle’s value to the first $500. That means owners of older vehicles would now owe their city or town money for them if municipal officials decide to levy the tax.
The budget will also put a question on the November ballot asking voters to approve a $14.7 million bond that would be used to acquire the former Rocky Point in Warwick and the former Shooters nightclub in Providence, and to pay for renovations to Fort Adams State Park in Newport.
Carcieri said he was concerned that the budget did not prepare for the end of the federal stimulus law in fiscal 2012, which will take away $200 million included in the budget for next year. “Passing my pension reform and completely eliminating the motor-vehicle excise tax would have helped to cushion the blow when the stimulus money ends,” he said.
Carcieri also said lawmakers should do more to “give our municipalities the tools to equip town and city officials with the means to make local government more affordable.”
