Gov. tries keeping tax plan alive

The pace hasn’t slowed for Paul Dion even though House Speaker Gordon D. Fox has declared that Gov. Lincoln D. Chafee’s state budget proposal and his controversial sales tax plan won’t survive as is.
Dion, chief of revenue analysis at the R.I. Department of Revenue, and other Chafee administration officials continue to make the rounds to area chambers of commerce, plugging the governor’s $7.66 billion tax and spending package that includes the proposal to lower the 7 percent sales tax while also expanding it.
“Everybody’s still looking at it as a possibility, just maybe not in its complete and entire form,” Dion said last week before traveling to a breakfast meeting at the North Kingstown Chamber of Commerce with Keith W. Stokes, the R.I. Economic Development Corporation director. “But there are still discussions about elements of the proposal.”
Whatever form the state budget will take is in the hands of the House Finance Committee, but that hasn’t stopped the Chafee administration and other groups from making their case, for and against the governor’s initial recommendations.
The business community, which rallied last month at a legislative hearing on Chafee’s plan to subject more goods and services to the sales tax, continued its lobbying efforts last week.
The Chamber of Commerce Coalition, a group of 11 Rhode Island-based chambers, has set up a website enabling its members to quickly dash off emails to local legislators expressing opposition to sales tax expansion, even a watered-down version.
Business groups have also strongly opposed Chafee’s plans to implement combined tax reporting and to restructure the minimum corporate tax.
“The overwhelming opinion is that we continue to drive for no new taxes, an expanded tax or increased taxes,” said David R. Carlin III, spokesman for the coalition. “That’s not the proper way to deal with the projected budget shortfall.”
Business leaders have argued that the governor and lawmakers need to go farther in reining in expenditures to close a projected $331 million deficit for fiscal 2012; advocates for the poor say such cuts would gut the social services on which lower-income residents rely. “We still believe that we must raise revenue,” said Kate Brewster, executive director at the Poverty Institute. “And modernizing the sales tax is a step in the right direction.”
Everyone will have to wait to see what direction the House Finance Committee is headed. The conclusion of the Revenue Estimating Conference this week will provide some guidance.
That’s when fiscal advisers from the governor’s office and the General Assembly update forecasts for state revenue in the coming year – estimates that are used to shape the state budget proposal.
If this year’s flow of revenue is any indication, state officials can expect to receive good news from the advisers.
For the first nine months of fiscal 2011, general revenue is running about 2.5 percent – or $49.51million – higher than initially forecast. Raising revenue estimates for 2012 would give budget writers a little more room to maneuver through the state’s fiscal woes.
Last week, the House fiscal staff was giving few indications on how the Finance Committee would act.
For his part, Chafee, an independent, has said he doesn’t want to expand the sales tax, but he insists he had little choice facing a $300 million shortfall just a few months into his first term.
Chafee’s plan would lower the sales tax rate from 7 percent to 6 percent, but he would tax an array of products and services for the first time, some at a 6 percent and some at 1 percent. The Chafee administration said the move would generate $164.9 million.
Sales tax issues have garnered their fair share of attention from lawmakers this session.
In anticipation of Chafee’s effort to expand the tax, legislators submitted measures that would exempt items such as horse feed on commercial farms, sprinkler and fire alarm systems and the trade-in value of motorcycles and pickup trucks. One bill would exempt clothing valued less than $500, while another would impose a tax for the sale, storage and use of boats. Rep. John G. Edwards, D-Portsmouth, sponsored a bill that would cut the sales tax to 6 percent in July, then lower it 1 percent each of the following three years to 3 percent. The measure would gradually reduce the number of exempt products and services.
So far, the bills either haven’t been heard or have been held for study in the Senate and House finance committees, while committee members decide how to proceed with Chafee’s budget package.
The General Assembly leadership has already signaled how it feels about the governor’s sales tax recommendation.
Immediately after an outpouring of opposition from business owners at a House Finance Committee hearing last month, Fox called it “unacceptable.”
That said, Fox hasn’t ruled out some sales tax alterations.
“He’s not quite signaling that everything is totally dead on the sales tax,” Fox’s spokesman Larry Berman explained last week. “He has said the two-tier approach is not acceptable; he’s very concerned about the 1 percent.
“But Speaker Fox has basically said that taxes should be the last alternative,” Berman continued. “He’s asked the Finance Committee to sharpen their pencils and see if they can find places in the budget where they can consider cutting expenditures.
“Everything is open right now,” he added. “It’s a work in progress, and at the end of the day, you still have to find $300 million to balance the budget. Where do you find it?”
Chafee told Providence Business News last week that he was still hopeful that some aspect of his sales tax expansion would survive because he said the state desperately needs more revenue.
“We have to be smart and get out of this hole. … The three revenue sources would be either cut state aid to cities and towns, which would [raise] property taxes – the least acceptable option to me – then sales and income taxes,” Chafee explained. “Those are the three big areas. My preference is the sales tax.” •