R.I. budget plan eyed cautiously

While Laurie White says she hasn’t exactly pored over Gov. Donald L. Carcieri’s $6.89 billion state budget proposal, the president of the Greater Providence Chamber of Commerce didn’t have to look too far to find something about the plan she likes: No tax increases.
She’s pleased that the proposed budget package would hold the line on major taxes, particularly the capital gains tax, and maintains the alternative flat tax.
“We’ve made some advancement in the last two years, and it’s incredibly important that we not backslide on the tax front,” White said in an interview last week. “And any proposal that does not tinker with those tax elements, the Chamber is very much supportive of that.”
Carcieri’s proposed tax and spending plan for fiscal 2009 – and his “supplemental budget” for the current fiscal year, which ends June 30 – clearly have their share of critics.
But business leaders are applauding the effects, or lack thereof, the governor’s proposals would have on taxes. After all, the business community long has been critical of the state’s tax climate – blaming it for driving employers and their employees out – and in recent years, it has had success in enacting reforms.
“We’ve worked hard to create a more positive tax environment,” said John Gregory, president and CEO of the Northern Rhode Island Chamber of Commerce. “Any attempt to roll that back would be a big step backward.”
The governor’s spending recommendation, unveiled Feb. 1, is just the first step in a budget process that is expected to be extremely contentious this legislative session, as the Republican governor and the Democrat-controlled General Assembly grapple with fiscal 2009’s projected deficit of more than $384 million. The work is made more difficult because legislators are also considering mid-year cuts recommended by Carcieri last month to close an anticipated shortfall of more than $150 million this fiscal year.
The fiscal 2009 budget package calls for drastic changes to the Medicaid and welfare systems, assumes the termination of hundreds of state workers in the next fiscal year and cuts state aid to cities and town by millions.
It’s no surprise that the proposed cuts – both this year’s and next – have drawn strong protests.
Last week, affordable-housing advocates demonstrated at the State House against the Carcieri administration’s recommendation that the state take as much as $26 million in unrestricted funds from Rhode Island Housing, an independent state agency; and would cut $7.5 million in funding this fiscal year and next for the Neighborhood Opportunities Program, which helps create affordable housing for low-income residents.
The leaders of local governments also have decried proposed cuts to local aid – more than $12 million this year and another $24 million decrease from what municipalities had expected to receive next year.
Dan Beardsley, director of the Rhode Island League of Cities and Towns, said last week that some communities wouldn’t be able to weather the recommended reductions without a property tax increase.
In Cranston, Mayor Michael Napolitano has said layoffs of public employees are a possibility.
Beardsley was sympathetic to what the governor and state legislators face – “the most difficult budget-balancing situation I’ve ever witnessed in my 33 years here,” he said.
But, Beardsley added, “The cities and town didn’t cause the state’s structural budget imbalance. Overspending and growing entitlements have been the primary cause.”
The league plans to meet with the legislative leadership to discuss alternatives to the local aid cuts, but Beardsley declined to say what those alternatives might be.
Leonard Lardaro, an economist at the University of Rhode Island, had forecast that Rhode Island will have difficulty extracting itself from a recession later this year because of the state budget deficit. And the governor’s recommended cuts did little to change his thinking.
“I strongly sense that some of the assumptions they’re making for what will be the savings will not be there,” he said last week. “We’re not going to accomplish as much as we think.”
Under Carcieri’s budget, for instance, elderly and disabled Ocean State residents on Medicaid will be encouraged to seek care at home, when appropriate – through visiting nurses or at assisted-living facilities – rather than at more expensive nursing homes.
Also, the budget plan calls for reforming the state welfare plan – the Family Independence Program – in part by setting a two-year limit on cash assistance for families down from the existing five-year limit.
Those and other changes in state entitlement programs would generate $66.7 million in savings in the next fiscal year, the administration estimates.
“But we don’t know how much that’s really going to save,” Lardaro said. “And we’re going to find out the hard way.”
That said, Lardaro credited Carcieri for at least attempting to restructure some segments of state government. “He’s being forced to do in a fairly short time period a very, very difficult task,” Lardaro said. “We should have been studying these things over the last decade. It’s all of our blame.”
While pleased that under the governor’s budget package the tax burden wouldn’t get heavier, business leaders are opposed to Carcieri’s proposed retroactive cap on the state’s historic preservation tax-credit program. The cap was included his supplemental budget plan.
Citing $1.53 billion in investments and the creation of 7,200 permanent jobs, White argued that the tax credits have served Rhode Island well. “It’s put a lot of people to work,” she said. “And changing the rules midstream seems counterproductive.”
Now lobbyists for the business community have to monitor the progress of the proposed supplemental budget and fiscal 2009 budget plan as it moves through the approval process.
Already, legislation has been introduced to hike the capital gains tax 1.6 percent, to 5 percent, from 2009 to 2011. There are other proposals for expanding sales taxes, too. “Right now, there are so many different rumors out there,” said Gregory.
The cuts to local aid have Gregory’s full attention in part because he wants to ensure that local governments don’t increase fees to businesses to make up for the lost aid.
“We’ve been monitoring that,” said Gregory, whose Chamber covers eight communities. “We haven’t heard that is what’s going to happen, but we’re keeping an eye on it.” •