Insurance, taxes, education, water among top issues for Assembly
With Rhode Island facing a $105 million budget shortfall for fiscal 2007 and a potential gap in excess of $250 million for next year, concerns about the deficit are eclipsing most businesses’ and other interest groups’ ambitions for the new legislative session.
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That’s a change from last year, when despite budget concerns, the General Assembly made progress on several business priorities, including property-tax reforms, a reduction in the personal income tax for high earners and new health plans for small businesses.
The biggest item brought up by legislators so far this year that directly involves businesses is a possible sales-tax overhaul. But given the pressure to close the budget gap, it’s Medicaid and efforts to reduce its growing cost that are likely to take center stage.
Gary S. Sasse, executive director of the Rhode Island Public Expenditure Council, said in an interview last week that finding ways to close the budget gap is one of his top goals for 2007. RIPEC is looking at three areas where spending could be cut, he said: personnel, state aid to communities and entitlement programs.
Among entitlements, Medicaid is eating up the biggest portion the state’s budget, Sasse noted. Last year, Gov. Donald L. Carcieri formed a task force, led by Sasse, to recommend ways to curb Medicaid spending. An interim report has been completed but not yet released, he said.
For the state’s health care sector, there’s a great deal at stake with the Medicaid discussions, said Edward J. Quinlan, president of the Hospital Association of Rhode Island.
Most hospitals continue to lose money, he noted, and if Medicaid eligibility were to be limited, that would result in more uninsured patients, further eroding the system.
Medicaid cuts could also affect the hospitals directly, if the so-called “disproportionate share” payments – which partially reimburse institutions for uncompensated care – were cut, Quinlan said. And reimbursement rates for hospitals and providers could also be in danger.
“It will be an important year,” Quinlan said. “We recognize difficult decisions will have to be made.” But eight of the state’s top 20 employers are hospitals, he added, and Rhode Island has the largest share of health care workers of any state, at 14 percent.
“Health care is a significant sector of the economy, so as health care issues are considered, you have to consider the impact,” Quinlan said. If the Medicaid issue is handled well, he said, it will be debated not only “from a cost perspective,” but also “as an investment.”
KEITH STOKES, president of the Newport County Chamber of Commerce, said he’ll be watching Rhode Island’s budget process closely to ensure that the deficit is closed in a way that doesn’t harm smaller businesses by adding new costs for entrepreneurs.
“You don’t want to do it a way that will further burden the small business,” Stokes said.
On the tax front, at least, early indications are that legislative leaders want to continue cutting taxes, not raise them.
In a statement provided through his spokesman, House Speaker William J. Murphy swore off any income-tax increases and said all tax policies would be reviewed with an eye toward making the state more competitive.
“We need to be encouraging economic growth and entrepreneurship, not discouraging it,” Murphy said, “and both flattening and modernizing our tax structure will be part of the solution.”
The sales tax is part of that discussion. Rhode Island’s 7-percent rate is among the nation’s highest, but it applies to a very limited range of goods – and, unlike in many states, it does not apply to services. There has been some talk of reducing the rate to make it more competitive with Massachusetts’ 5 percent, and then broadening the tax base.
Stokes said he isn’t necessarily sold on the idea of a reduction – yet.
“I would probably support RIPEC working with the legislature doing some very thorough economic-impact analysis first, before we take a position of restructuring that rate,” Stokes said. “Maybe we should also be looking at what’s taxable or not.”
Stokes is a supporter of the state’s 30-percent historic tax credit, which has come under fire in recent years due to its growing cost – estimated at $64 million for fiscal 2007. But Scott Wolf, executive director of Grow Smart Rhode Island, one of the program’s chief advocates, said he expects a strong debate about the credit again this year.
“I think we have to be vigilant about needing to defend it every year,” Wolf said. “Although I think and hope, as time goes on and more of the projects enrolled in the program come online, the constituency supportive of the program continues to grow.”
LAURIE WHITE, president of the Greater Providence Chamber of Commerce, said that after focusing on tax reform in 2006, her group this year plans to make helping smaller businesses a priority – especially when it comes to health care.
White said the Chamber plans to submit legislation that would reduce premiums for companies that promote wellness initiatives and would allow groups such as the Chamber to buy health coverage collectively for their members, and thus take advantage of their greater negotiating power.
Legislators are also expected to revisit the package of reforms passed last year that created WellCare, a new type of small-business health plans designed to keep premiums low by limiting coverage while promoting preventive care and wellness initiatives.
Insurers are due to submit their first proposals for WellCare plans to Health Insurance Commissioner Christopher F. Koller on Jan. 16, and the plans are to be made available to subscribers later this year.
But a key part of the WellCare initiative – a proposal to offer subsidies to employers for whom even those premiums are unaffordable – was left unfinished in the last session. The subsidy system itself was set up, but there’s no funding mechanism, because insurers successfully fought off efforts to impose some kind of premium tax to cover the cost.
JACK WARNER, the state’s commissioner of higher education, said his office plans to push this year for measures to make Rhode Island’s public colleges and university more affordable and accessible. While tuition at the schools has risen in the last five years, he noted, state funding for the institutions has grown less than 1 percent during that time.
“If they want to get tuition and fees under control, then they must increase the state appropriations to the university,” said Robert L. Carothers, president of the University of Rhode Island. He and Warner said the Community College of Rhode Island also needs a boost, especially given its growing importance as the place where children of immigrants and lower-income residents go to pursue an education.
Christopher “Kip” Bergstrom, executive director of the Rhode Island Economic Policy Council, said his group will be pushing for an increase in adult-education funding. It’s crucial as the state moves to more innovation-based economy, he said, and as less-educated immigrants are increasingly needed to replace the baby boomers retiring from the work force.
“Our jobs are growing increasingly high-skilled, and our population is growing increasingly low-skilled,” Bergstrom said.
WATER is also expected to be on this year’s agenda. It’s been an issue in central Rhode Island for a while, and last year it became so problematic for the Kent County Water Authority that the General Assembly had to intervene in a dispute between the authority and Amgen, the biomedical giant that was expanding its West Greenwich plant.
Wolf, Sasse and Bergstrom all listed water worries as one of the key issues that need to be addressed in the coming year.
Sasse said that Rhode Island needs a water policy outlining who would be responsible for the finite resource. Bergstrom said that right now, the state is a position where, if it “doesn’t rain for six months, we’re in trouble.”
“We need to develop a reserve supply, and we also need to manage peak demand so we don’t use up the limited supply that we have,” he said.
– With reports by Marion Davis and Nicole Dionne.
