David R. Carlin III was pleased last week to hear that Gov. Donald L. Carcieri and the House leadership were still refusing to consider tax increases to balance next year’s state budget, even though the projected shortfall has grown as much as $55 million.
But Carlin, the lobbyist for a coalition of 13 chambers of commerce in Rhode Island, wasn’t convinced that no new broad-based taxes for next year was a sure thing.
“We feel good about it,” he said last week. “We’ll leave it at good; we don’t feel great because things can be 180 degrees different at the end of the session.”
Carlin’s leeriness is understandable. In February, Carcieri submitted a $6.89 billion budget proposal to the General Assembly that called for drastic cuts to social services and included the termination of hundreds of state workers to cover a then-projected shortfall of $384 million without raising major taxes.
Then on May 9, state budget analysts concluded that the deficit for the fiscal year beginning in July would be between $50 and $55 million larger because of lower-than-expected tax collections for the first 10 months of fiscal 2008.
Now, that news has some stepping up calls for the state to consider altering taxes, such as the alternative flat tax and capital-gains tax, instead of further cutting social service programs and state aid to communities, which in turn might force property-tax hikes.
Karen Malcolm, director of the advocacy group Ocean State Action, said that message is gaining some traction among rank-and-file legislators. “The support is there and growing as the deficit numbers increase,” Malcolm said.
Earlier this session, the group had Sen. Paul E. Moura (D-East Providence) and Rep. Arthur Handy (D-Cranston) sponsor measures that would have broadened the sales tax and eliminated some tax breaks, particularly those that assist the state’s wealthiest taxpayers. The idea was that those changes would provide some property-tax relief to homeowners.
Because the state is cutting its aid to local communities, “middle-class families are getting squeezed by an increase in property taxes,” Malcolm said. “What choice do the cities and town have?”
Ocean State Action acknowledged that those bills have no chance of passing this year, but said key components could be plugged into the 2009 budget.
Those components include restoring the 5-percent capital gains tax from its current 1.67-percent rate and eliminating the flat alternative tax. Malcolm asserted that those two actions could lower the state’s shortfall by $62 million.
“That’s not the whole deficit, but it’s a big step toward it,” she said. “We need to look at both sides of the ledger, not just the spending side.”
The governor is expected to meet with legislators in the coming weeks to discuss how to close the additional $50 million gap, according to his spokesman Jeff Neal.
Although Neal could not provide answers last week on where state leaders will focus their efforts, he did say tax increases are not under consideration. “Rhode Island resident simply cannot afford more taxes,” Neal said.
So far, the Republican governor has generally found an ally in the leadership of the Democrat-controlled General Assembly. In fact, legislators earlier this month approved a supplemental budget to close a $168 million deficit for the current fiscal year largely unchanged from Carcieri’s proposal in January.
Indeed, House Finance Committee Chairman Steven M. Costantino (D-Providence) agrees that raising taxes isn’t going to solve the financial problems. “And we’re trying to stick with that as much as we can,” he said last week. “But it’s going to be hard to find $50 million.”
Carcieri’s initial budget plan already featured drastic cuts. For example, Costantino said, he participated in hearings last week on the governor’s proposed changes to Medicaid that, along with other entitlement reforms, would lead to more than $60 million in savings next year.
In another hearing last week, the Carcieri administration sought to spend more than $200 million on contract workers next year. “That might be an area we will have to touch,” Costantino said.
Aside from that, he said some savings may be found by “redesigning and consolidating” state services. “We have to start thinking long-term, thinking beyond next year,” he said.
Costantino also said the debate about the deficit should not be framed as “the wealthy versus the middle class or the poor.”
With food and energy costs on the rise, and many homeowners unable to fall back on the equity in their homes as a safety net, “you’ve got immense pain across a whole bunch of people,” he said.
He’s more concerned about what reversing some of the tax reforms in recent years would do to economic development in the state, considering that unemployment is already on the rise. “I’m afraid any reversals in the taxes will mean a loss of more jobs,” he said.
Regarding the concern of many that cuts in state aid to cities and towns will force exorbitant hikes in property taxes, Costantino said municipalities were warned months ago about the fiscal situation and should have prepared for cutbacks. “They need to go through the same exercise we’re going through now,” he said.
Carlin, the vice president of government affairs for the Northern Rhode Island Chamber of Commerce and lobbyist for the Rhode Island Chamber of Commerce Coalition (RhodeIsland.Illumen.org), said that the business community has no “magic bullet” to end the fiscal woes, so spending has to be reduced.
“It’s not a matter of ‘Is there any more to be cut?’” Carlin said. “It has to happen. The state can’t spend a half-billion dollars more than it has.
“This is not a revenue issue,” he added. “This is a spending issue.” •
