Chafee Budget Dead

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Thursday, April 14, 2011

Stephen Beale, GoLocalProv News Editor

Governor Lincoln Chafee’s first proposed budget has died in the Rhode Island House after weeks of escalating protests over his proposed expansion of the sales tax and broad opposition from a range of groups, including veterans and senior advocates.

As first reported by GoLocalProv, Speaker Gordon Fox last night said the House would not pass the budget in its “current form.” Fox singled out the sales tax increases for criticism, calling them “unacceptable” and, in some instances, “offensive.” Fox said he decided to go public with his opposition after speaking with a majority of state reps—a clear sign that there were not enough votes for the budget to pass in the House.

The news met with widespread praise from across the state yesterday.

“I certainly, certainly applaud Gordon Fox for coming out with that statement,” said Colleen Conley, President of the Rhode Island Tea Party.

The Tea Party had been planning to focus on the tax proposals in its annual Tax Day Tea Party this Friday. Despite the turnaround, Conley said the Tea Party is moving forward with its plans. “We need to keep the pressure on,” Conley said.

Business leader: ‘Pleased and relieved’

“Pleased and relieved” was how Laurie White, President of the Greater Providence Chamber of Commerce described her reaction. The day before, the Chamber had led a coalition of businesses and industry representatives in a Statehouse protest over the tax increases. Tuesday, White was among those who testified in an all-day hearing on the tax plan held by the House Finance Committee (pictured below left). Others speaking out against the plan included everyone from hair salon owners and a newspaper publisher to farmers and manufacturers.

“It demonstrated the degree to which this plan would have imperiled their ability to grow and create jobs,” White said.

Mayor hopes pension program dies too

Besides the sales taxes, the budget also would have burdened cities and towns, Cranston Mayor Allan Fung, a Republican, said last night. “I’m pleased that Speaker Fox has basically decided not to go with the Governor’s proposal,” Fung said. “There were many provisions in there that would … hurt cities and towns.”

One in particular was the MAST program, which would have offered more state aid to communities that fully fund their retirement programs. (MAST stands for Municipal Accountability, Stability and Transparency.) Fung warned that without legislation that allows communities to cut retiree pension and health care benefits, the program would have amounted to a stealth property tax increase.

What’s next?

Public employee unions were less enthusiastic about the defeat. Ken DeLorenzo, the executive director of Council 94 of the American Federation of State County and Municipal Employees, said the union had been concerned about the budget since day one. DeLorenzo had previously criticized Chafee for suggesting that state workers contribute their upcoming 3 percent raises toward their pensions.

Asked if he was worried that the House would now seek further cuts that could cut into benefits for state workers, DeLorenzo simply said he remained concerned about the budget.

Bob Walsh, Executive Director of the state NEA and a member of Chafee’s transition team, took a wait-and-see approach. Like the Governor, he said he had always been open to alternatives to the sales tax. Asked where the NEA stood on the issue, he said the union would not have opposed increasing the tax rate for higher-income payers and closing corporate tax loopholes.

As for cuts to benefits, Walsh said it’s too early to tell if that will happen.

“What’s unclear is what’s next,” Walsh said.

Where could there be more budget cuts?

Virtually everyone who spoke with GoLocalProv expressed optimism that the House can find ways to close the estimated $330 million deficit without proposals that would harm their constituencies. But they varied widely in exactly how they thought the House could do this.

Keep a higher sales tax: Walsh said it may not take further budget cuts to deal with the deficit. Instead, he said the state may be able to solve the problem through revenue. In addition to expanding the items covered under the sales tax—and instituting a new one percent rate—Chafee had proposed lowering the 7 percent sales tax rate to 6 percent. By instead lowering it to 6.25 percent, Walsh said the state might be able to eliminate some of the deficit.

Senator—State could collect $20 million more in fees: State Sen. John Tassoni, D-Smithfield, noted that when the state had a hairdressing inspector in 2002, it collected $400,000 in fees issued over violations. “If that’s in 2002, imagine what we’d be doing today,” Tassoni said.

He faulted former Gov. Don Carcieri for cutting positions that generate revenue for the state and said restoring those positions could generate more revenue. He pointed to the shortage of food safety inspectors as yet another example. Just how much does Tassoni think the state can collect from fees? “Probably a good $20 million in violations,” he said.

Eliminate increased spending: White—who had been accused by Chafee of not offering alternatives to his tax plan—says there’s a simple way of closing the deficit. She said his proposed budget increased spending over the current year by roughly $215 million, a rise of about 7 percent. Reining that into an increase of just $50 million, she said, would eliminate the need for the sales tax increases, which were expected to yield $165 million in new revenue.

She said the House could pare back the increased spending by getting rid of the MAST program and Chafee’s plans to put transportation projects on a pay-as-you-go system, instead of borrowing money to fund them. “It’s a laudable goal, but he may have to hold off,” White said.

Increased revenues: Both White and Walsh pointed to the May revenue estimating conference as a key development in how the budget is shaped. Both expressed optimism that the conference may reveal that state tax collections have increased, as the economy has begun to recover. White said it is “likely” that the conference will show $60 million in increased tax collections.

What won’t be cut—education

White and Walsh both expressed support for Governor Chafee’s plans for education. Neither expected any major cuts in those areas. Walsh noted that funding the aid formula is key to keeping the $75 million the state won in the federal Race to the Top program.

White praised Chafee for fully funding the state education aid formula and providing an additional $10 million for higher education. “These are things that will put Rhode Island on the path to prosperity in the future,” White said.

Political fallout

It is hardly unusual for the General Assembly to produce a budget different than the one proposed by the Governor. But such a public rebuff from the House Speaker—coming just one month after the budget was submitted—is unusual.

“I think the Speaker presented the first evidence of leadership in that building this year,” said House Minority Leader Bob Watson. Earlier in the day, the House Republican caucus had issued its own statement calling on Chafee to “start over” on the budget.

A Democratic state senator agreed. “I think that’s great he’s finally making a stand,” said Tassoni. “Enough is enough … enough taxes is enough taxes.”

Senate President Teresa Paiva Weed did not weigh in on issue last night, but Tassoni told GoLocalProv that he believes Chafee’s tax proposals would have met with the same fate in the Senate as they did in the House. He said he has been receiving 125 to 150 e-mails from constituents each day, expressing opposition to the budget—and specifically, the tax increases.

The setback could further color Chafee’s perception in the public eye, according to Joe Fleming, a political consultant. “I don’t think it puts him in a good light because he wants to work with the General Assembly,” Fleming.

A Brown University poll last month found that Chafee had an approval rating of just 32.3 percent, several points below the percentage of votes that he earned in the election.

But Fleming said it’s not anything that Chafee can’t recover from. “There’s still plenty of time for him to rebound from something like this,” Fleming said.

Former Providence mayor Joe Paolino said it’s time for Chafee to do some “soul-searching” and realize the state needs something different. He suggested that Chafee should adopt the approach of other governors in the country, who are focusing on budget cuts instead of tax raises. For every dollar in new revenues that you seek, you should cut three, Paolino said.

It’s unclear exactly what parts of Governor Chafee’s budget will be recycled into the new budget produced by the House. In his statement, Fox said the budget will not pass in its current form. But he also left open the door to the possibility that parts of it will, saying “will continue to work with the Governor to amend his budget submission.”

As for Chafee, he issued a tersely worded response last night: “I look forward to working with … Speaker Fox to advance an honest, responsible budget that fixes our chronic structural deficits and puts Rhode Island on a path to prosperity.”

CLICK HERE to read Fox’s full statement.

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