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Chafee’s Budget: $76 Million in New Taxes

Wednesday, February 01, 2012

 

Calling this the “year of the cities and towns,” Governor Lincoln Chafee proposed a budget that would create $75.9 million in new taxes as well as another $17 million in rate increases, with the majority of funds going to municipalities in the form of education and other aid.

Restaurants, taxis and limos, moving, storage, warehousing and freight services, pet services, car washes, the tobacco industry and bed and breakfasts would all see increased taxes under the Chafee proposal, which critics said Tuesday would disproportionately affect those working in the service industry.

“I have continued to insist on an honest, fiscally responsible budget,” Chafee said in his State of the State address. “This budget proposes a clear way to pay for this substantial and necessary education funding and help for our local communities: it will be supported by a 2-percentage-point increase in the meal and beverage tax. I know that this will be controversial, but the money we raise will go to the most important investments we can make: educating our young people and helping the property taxpayer.”

The taxing plan includes:

• Increasing the meals and beverage tax from 1% to 3%.
• Expanding the lodging tax to include rentals of vacation homes and bed and breakfasts.
• Taxing clothing that costs more than $175.
• Expanding the sales and use tax to include limos and taxi services, moving, storage, warehousing and freight services, pet services and car washes.
• $7.2 million in additional tobacco taxes.

$45 Million in Cuts

Chafee’s proposal also called for nearly $45 million in cuts, including ending dental services for adults on Medicaid, the elimination of state funding for Rhode Island PBS and several departmental mergers or eliminations.

A large portion of the cuts come from health and human services, which makes up the largest portion of the state budget.

“The cost of health and human service programs has climbed far more rapidly in recent years than any other sector of state government,” Chafee said. “Unavoidably and unfortunately, this is where many of our cuts must occur. We need to control our spending and bring our costs in line with our neighbors. We must also ensure that no one is unfairly taking advantage of our state’s programs, and my budget proposal includes new funding for the Office of Health and Human Services to crack down on waste and fraud.”

Secretary of Health and Human Services Steven Costantino, who previously served as chairman of the House Finance Committee, said that while the cuts are painful, they could be much worse.

“If you know some of the other options you could take, there are always worse options,” Costantino said.

Local Help

Chafee’s proposal also outlined the need to help cities and towns, which he said are in “crisis.”

The Governor proposed accelerating the education funding formula, which includes fully fund the second year of its implementation plus an additional $11 million for a total of $39 million in additional dollars going to public schools. That money would come from the increases taxes.

He said municipalities cannot afford any more cuts in state aid after $192 million in cuts in the five years prior to his taking office.

“Cuts in state aid to cities and towns have not only led to higher property taxes and stifled job creation, it has also drawn resources from our schools,” Chafee said. “If we want our children to compete for the jobs of the future, they must have good schools. I am proud to announce tonight that my budget maintains my commitment to education, while also reducing the financial burden on Rhode Island property taxpayers. My budget devotes nearly $40 million in additional education funding to cities and towns.”

Pawtucket Mayor Don Grebien said he was pleased with the initial proposal.

“The Governor is committed to the cities and towns,” Grebien said. “When you look at the state aid that has been cut over the last five years, it’s a step in the right direction. In these tough times, you always want more, but the Governor has done his share. He has teed it up for the General Assembly and let’s hope they take it and they swing away at it and give us the tools we need.”

Job Creation

The Governor was vague about his plans to create jobs in a state with the third-highest unemployment rate in the country, but he did announce that he plans to create the “Governor’s Jobs Cabinet,” which will seek to “retain and expand existing businesses, attract and cultivate employers in high-growth industries, and develop a skilled workforce that meets business demand.

Chafee emphasized a need to provide access to more capital in order to encourage innovation.

“I have heard from many Rhode Islanders who have exciting and promising ideas,” Chafee said. “But they are unable to obtain the needed resources to invest in new technologies, expand their operations, or start a new company. This is an area where we need to work together with experts and develop a plan for Rhode Island to strategically invest our state and private assets in the types of industries that will bring good jobs to our state.”

Complete Budget Breakdown

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