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New State Budget: Winners and Losers

Friday, June 01, 2012

 

The new $8.1 billion House budget unveiled last night is a mixed bag of good and bad news for taxpayers, labor unions, business advocates, and local communities—angering some constituencies, and benefiting others.

 

The budget, which the Finance Committee voted to send to the full House, does not make any sweeping changes to the landscape of state and local government—and that may be its biggest problem, say some conservatives and progressives. But there is nonetheless plenty in the budget for activists, lobbyists, and Rhode Island citizens in general to like and dislike.

The Biggest Loser—Broke Cities and Towns: If there was anyone that was upset over the results last night, it was those cities and towns that are counting on the state to help them turn around their troubled finances. As alarm bells started going off across the state earlier this year—Providence, Woonsocket, West Warwick, East Providence—Gov. Lincoln Chafee stepped in with a series of bills to help rescue bankrupt or near-bankrupt cities.

Some of his proposals—such as one that would loosen state mandates on school spending, were adopted in the House Finance Committee budget, but the most controversial measures were not. Among those were proposals that would have allowed cash-strapped cities and towns to suspend COLAs for retirees, slash disability pensions, and strictly limit union negotiations to just base salaries.

“Unfortunately, the communities that need the help the most won’t be getting it,” said Dan Beardsley, head of the Rhode Island League of Cities and Towns. “What does that say about public policy regarding the state’s relationship with its subdivisions? I think the relationship has been nonexistent.”

The local pension and collective bargaining reforms still have a shot at passing the House as separate bills—but their exclusion from the budget can hardly be a good sign for municipal mayors and managers.

But that’s all good news for labor leaders like George Nee, president of the AFL-CIO, who said the General Assembly had respected the collective bargaining process. “So, that’s a plus,” Nee said.

 

Winner and Loser—Public Unions: Unions were spared major changes to local pensions and contract negotiations, much to the chagrin of fiscal conservatives like Lisa Blais, the spokesperson of the Ocean State Tea Party in Action.

“Hands down, the top winners are the public-sector unions without the governor’s bills hence making the cities, translation the taxpayers, the losers,” Blais said. “They win again without the budget incorporating freedom of choice and demanding a quid pro quo by securing tenure for public school teachers, to push up the date in which lay-off notices must be provided.”

However, there isn’t much else for labor unions to celebrate in this budget. A number of key state union contracts expire this summer—and this budget, which takes effect in July, does not include any salary increases, according to House Finance Chairman Helio Melo, D-East Providence. The budget also leaves intact the pension reform passed last fall, despite efforts earlier this year by some state lawmakers to roll back provisions that they viewed as harmful to the poorest retirees. (Asked for comment several labor leaders said they were not in a position to comment on whether public employees overall were winners or losers in this budget.)

WINNERS

 Taxpayers: Governor Lincoln Chafee’s effort to hike the meals and beverage tax was scrapped by the Finance Committee. Lawmakers also rebuffed his proposal to treat vacation rental homes like hotels for the taxation purposes. “Some of this budget is a win for taxpayers and some of it definitely is not,” said Donna Perry, executive director of the Rhode Island Statewide Coalition. “Taxpayers are winners in two key areas which included the rejection of any new broad based taxes and preserving the gains made last year in pension reform for the statewide system.

 

“There were several bills which could have undermined the savings achieved for local communities through last fall’s passage of the sweeping statewide pension system overhaul and it’s significant that they didn’t gain traction,” Perry added. “It’s also a win to see the Governor’s meals tax hike was rejected as it would hamper one of the state’s few thriving industry sectors by hurting family-run restaurant businesses that dominate a lot of local downtowns, as well as hurt larger restaurant and hotel groups.”

However, she said it’s far from clear that that the General Assembly will handle a $102.7 million surplus in the “best interests of the taxpayer” and she expressed concern that the money might be dumped into programs rather than addressing state debt and looming future deficits.

Central Falls retirees: It might be small consolation after everything else that’s happened to them, but the Finance Committee budgeted $2.6 million to help soften the blow for those that saw the severest cuts to their pensions. Under a settlement, the money will ensure that their retirement will not be less than 75 percent of what it was pre-bankruptcy. It’s not ideal—but it sure beats getting just 55 percent of what they once had. State lawmakers seemed unconcerned that other cities and towns might follow the example of Central Falls and ask for help to shore up their struggling pension funds.

PBS: Earlier this year, some people were caught off guard when Governor Chafee proposed cutting funding to Rhode Island PBS. That may still happen—but not for at least another year. Instead, this budget calls for the development of a plan to transfer the Rhode Island Public Telecommunications Authority from state to private support as part of the 2014 budget.

Developmentally disabled community: Some people were shocked when the state last year cut services to the developmentally disabled to the tune of $24 million. The budget would increase funding for such services by about $9 million—described as a “substantial restoration” by Melo.

The move earned praise from both labor and the Tea Party. “Obviously we’re gratified that there was restoration of significant funding for the developmentally disabled community,” said Nee.

 

“It looks like the developmentally disabled will get something back. That’s a good thing if the money is spent to directly meet their needs,” said Blais. “But, this just shows that the General Assembly doesn’t have the big picture plan to set public policy that will create an environment that screams that Rhode Island is the place to be. They take away one year, giving back another year.”

Some businesses, especially developers: The state is setting up a uniform statewide electronic plan review, permit management, and inspection system. This is welcome news for developers whose top complaint is all the red tape they have to cut through to get projects approved.

Most school districts: Overall, cities and towns might not be getting as much as they want, but school districts that have historically been ‘underfunded’ have to be happy that state lawmakers want to accelerate the increase in funding they are receiving under the new state education formula. The total accelerated funding is $11 million and those districts benefiting include Pawtucket, East Providence, Warwick, and West Warwick. In total, there are about two dozen districts that will be seeing sooner-than-scheduled increases in state aid.

LOSERS

Portsmouth and Tiverton drivers: It’s not a done deal yet, but the House Finance Committee cleared the way for a toll on the Sakonnet River Bridget—affecting drivers in those two communities. Under the proposed budget, ownership of the Sakonnet River Bridge and the Jamestown Verazzano Bridget would be transferred from the state Department of Transportation to the Rhode Island Turnpike and Bridge Authority. It would be up to the turnpike authority to decide how much the toll would be. State lawmakers say it’s a fairer way of funding maintenance of all East Bay bridges—but that probably won’t make local drivers feel much better.

 Taxi and limo drivers: Not everyone was spared tax increases. Under the proposed budget taxicab, limos, and other private transportation services will now be subject to the 7 percent state sales tax.

 

Pet groomers and car wash businesses: They too will also be subject to the sales tax. Veterinarian services, however, are exempted.

Corporate ‘Double dippers’: Companies cannot apply for a film tax credit in the same year that they are receiving a loan or loan guarantee from the state. (Think 38 Studios.)

Smokers: Cigarette taxes, already among the highest in the country, at $3.46, will go up 4 cents. Some say this only encourages a black market in cigarettes, but state law has stiff fines of $10,000 or more for smugglers. 

Luxury clothing: The sales tax was also expanded to ‘luxury clothing’ $250 and over. “Creating a ‘luxury’ tax on small businesses that sell high-end clothing and shoes adds privately owned boutiques to the list of losers,” said Blais.

 

 All Rhode Islanders: A conservative leader and prominent progressive agreed on one point yesterday: because it does not make any fundamental changes to how the state collects revenues and spends money, all Rhode Islanders lose out in this budget. For fiscal conservatives, the failure to reduce spending or taxes is a major drawback. From the progressive viewpoint, the state is not investing enough in things like education and transportation. Progressives also have to be disappointed, but probably not too suprised, that tax rates aren't going up for the wealthiest Rhode Islanders. 

“From what I see so far, we’re all losers because the budget is just a continuation of the same old squeak-by-another-year philosophy,” said Tom Sgouros, a progressive blogger and former Democratic candidate for state Treasurer. “Taxes stay low on rich people and everyone else can dine on less. You thought music classes are important to education? Sorry. The Legislature is fully funding the education formula, but that formula is inadequate by their own study.”

Blais, the spokesperson for the Ocean State Tea Party in Action, agreed that all resident lose out—but for entirely different reasons.

“We are all losers by the circular nature of mandates that our General Assembly easily creates but rarely if ever repeals,” Blais said. “And so the cycle begins and never ends, the mandates result in increased costs, leading to increased (political) risk in the decision making process. We point to the mandates imposed on our cities and towns that are forcing them into bankruptcy, but there is no sign that the General Assembly will provide relief.”

“Bottom line, we still don’t get it,” Blais concluded. “We have yet to receive a budget that reduces overall spending while sharply focused on improving the cost and delivery of basic government services.”

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