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House Unanimously Approves $8.7 Billion FY 2016 Rhode Island Budget

Wednesday, June 17, 2015


The Rhode Island House of Representatives unanimously approved the state's Fiscal Year 2016 budget on Tuesday night - and while Democratic leadership is praising the $8.7 billion budget bill, taxpayer groups are blasting the effort. 

The tax-and-spend legislation, which was approved in record time by the House, does away with the state income tax on Social Security benefits for many Rhode Islanders, eliminates taxes on utilities for businesses -- and reflects the recently approved pension settlement. 

“We eliminated a tremendous cost to businesses large and small — the tax on their energy bills — and reduced the minimum corporate tax paid by 60,000 small businesses across the state. Consider that we also reduced the corporate tax rate last year to the lowest rate in the Northeast, and raised the exemption and eliminated the cliff in our estate tax, and you can see that we are making real progress eliminating the roadblocks to economic growth in Rhode Island,” said Speaker of the House Nicholas Mattiello.

Justin Katz with the Center for Freedom and Prosperity, however, questioned the "tax reform" in this year's budget. 

"Every year, Rhode Islanders are making the decision to leave their state because it does not appear to be getting any better.  If they look at this budget, they see more debt (including municipal debt without voter approval), they see some refinancing wizardry, and they see one-time fixes," said Katz. "Meanwhile, the instances of tax reform are so targeted that they're practically special interest give-aways offset by tax increases elsewhere."

"Although the Center appreciates that some principles around taxation, regulation, and freedom that we support are at least shuffled into the deck in small ways, with this budget, it is overall a bad deal for Rhode Islanders," continued Katz. "The fact that it passed the House so quickly and with such little debate should be seen as terrifying, not encouraging."

Truck Tolls Not Included

The budget bill (2015-H 5900Aaa) approved Tuesday now goes to the Senate with no broad-based tax increases, a fully-funded education aid formula, and Governor Gina Raimondo’s structural changes to Medicaid, (with a smaller impact on hospitals and nursing homes than originally proposed).

The budget proposal does not include Raimondo's plan to toll large trucks to pay for highway and bridge repairs -- nor the House GOP's recently proposed alernative to address infrastructure needs in this year's budget, as opposed to tolls to support bonds.

Taxpayer advocacy group R.I. Taxpayers had "applauded" the unsuccessful plan put forward by the House Republican caucus to fund infrastructure repairs out of the budget rather than via tolls and bonding.  

"While we supported certain aspects of Governor Raimondo's budget, her rushed, after-the-fact proposal to toll big trucks is a complete non-starter as tolls will absolutely not be limited to big trucks but will inevitably come to all trucks and cars in the state," said RI Taxpayers' Monique Chartier. "Republican legislators [were] also correct to cite with concern the hundreds of millions of dollars that would be squandered, over the course of decades, on interest and gantry costs associated with revenue bonds and tolling."

"The Republican's proposal of finding the money within the budget rather than borrowing against toll revenue - tolls that would never go away, by the governor's own admission - is exactly the solution that should be implemented to address the serious condition of Rhode Island's infrastructure," continued Chartier.  

The General Assembly will now have the opportunity to take up stand-alone legislation for truck tolls in lieu of a budget line item. 

Key Provisions

The House-approved budget on Tuesday fast-tracked Raimondo's proposal to phase out the sales tax non-manufacturing businesses pay on electric, natural gas and heating fuel bills -- the original proposal would have phased out the tax over a five-year period, but the House opted to eliminate the tax all in one year, for a cost to the state of $20 million in FY 2016 instead of $4.9 million as originally proposed.

Other key provisions included:

* The House Finance provision to cut the minimum corporate tax from $500 to $450. 

* Rep. Joseph Shekarchi's proposal to provide tax credits to businesses in exchange for creating high-quality jobs was also added by the House. The credits range from $2,500 to $7,500 per added job.

* Continuing for a fifth consecutive year fully funding the education funding formula for cities and towns, an increase of $35.8 million over this year. The House budget agreed with the Governor’s plan to add $7.5 million for higher education.

Next Steps

The bill is scheduled for a vote in the Senate Finance Committee Wednesday at 3:30 p.m. in Room 211 on the second floor of the State House.


Related Slideshow: What to Watch in the FY16 RI House Budget

The Fiscal Year 2016 budget will be coming out of the Rhode Island House of Representatives Finance Committee, and here are some of the key elements to look for in the tax-and-spend proposal.

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$173 Million Surplus

With the revelation that by the the state’s Revenue and Caseload Estimating Conference in May that Rhode Island has sizable a budget surplus this current fiscal year -- and next -- for a total of about $173 million in surplus funds not not taken into account in Governor Raimondo's budget proposal, the question quickly became what to do with it. Raimondo has indicated that it will not go towards the pension fund.  Rep. Shekarchi had already introduced legislation that 50% of any surplus go to beleaguered cities and towns.  Speaker Mattiello and Senate President Paiva Weed have their own agendas.  Who will see the largesse of this newly found windfall -- and how much debate will ensue -- will soon be seen.  

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Truck Tolls

The proposition by Governor Raimondo and state leaders to have truck tolls help underwrite a $700 million infrastructure revenue bond was met with support by those in labor and trades -- but not by the RI Trucking Association.  Speaker Mattiello acknowledged that the proposal would be reviewed by House Finance - and the truckers have announced they would be making their case against it on Tuesday. “The manner in which the administration has put forth such a significant policy change has been a disservice to both the trucking industry and the small business community. To date, what we have witnessed is a consistent lack of transparency and an abundant amount of misinformation put forth that we intend to dispel,” said Christopher Maxwell, President of the Rhode Island Trucking Association.

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Governor Raimondo's "Working Group to Reinvent Medicaid" released its report at the end of April identifying $91 million dollars in savings for the state -- with nursing homes and hospitals schedule to be among the hardest hit. Pursuant to the bullish forecast for state revenues, however, Assembly leaders made it clear that mitigating some of that suggested payment slashing should be considered. "The Senate leaders place a priority on utilizing a portion of the increased revenue forecast at the May Revenue Estimating Conference to “ease the pain” of the Medicaid transition," said the Senate Press Office.

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HealthSource RI

Rhode Island's Obamacare vehicle continues to have the support of the Governor, but with HealthSource RI slated to cost the state nearly $15 million next year as part of a projected $23.6 million budget -- and Speaker of the House Nicholas Mattiello had indicated that if that number isn't reduced, he won't rule out "turning it over to the Feds."  Meanwhile the fate of the whole program hangs in the balance of the Supreme Court, who is determining the legality of subsidies.  

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Pension Agreement

If approved by the court and the General Assembly, the proposed pension settlement announced on April 2 would end litigation from six challenges arising from changes made to the pension system in 2009, 2010 and 2011 -- and would have a fiscal impact to the state.  The agreement was lauded by Governor Raimondo who had said the proposed settlement "is an important step toward providing certainty for our public employees and our cities and towns, and I believe it is in the best interest of all Rhode Islanders. The proposal keeps our state on a path toward financial stability. While the state has a strong case, the uncertainty of a trial threatened to reverse that progress."  However, the sentiment was far from echoed by all Rhode Islanders. "Far from being an awesome achievement, as the Special Master describes it, this settlement is a bad deal for taxpayers," said R.I. Taxpayers' spokesperson Monique Chartier.  "Remember that this is a second, enhanced settlement.  So we are now two steps removed from the original pension reform at a cost of an additional $232 million for state taxpayers alone!"

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Commerce RI

The former Rhode Island Economic Development Corporation is slated to get a big boost in funding under Raimondo's budget proposal to nearly $83 million dollars, which includes $25 million for incentives for 195 development, and House Speaker Nicholas Mattiello appears committed to supporting robust funding. "We want to make sure the new Commerce Department has the tools needed to attract and grow businesses in our state with the proper incentives and controls to monitor their effectiveness," said Mattiello.  Taxpayer groups, however, have said they will be keeping a close eye on its budget.  "We will also be watching for the amount of money dedicated to Commerce RI," said Pam Gencarella with taxpayer advocacy group OSTPA. "Just because the Economic Development Corporation has been renamed, it doesn’t mean taxpayers are willing to put tens of millions of dollars into a a government organization that they barely know or trust.”

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Corporate, Property Taxes

In light of the budget surplus showing an additional $143 million in revenues for Fiscal Years 2015 and 2016 and approximately $30 million less in caseload expenditures, for a total of about $173 million in surplus funds not taken into account in the Governor’s budget proposal, Senate President Teresa Paiva Weed, in addition to eyeing the abatement of proposed Medicaid cuts, noted two areas she would be lobbying for -- that the $500 minimum corporate tax (and proposals to exempt new companies for the first three years, or for those with limited earnings) should be considered; and local property tax relief, to restore funding to the state Payment in Lieu of Taxes (PILOT) program to help avoid local property tax increases.

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Energy Tax

One of the Speakers top priorities? Exempting businesses from paying sales tax on energy costs. "I want this budget to continue to serve as a catalyst for existing businesses to grow and prosper, in addition to attracting new business looking to locate here," said Mattiello. "That momentum began last year when we lowered the corporate tax rate to the lowest in the Northeast and raised the exemption on the estate tax.  This year, a top priority is to exempt businesses from paying sales tax on energy costs."  Admittedly more business friendly, but at a cost to the state -- for now. 

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Earned Income Tax Credit

The Economic Progress Institute is pushing hard for their working family agenda by advocating for a specific use of the surplus funds.  Their goal? For "hard-working families to keep more of their paycheck by expanding the state’s Earned Income Tax Credit from 10 to 15 percent next year is our top priority," said Kate Brewster with the Institute. "As budget priorities have been recently discussed, it is clear that a significant portion of the revenue surplus is slated to be used to give upper-income seniors and businesses more tax breaks this year.  Working households trying to raise a family on low-wages deserve their fair share of any tax cuts given out this year."

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Late Night Tweaks

Once the budget comes out of House Finance, it then goes to the full House, at which point late nights -- and last minute changes -- have been part and parcel of the process.  “Even the Governor said that it’s no secret how the budget process works - in the shadows, during the late night hours.  We think the biggest items to keep an eye on are the amendments that are proposed on the House floor the night of the budget vote," said OSTPA's Pam Gencarella. "Many representatives are forced to vote on an item that they have had very little time to digest and understand. This year, we are concerned about the Pawtucket Red Sox deal and whether that will be in the budget or perhaps be proposed as an amendment on the floor.  While representatives may vote down an individual amendment, if the amendment passes, it is included in the final budget and therefore if they vote for the budget, they vote for the amendment."


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