House Budget Disappointing for All
Wednesday, June 22, 2011
They say if two antagonists agree on an issue, then something must be really right or really wrong with the solution. Yesterday, both Tom Sgouros and Travis Rowley expressed disappointment with the House budget. Sgouros had this to say, “the usual [budget] winners—rich people, tax-evading corporations—are still winning, and the usual losers—poor people, cities—lose again.” Whereas Rowley observed, “While Democrats pat themselves on the back and receive praise from various political corners for their recent budget proposal, we are reminded of just how pathetically low the legislative standards are for General Assembly Democrats. Yay! They didn't raise our taxes too much!”
So which is it, is the house budget a masterpiece or not worth the paper that it’s printed on? Truthfully, there’s much to be upset about on both sides of the aisle. Many on the left feel that the cuts were too much and the House didn’t extricate enough money from the rich or large businesses. On the right, the cuts weren’t deep enough and as always, labor remains a (too) large player in the budget game.
Before answering the question, I wonder if we should take a long view approach to the budget. Each budget process is an animal unto itself but it seems as if the last several years have been typified by those who want cuts, those that don’t, and those who are willing to make a deal.
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I’d like to take the long view in examining our budget and look less at the details’ effect on today but rather discuss how this House budget impacts our long term future. Using data from the Operational Budget for 2010 it’s clear to see we’ve got structural problems within government. In 2007 revenues were approximately $3.21 billion but by 2010 that number decreased to $3.07. If we use 3 percent inflation as our guide, all things being equal, revenues should have increased to $3.51 billion. That’s nearly a $50 million shortfall just if we use inflation. And remember, many pensions in the system have 3 percent Cost Of Living Adjustments (COLAs) built into them indefinitely.
Obviously, our revenue problem is congruent with what’s going on in the larger U.S. economy. Still, what has our legislature done in the past several years to either a) increase revenues (a la taxes) or b) reduce expenses? We’re all well aware of cuts to cities and towns which have resulted in tax increases to property owners. Having moved to Cranston myself in 2007, I can’t remember a year when there wasn’t a property tax increase and I’m sure many of you have experienced the same.
Still, former Governor Carcieri and this legislature tried to rein in spending and it shows in general revenue expenditures moving from $3.22 billion in 2007 to $3.0 billion in 2010, a $220 million dollar decrease which is no small feat. No department (other than Corrections) was safe from cuts during this time so we have to say that the Governor and legislature tried to address the budget problems.
Unfortunately, the elephant in the room, pensions was from my perspective largely ignored from a fundamental standpoint. That has led to increased pension costs year after year without an end in sight.
Pension reform is the key to the success and failure of the Rhode Island economy
So while we can quibble about RIteCare subsidies and the corporate tax structure, the issue that the legislature needs to address is pension reform. The question this legislature should answer is this: how can we reduce the increasing pension liability and get it under control? Above all other budgetary issues, this one must be addressed. A few weeks ago, a notable Rhode Island politico (who will remain nameless) told me that Governor Chafee would gain political points and be doing the right thing if he told the legislature that session will not end until we have definitive pension reform.
I agree.
During the Carcieri administration there were some marginal attempts at pension reform, with the most significant coming in 2005. I say marginal in that the legislature seemed to play lip service to the need for pension reform without looking at significant structural changes to the system.
And that’s what we need now. I understand the sales tax is legitimate issue. I understand attracting large businesses and being competitive within the small business market is very important. I understand that during this time of recession we still need to educate our kids and support those who are unable to find work. Yes, this all makes sense, and the framework of the House budget leaves many rightfully disappointed. But at the end of the day, unless we have true pension reform it’s all window dressing.
Let’s hope the scheduled fall General Assembly sessions on pension reform change the pension landscape in Rhode Island so that the state does not continue its yearly dialogue of “who got cut/why didn’t we raise more taxes” and ignores the one issue that, if unresolved, will bring the state to its financial breaking point.
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