Propose a budget with several complicated, but important proposals that could have serious impacts on large portions of the state population for decades, but couch it alongside a headline grabbing proposition that was never really meant to be taken seriously in the first place, in order to distract your most coveted proposals.
That's precisely what it seems like Governor Gina Raimondo has done with her so-called "Taylor Swift Tax" in her budget proposal. The proposal would create a new, statewide property tax that would only apply to second homes or so-called "vacation" homes worth more than $1 million.
It's an attention-grabbing proposal, but it's certainly not a major part of the budget. The initiative would raise roughly $12 million, according to her estimates. In a budget proposal that totals about $8.6 billion, that, to put it mildly, is not a big sum. In fact, it's a very tiny percentage.
Wondering Why
In a tweet and during an appearance on 630 WPRO's The Buddy Cianci Show, former Rhode Island Director of Administration and longtime Executive Director of the Rhode Island Public Expenditure Council Gary Sasse wondered why the Governor would propose a new, statewide property tax, which won't raise much money at all, yet will attract some serious negative attention to our state.
The national media, which almost always casts a negative light on Rhode Island thanks to our high tax and cost structure, (we never seem to rank better than the bottom 10 in any economic rankings), will only pile on the state once the state enacts a new statewide property tax, Sasse pointed out.
Sasse said he couldn't understand why the Governor would propose something that would negatively affect the state's reputation, potentially deter tourism, and raise very little money as a result.
Diversionary Tactic
Here's why: to distract from the more serious proposals in the budget that the Governor truly covets. Despite the small amount of cash the proposal would raise, it has easily been the most talked about aspect of the Governor's proposal in print media, on the airwaves and in the coffee shops.
If we're all talking about the new tax that our favorite starlet will be forced to pay, we're not talking about the debt restructuring deal that will be the largest refinancing deal in the history of the state government. That debt restructuring will save money in the short term, but might cost us more over the long run if it adds years of payment to our debt.
That may or may not be the case, but we simply don't know yet because the details of what the restructuring will look like haven't been made clear as of yet. (And it will be interesting to see the who's who of connected Rhode Island lawyers, financial advisers, etc., who will benefit financially from the transaction fees and how much they and their family members have donated to prominent RI politicians).
But if we're focusing on a statewide property tax proposal, we're not talking about the largest debt refinancing in the history of RI state government.
Likewise, the budget also levies a new tax on health care premiums of individuals and small groups (the people who pay the most for insurance already), to help pay for RI's implementation of Obamacare. If we're too busy talking about a new statewide property tax for second homes, we're not discussing the health insurance tax.
If we're focusing on a proposal that targets the rich for a relatively small amount of money, we're not discussing the proposal that will hike the health insurance premiums of those who can least afford the hikes.
The Governor also wants the state taxpayers to once again pay the 38 studios bonds, which they never agreed to back in the first place, arguing that it would hurt the state's credit rating if we didn't. Yet there's never been a credible study that shows our credit rating would be affected in such a negative way that it would cost us more than $100 million in the long term.
Major Issues
Yet we're not revisiting the 38 studios issue if we're talking about the possibility of creating a new tax that would harm the state's reputation far more than ignoring a debt that's not legally ours to begin with.
When the budget is finally adopted, Governor Raimondo will most likely agree to abandon her proposal to create a statewide property tax, most likely due to higher than expected revenues found at the May Estimating Conference, in exchange for the enactment of the rest of her budget.
Taylor Swfit will be safe, but hopefully, when the debt restructuring, tax on health insurance, and ongoing payments to the 38 studios bondholders continue, Rhode Islanders aren't feeling tricked.
Russell J. Moore has worked on both sides of the desk in Rhode Island media, both on political campaigns and for newspapers. Send him email at [email protected] Follow him on twitter @russmoore713.
Related Slideshow: Raimondo’s Budget - Winners and Losers
Acknowledging one of Speaker Mattiello's top priorities for the legislative session -- cutting taxes on social security benefits -- Raimondo's budget proposal exempts Social Security benefits from state personal income tax for single filers with Federal Adjusted Gross Income less than $50,000 and for married filers with Federal AGI less than $60,000. "This proposal would place Rhode Island on an equal footing with Connecticut," said Raimondo's office -- adding that the proposal is "estimated to reduce the final payments component of personal income tax by $3.9 million in FY 2016."
Says Raimondo, "revenue options were specifically chosen to minimize impact on working Rhode Islanders." The Governor proposed establishing a statewide property tax for non-owner occupied residences (i.e., vacation homes, second residences) and vacant residential land valued at greater than $1.0 million. This effort would provide $11.8 million through a "relatively small number of wealthy taxpayers," said Raimondo. And some disagreed with the approach. "Her proposal for increasing taxes, whether on health insurance plans, on a new, statewide property tax on second homes valued at over a million dollars, on cigarettes or on anything else, is a complete non-starter," said Monique Chartier with RI Taxpayer. "Rhode Island has a spending problem, not a revenue problem, as evidenced by some of the highest taxes in the country and it is surprising that the governor, with her financial background, does not recognize this."
The Governor’s budget includes an additional $20.0 million from state debt refinancing proceeds to create a capital fund to help address school facility needs -- and establishes a School Building Authority within RIDE to oversee distribution of school modernization funds, targeting facilities in greatest need. Lifting the school construction moratorium, the budget proposal sets the annual construction aid appropriation at $80.0 million starting in FY 2017. According to Raimondo, this will "create fiscal stability with predictable funding and allows for projects to be prioritized." In addition, a non-school package of real estate tax incentives is intended to "encourage construction of job-producing projects, with a focus on development near transit hubs and historic structures."
The Governor’s budget proposed a number of additional revenues, including increasing the state’s cigarette excise tax by $0.25 per pack, from $3.50 to $3.75 per pack. "This increase will raise $7.1 million in FY 2016 while discouraging smoking and improving health outcomes," said Raimondo. According to the Tax Foundation, Rhode Island had the third highest cigarette tax in the country in 2014.
Raimondo touted launching the state's first web-based budget tool - and good-government watchdogs Common Cause weighed in on the development. Said Executive Director John Marion,"The state budget is the most important document produced by our government every year and until now that document has been trapped inside clunky PDF documents. With the new interactive budget Rhode Island now has a tool that makes those hundreds of pages much more accessible. Two key features stand out; the ability to look at how individual line items have grown or shrunk going back until 2008, and the ability to look at how the Governor's budget stands up to what the General Assembly eventually enacts. That second feature, if updated in real time, will empower citizens and journalists to much more easily follow the General Assembly's budget deliberations than they have been able to in the past. By extension that means we can more easily hold both the Governor and the legislature accountable for the hundreds of decisions made in the budget. Finally, by freeing the budget from PDFs, and providing the raw file for download, the democratization of data has reached Rhode Island's shores. Now anyone who is interested can build their own tool to analyze the choices reflected in the state budget.
The Governor's budget proposal recommends requiring providers of unlicensed rentals of lodging accommodations, such as Airbnb, to be subject to all state lodging taxes. According to Raimondo's office, this proposal is anticipated to enhance sales and use tax revenues by $851,512 in FY 2016.
The Governor’s budget modifies the distribution of lodging tax dollars to provide a greater share to statewide tourism efforts to support a major state tourism marketing campaign -- but it comes at a cost. "To provide sufficient resources for this initiative, the Governor’s budget establishes new revenue sources dedicated to tourism promotion. The budget proposes expanding sales and lodging taxes to online resellers of lodging accommodations, who currently pay no taxes on their markup over the wholesale prices. The budget also closes an existing loophole that exempts vacation houses and small bed and breakfasts from paying the sales and lodging taxes. Finally, the budget would apply sales and local lodging taxes to unlicensed rentals, which have increasingly become an alternative to hotels, bed and breakfasts and other licensed lodging. Further, the Governor proposes redirecting a greater portion of the state hotel tax to dedicate more funds to statewide tourism, marketing, and economic development at the Commerce Corporation. The net effect of changes to the tourism funding formula and new revenue sources is an additional $6.4 million annually."
The Governor’s budget proposes achieving savings of $22.0 million related to personnel and employee benefits. "Administration officials will work with state employees and their representatives to find the savings while avoiding significant layoffs," said Raimondo -- who volunteered to do her part for cost savings by announcing Thursday evening that she would be taking a 5% paycut herself.
At the same time the State expands access to pre-K classes, some communities still do not offer full-day kindergarten. "The Governor has noted the importance of providing quality full-day kindergarten in all of our communities. Her budget includes an additional $1.4 million to expand full-day kindergarten to children in every city and town by August 2016. Finally, to ensure that our teachers reflect the growing diversity of Rhode Island’s children, the budget includes $250,000 in grant funding to recruit and train more diverse teachers," wrote the Raimondo office.
For DHS, the Governor recommends reinstituting the hospital licensing fee at 5.703 percent on FY 2013 net patient revenues to increase FY 2016 licenses and fees revenues by $156.1 million.
