Governor Gina Raimondo delivers her budget address. Photo by Richard McCaffrey
When you've lived under the yoke for Rhode Island government your whole life, you tend to have low expectations. That’s why, I believe, the Governor’s budget received fairly warm reception after it was revealed late last week.
And don't get me wrong: the Governor's budget does have some positive attributes, such as eliminating taxes on social security benefits, and promises to eliminate regulatory burdens on individuals entering 30 different professions.
But let's face it: there's more to dislike than like in her budget. Here are the top five reasons Rhode Islanders should be concerned, or at the very least, not overjoyed by Governor Raimondo’s budget proposal.
According to the budget documents proposed by the Governor's office, the general revenues to the state budget are slated to increase of roughly 2.5 percent. The overall budget is slated to decrease by about 2 percent, but as The RI Center for Freedom and Prosperity adeptly pointed out, that's due to an expected decline in federal revenues.
Raimondo, for her part, argues that the budget makes necessary investments in economic development and education that will pay big dividends going forward. That's, at best, an open question. What's beyond question is the fact that RI was already spending too much money, and it's hard to see how asking taxpayers to pay more overall is the answer.
2) It hikes taxes.
The Governor deserves some credit for crafting a balanced budget that doesn't raise the so-called "broad based" taxes such as the income or sales tax. But the budget does increase taxes on cigarettes, imposes a new statewide property tax on vacation homes worth $1 million or more, and proposes a new tax on health insurance plans for small groups and individuals.
Apparently, the Governor doesn't think health insurance is expensive enough already, so she's adding an additional cost driver to it.
One of the few bright spots in RI right now is that we have a real estate market with increasing values. The proposal to enact a statewide property tax on expensive vacation homes will put a downward pressure on that market.
Further, the statewide property tax may begin on “second homes” worth more than $1 million, but that opens up the door to allow future budget bill writers to lower that exemption. First they came for the $1 million vacation home owners…
3) There's no big idea or major reform in the budget.
The Governor is right about the fact that Rhode Island is stuck in the mud. That's why the state needs a major, jaw dropping, game changing reform that will turn heads nationwide. We need a bold, aggressive move, like eliminating the sales or income tax completely. Instead, this budget merely tinkers at the edges with some minor economic development incentives.
Further, the Governor could've used the budget to force regionalization on a statewide basis. But alas, there was no such luck. The budget contains no big, bold ideas.
4) The budget contains vague savings.
The Governor, who claims to be a crusader of transparency, (yes, the same person who kept secret the agreements she made with hedge fund managers as General Treasurer), has budgeted $46 million in Medicaid savings as well as $22 million in personnel savings that will have to be negotiated with and agreed to by the public sector unions.
Finding that eye popping levels of savings by eliminating aid to the poorest segment of our population and gaining concessions from the public sector employees, who don't much care for the Governor in the first place, will be no easy task.
5) Refinancing state debt
The budget proposes to refinance the state's debt in order to take advantage of low interest rates.
But what sickens me even more is that it will cost the state a lot in transaction expenses, and a good portion of that money will go to First Southwest, the state's financial adviser, who we are suing for fraud over the 38 studios fiasco. (Our General Treasurer, Seth Magaziner, said he would get rid of this company during last year's campaign season, but there's been no movement on that front. Excuse me if I'm not holding my breath.) The state looks foolish when it continues to employ the very people who we believe to have wronged us perviously, and no business person in the private sector would do such a thing.
In sum, the Governor's budget isn't all bad. But it sure leaves something to be desired. For a Governor who talks such a good game, there's no doubt that her first budget could have been more aggressive in improving the fiscal health of our poor state.
Russell Moore has worked on both sides of the aisle 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.
