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June 11, 2008

Update: House budget plan avoids broad tax increases

PROVIDENCE -- Facing an unprecedented budget deficit, the House leadership unveiled a budget proposal this afternoon that largely avoids broad-based tax increases, but includes tens of millions of dollars in cuts across state government including services for elderly, disabled and low-income Rhode Islanders.

There were some bright spots, however, for those facing even deeper cuts: the House gave cities and towns a slight “bump” in additional education aid -- approximately $12.8 million. There were no new increases proposed in non-education aid.

The proposal was revealed at a press briefing held shortly before a House Finance Committee hearing on the 2009 fiscal plan that began at 4 p.m. Read a summary of the plan here.

The plan also includes funding for 100 of 400 slots slated to be eliminated from the early childhood education program, Head Start. In addition, the budget restores health care coverage for all but 1,000 of more than 7,000 adults slated to lose coverage under a plan released by Governor Carcieri earlier in the year.

House Finance Committee Chairman Steven M. Costantino, the architect of the tax-and-spend plan released this afternoon, said the budget does indeed balance a $425-million budget deficit for the fiscal year that begins July 1, despite unanswered questions about savings related to personnel reductions and sweeping Medicaid changes.

Rhode Island must have a balanced budget, according to the state Constitution.

The budget relies on more than $60 million in personnel savings tied to ongoing negotiations between organized labor and the governor’s office. It also relies on saving $67 million by re-designing Medicaid programs, a figure that both Costantino and the governor’s office have acknowledged may be unrealistic.

Despite heavy pressure applied by organized labor and its allies, the budget does not include any changes to the capital gains or flat taxes. Nor does the budget increase any income, business or sales taxes.

But it generates $5.6 million in new revenue by increasing the health insurer tax on medical premiums from 1.1 percent to 1.4 percent. Costantino said he hoped the increase wouldn’t be passed on to health care consumers, although that’s what happened when the tax was expanded last year. The tax, previously only applied to health insurers, would now apply to Delta Dental as well.

The House Finance Committee will work into this evening to adopt the budget bill, which will be laid out in a series of complex budget “articles.” As each budget item is read, the committee takes a vote. The hearing is being televised live on Capitol TV.

-- Steve Peoples, Journal State House Bureau

The budget does not include a proposed fine for drivers caught with hand-held cell phones. But it increases fines for all driving violations by $10.

The plan also caps the state’s film and television tax credit program, allowing no more than $15 million in credits to be issued each year, a change that may jeopardize plans to bring a movie studio to Rhode Island.

The release of today’s plan is the most significant step forward to date for a state that is struggling with its worst fiscal problems since the credit union crisis of the early 1990s.

It has been a long road to this point.

As is the case every year, Governor Carcieri releases a proposed budget in January. (He subsequently proposed a separate plan to close a $181 million budget hole for the current year, which has already been approved by the Assembly.)

Facing an additional $384 million deficit for the coming year, the governor’s plan relied heavily on cutting government spending, particularly on human service programs that he described as overly generous.

But state officials learned in May that the deficit was even larger than Carcieri thought.

That left the General Assembly, which releases its own version of the state budget every spring, to close a significantly larger hole.

The plan released this afternoon is expected to be approved by the House Finance Committee by the end of the day. The full House is expected to vote on the budget bill next Wednesday, in what is traditionally a marathon session that includes dozens of last-minute amendments.

Therefore, the plan adopted today may be changed slightly next week, but substantial modifications on the House floor are rare.

The Senate must approve the budget next, but that chamber cannot make changes to individual articles. That means the Senate would have to vote down the entire tax-and-spend plan to make any changes, which is not expected.

And there’s always the question of whether the governor will veto the Assembly’s final budget plan.

Posted by Mike McKinney at 4:27 PM | Permalink

June 11, 2008

Update: House budget plan avoids broad tax increases

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