PROVIDENCE – An increase to the state’s cigarette tax, restaurant and beverage sales tax and a new seven percent sales tax expansion are some of what Governor Lincoln Chafee proposed Tuesday night in his $7.9 billion budget plan to close the projected $125 million budget deficit for the next fiscal year that begins July 1.
In total, Chafee’s proposed budget to the General Assembly includes $87.7 million in tax hikes with much of it devoted to saving ailing municipalities.
Fee increases and tax hikes break down to a new tax on clothing items over $175, a rise in the meals and beverage tax from eight percent to 10 percent, including the state sales tax, an expansion of the five percent hotel tax to bed and breakfasts and a hike to the cigarette tax from $3.46 to $3.50 per pack. The budget plan also allows tolls on the Sakonnet River Bridge and quickens a $30 increase in drivers’ license and registration fees at the Department of Motor Vehicles which was originally proposed to occur over three years.
During his budget proposal and state of the state address, Chafee attempted to justify the tax increases, stating that his budget “provides Rhode Island government with needed revenue while minimally impacting the state’s economic competitiveness.’’
Much of the tax hikes are matched with funding increases to other programs. For instance, the two percent increase for the meals tax, Chafee said will support investments in education and help property taxpayers. The expanded sales tax on non-essential goods and services, including taxies and shoes will be devoted to services such as Medicaid prescription drug coverage and subsidized child care. An advance in the increase to the vehicle registration and driver’s license fees to the coming fiscal year will address the state’s transportation deficit and provide revenue for maintenance projects for roads and bridges.
Cuts include a 4.1-percent decrease in reimbursements to United HealthCare and Neighborhood Health Plan to save $14 million, the elimination of dental care for subscribers over 21 to save $2.7 million and an increase to co-pays for subsidized child-care to stave off $275,000 from the deficit.
While the state solved a $7 billion unfunded pension liability by passing a massive overhaul of the state pension system after a special legislation session was held last November, Chafee is still trying to devise a solution for burdened municipalities facing their own pension liabilities and contract disputes.
Finding that solution has become Chafee’s top priority as he plans to make “this the year for cities and towns.”
“If we are going to grow our economy and get our people back to work, we have to make this the year of the cities and towns and work together on behalf of the property taxpayer,” he said, erupting applause from the filled chamber before him.
The high notes of the plan included the $40 million set aside for the education funding to cities and towns and a promise from the governor to develop legislation to improve and expand veterans’ services.
A new Governor’s Job Cabinet with Department of Labor and Training Director Charles Fogarty at the lead will dedicate efforts to retain and expand existing businesses, attract employers in high-growth industries and develop a skilled workforce.
The budget plan aims to match Rhode Island with its Massachusetts and Connecticut neighbors. The new tax on clothing items over $175 will help accomplish that goal.
“There is no excuse for Rhode Island to be lagging behind our neighbors. We need action now,” Chafee said.
In light of the recent passing of former Governor Joseph Garrahy, Chafee encouraged partnership between the state leaders and departments similar to what the 1970s governor professed. He commended the work of General Treasurer Gina Raimondo in establishing a sweeping state pension overhaul this year, Lt. Governor Elizabeth Roberts for helping the state acquire $58 million in level II federal funding and Education Commissioner Deborah Gist for securing $50 million for early education funding.
It was a note that rang high for some General Assembly members.
“I liked the idea of working together and consolidation and how he referenced Gov. Garrahy who had that ability. Hopefully, Governor Chafee can have that ability,” Rep. Spencer Dickinson (D-South Kingstown) said Tuesday night after the speech.
The Governor’s budget speech held a different tone from last year’s rejected budget when he introduced a controversial $165 million sales tax expansion that dropped the sales tax to six percent but extended it to previously tax-exempt items like non-prescription drugs, sightseeing tours, and videogame downloads to close a $300 million deficit.
The tone Tuesday night to some General Assembly members was vague.
“Where’s the substance?” Rep. Teresa Tanzi (D-Narragansett, South Kingstown) questioned Tuesday night. “I found it interesting that he designated certain taxes to specific programs. That makes it more palpable to people in the Chamber, but I don’t know who’ll have an appetite on a two percent increase to food and beverage.”
Tanzi believed the state could not defeat the deficit with just cuts, but the budget had to include revenue options.
The tax increase to the meals and beverage tax seem to be the proposal weighing most heavily on legislators’ minds.
With the proposed tax hikes and sales taxes, Rep. Spencer Dickinson (D-South Kingstown) said “you have to be skeptical. How does it affect the industries?”
Dickinson did question, however, the hike to the meals and beverage tax, stating that “I’m afraid it won’t be paid by the clients, but by the business owners.”
“I understand the need to provide more assistance to cities and towns and higher education. The problem is the funding. We have $125 million in question. Where do you get the money from?” Senator James Sheehan (Narragansett, North Kingstown) said.
“I’m cautious about that kind of approach. It’s not going to take a lot to keep us in a recession. I’m afraid the new taxes will put us back,” Sheehan said, referring to the meals tax.
Before the governor’s speech, Rep. Donna Walsh (D-Charlestown, Westerly, South Kingstown) also said she was concerned with the increase to the meals tax.
“That’s a big jump in an area where we are where tourism is the big part of our economic structure. That hurts,” Walsh said.
“I was disappointed to not see additional funding for higher education or a tax on higher incomes,” she added.
Walsh did, however, support the $125 million bond proposed for open space, which she hopes some of which can be used for farmland.
As a member of the Senate Finance committee, Senator Susan Sosnowski (D-South Kingstown, New Shoreham) will find out first hand out how the governor’s proposals will affect Rhode Island industries.
Sosnoswki said she plans to keep an open mind on much of the proposed tax increases, including the meals and hotel tax.
“I’ll have to see the impact on the restaurant industry. I’ve already heard from some restaurant owners who are not in favor,” she said. “As far as the sales tax on clothing over $175, that was something that was talked about for years.”
According to the proposed budget, fee increases for motor vehicle licenses and registrations at the Department of Motor Vehicles will take place sooner. Tanzi, however, questioned why the hike was initially proposed to take place over a three year period in the first place.
“We need money. We need money now. Borrowing money to pay off debt for these bonds doesn’t make sense to me,” Tanzi said. “Implementing and having it done makes sense. We’ll pay less interest on the bond rate.”
What remains to be seen is the outcome of the $24 million cut from developmental disability programs last year, a budget cut some legislators have since regretted.
“It’s something we have to look at. I wouldn’t be surprised to see that restored,” Dickinson said, adding that services for those with developmental disabilities used to be a strong suit for Rhode Island.
Earlier in January, Senate Finance Committee member Senator Susan Sosnowski (D-South Kingstown, New Shoreham) stated in an interview, “My goal is to restore some of the funding to these programs. Our revenues are up more than expected. It’s still going to be tight, but we have to look at how the cuts affect people.”
Chafee’s budget, however, is not the end of the road. The House and Senate Finance Committee will now vet the plan to determine its impact on state industries and then provide their own budget recommendation that may or may not include the governor’s proposals.
House Speaker Gordon Fox and Senate President Teresa Paiva-Weed were confident that they could work well with the governor and the two finance committees to deliver a budget.
“We’ve worked well in the past. We’ll look at a balanced approach and make sure it’s not short sighted,” Fox said. “It’s only through the committee process where we can determine the impact of the budget cuts.”
Paiva-Weed knew one thing for sure. “Taxes are always the last resort.”
State revenues that may prevent some of the proposed cuts are expected to be reported in the spring Chafee said.