Chafee’s budget is big and bold. But who’ll back it?March 8th, 2011 at 7:00 pm by Ted Nesi under General Talk
Chafee’s $7.66 billion tax-and-spending proposal for 2011-12 is a surprisingly bold statement of the new governor’s vision for state government – so surprising it’s hard to know where to begin in analyzing it.
Broadly, the budget is a reminder that Chafee is still the frugal Rockefeller Republican he always was – a rare breed these days. The budget would raise some taxes and lower others; it prioritizes future-focused spending on things like infrastructure and education; and it seeks to address festering problems like unfunded state and local pension liabilities and an overreliance on borrowing.
“This is the beginning of the attack on the structural deficit,” Administration Department Director Richard Licht told me, flashing the zeal of a convert. “We have to go further.”
Indeed, it’s clear the governor and his aides want to show they’re not looking to kick the can down the road. Actually, make that “cans” – Chafee and co. have got enough of them in this document to fill a Campbell’s Soup factory.
Take the sales tax. Everybody knew Chafee was going to include his long-discussed 1% tax on exempt items in the budget. But nobody thought he was going to propose reducing the regular sales tax rate from 7% to 6% – lower than Massachusetts’ – and pay for it by broadening the base of items that get taxed. (One of those newly taxed items? Medical marijuana.)
Or look at pensions. Unions are already howling about Chafee’s proposal to raise the share of state workers’ pay diverted into the pension fund from 8.75% to 11.75%. (The governor’s aides point out those same workers are getting two delayed raises this year.) But that money isn’t being used to reduce the state’s yearly contribution to the pension fund; it’s extra cash to help shore up the system. It’s also a strategic choice, since it can be implemented without having unions reopen their contacts.
Most telling to me, though, is the proposal on transportation funding.
For years, Rhode Island has borrowed money to cover the cost of repairing highways, roads and bridges, rather than funding it out of current revenue. The result? Nearly half of RIDOT’s gas tax revenue now goes to debt payments instead of projects, Director Michael Lewis told me. Chafee’s budget includes funding so that practice will end by 2016.
“It’s the most fundamental reform on transit funding in Rhode Island in decades,” Lewis said.
The imprint of Chafee’s oft-cited experience as mayor of Warwick – and the financial collapse of Central Falls, which is set to get a $6.7 million state bailout – is clearly in evidence, too. The proposal for a new Municipal Accountability, Stability and Transparency (MAST) Fund is especially interesting.
As administration officials describe it, the goal of MAST is to get cities and towns to improve their budgeting practices and adequately fund their pension and retiree health care obligations. They want to employ a carrot-and-stick approach – the carrot is new MAST aid; the stick is a threatened cut in the state’s match of teacher pension funding if cities and towns don’t comply. It’s a bit like a municipal-finance version of Race to the Top.
The business community’s reaction to the budget will be interesting to see. Chafee is proposing a number of major changes to how companies get taxed in Rhode Island – cutting the corporate tax rate from 9% to 7.5%; lowering the $500 minimum tax in the manner suggested by The Poverty Institute’s Russ Dannecker; and implementing combined reporting for multistate businesses. How will businesses respond? Will there be a split between larger and smaller firms?
Those highlights just scratch the surface of what’s in this budget. It fully funds the state’s long-awaited school funding formula and restores some of the money URI, RIC and CCRI have lost in recent years. It reduces jobless benefits starting next year. It calls for a study of whether to put tolls on the state’s highways, including I-95.
And then there’s the politics.
A budget rarely survives first contact with the General Assembly. Just about every interest group will find something to dislike in Chafee’s proposal – for labor, the pension contribution increase; for big business, some of the tax changes; for conservatives, the broadened sales tax; for liberals, the reductions in some safety-net programs.
With that in mind, then, will anybody vote for it? “I can assure you it won’t pass as is,” Licht said with a laugh this morning, before adding that he thinks “major portions will pass.” We’ll find out.
More budget coverage on Nesi’s Notes: