What exactly is the pension bill’s contractors tax going to do?

November 18th, 2011 at 1:02 pm by under Nesi's Notes

As we reported on last night’s 11:00 news, legislative leaders stealthily slipped a new tax on state contractors into the final amendment to the pension bill before it passed both chambers last night. Unless I missed it, there wasn’t much – if any – discussion about the tax, though Rep. Larry Earhardt questioned it after it passed.

Since no hearings were conducted on the impact of the tax – which fulfills a long-sought goal of organized labor – it’s hard to figure out exactly what the impact will be, both fiscally and on businesses affected. No state official would speak with me on the record last night about whether the proposal was vetted by the state’s budget analysts.

Below is the text of the part of the leadership amendment that created the new tax (or “assessment,” in legalese) – the language is quite broad. On Twitter, the SEIU’s Phil Keefe emphasized to me that the money will go into the pension fund. “Wait and see,” he said. What do you think its impact will be? Leave your thoughts in comments.

24. On page 112, between lines 7 and 8, by inserting the following language:

“SECTION 23. Chapter 42-149 of the General Laws entitled “State Expenditures for Non-State Employee Services” is hereby amended by adding thereto the following section:

42-149-3.1. Assessment on state expenditures for non-state employee services. – Whenever a department, commission, board, council, agency or public corporation incurs expenditures through contracts or agreements by which a nongovernmental person or entity agrees to provide services which are substantially similar to and in lieu of services hereto fore provided, in whole or in part, by regular employees of the department, commission, board, council, agency or public corporation covered by chapter 36-8, those expenditures shall be subject to an assessment equal to five and one-half percent (5.5%) of the cost of the service. That assessment shall be paid to the retirement system on a quarterly basis in accordance with subsection 36-10-2(e).”

Update: Keefe added more details on Twitter. “Call it a pension tax,” he wrote. “It will be based on payroll. It’s a moneymaker for the state and could be changed to total contract [value] under new contract terms.” (I spelled out his Twitter-required abbreviations.)

Update #2: Common Cause Rhode Island’s John Marion expressed dismay about the sudden addition of the assessment on contracts. “The special pension session laudably avoided many of the last-minute changes that we see on significant legislation during the regular legislative session,” he said in an email. “Unfortunately we did see a significant change made in the final bill that was not vetted, and the public suffers because of that.”

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5 Responses to “What exactly is the pension bill’s contractors tax going to do?”

  1. Mario says:

    It looks a lot more like a tariff than a tax. The effect is to make the unions look more cost effective than contractors by artificially inflating the costs of the latter. The effect would be more state employees and fewer contractors at the margin. The net effect would likely be a small gain for the unions and a loss for taxpayers; I’m not sure what the difference would be, but the loss would definitely be greater than the gain, and five and a half percent strikes me as pretty high.

    I’d be interested to see how the revenue is counted when the pension system takes it — i.e. whether the money directly offsets the state’s required contributions or not.

    1. Cosmo says:

      Good job. Nice and technical way of saying that the taxpayers are being sandusky’ed again.

  2. [...] asked Licht if the 5.5 percent assessment will curb the state’s use of outside employees. He responded: That’s correct, and [...]

  3. Sir Charles says:

    Are you kidding?
    What the bill might of acomplished was not really enough to begin with.
    Now with an addition of another punitive tax on the private sector our brave and wise leaders continue to pour cold water on any hope of expanding small business.
    If there was ever a doubt about who is being represented, and who is disenfranchised.
    We have been screwed again.

  4. steve says:

    Im sick of these state workers and there pensions. Im an electrician and im lucky if im working, im lucky i can even afford my house my taxes just went up on my house. And there crying about there pensions i dont have a pension but im forced to pay theres bull taxpayers should not be responsable to pay anything toward there pensions privite companys provide there employees with pensions why cant they. there greedy and teachers thats another story work seven months a year pension 3 weeks vaction and all the holidays on the tax payers dime and than use our kids as a porn. sick of it. vote rep get rid of unions for taxpayer funded jobs.