Governor’s budget plan sparks criticism

By
Tuesday, March 17, 2009

As Rhode Island faces crippling unemployment and the largest budget deficit in the state’s history, Gov. Donald Carcieri’s ’65 proposed budget has garnered criticism from all sides in the week since its release.

The governor’s budget recommendations for the next fiscal year rely on taxes and federal stimulus funds to bridge the anticipated $860 million deficit over the next two years and to increase state spending by 10 percent. Under Carcieri’s proposal, the state would spend a total of $7.62 billion in 2010.

But Carcieri – whose approval rating among Rhode Islanders recently hit a low of 34 percent, according to a poll by the Taubman Center for Public Policy – will have to get his budget through the state’s Democrat-dominated General Assembly.

Though the stimulus money includes $110 million from a “state fiscal stabilization fund” to be spent on education and aid to local communities over the next two years, the governor’s proposed budget eliminates a revenue-sharing program from his previous budget that was to give $31 million in state aid to cities and towns.

Many political leaders and interest groups have already voiced concerns about the governor’s proposed use of stimulus funds and restructuring of the state’s tax system.

In a letter to U.S. Secretary of Education Arne Duncan, Providence Mayor David Cicilline ’83 questioned the governor’s use of stimulus money to replace state education funding. “The potential transformative impact of the (federal funding) is undermined by the spending proposals” in Carcieri’s budget proposal, Cicilline wrote. “Rather than seizing an opportunity for strategic, increased funding (Carcieri) is instead only maintaining the status quo.”

Though the final guidelines for the use of the stimulus funds have not been completed by the U.S. Department of Education, the governor’s proposal follows the “intent and spirit” of the recovery bill, said Amy Kempe, the governor’s press secretary. The fiscal stabilization funds are “fungible,” she added.

The governor’s budget recommendations also alter the state’s income tax structure, increasing the earned-income tax credit for low-income households while raising taxes for some Rhode Island couples and individuals making less than $75,000 annually.

Carcieri’s proposed budget also includes a five-year phase-out of the corporate income tax. It would raise the state’s cigarette tax by $1 per pack and slash funding for RIteCare, the state’s subsidized health insurance.

“The state can’t afford to lose $95 million in tax revenue at this particular point,” said Daniel Beardsley, executive director of the Rhode Island League of Cities and Towns. Cutting taxes for wealthy people and profitable businesses “will do little to improve the economy in the short run and will hurt it in the long run.”

Beardsley also called federal stimulus funding a “double-edged sword,” expressing concern about whether the state would again be thrown into economic turmoil when recovery aid is cut off in 2012.

Kempe defended the corporate income tax cuts, stating that Rhode Island needs to position itself to be competitive with neighboring states, such as Connecticut and Massachusetts, which have much lower corporate tax rates. “The only way to grow jobs and grow revenue is to grow business,” she said.

The next key point in the state’s budget proposal process will come at the end of April and beginning of May with the Revenue Estimating Conference, said Russell Dannecker, fiscal policy analyst at the Poverty Institute at Rhode Island College. More significant decisions will be made once current budget projections are reevaluated, he said.

“Whenever we get into these types of (economic) situations, the budgets are always difficult,” Dannecker said. “This time there was enough advanced notice of the federal aid that was coming in … but it does raise issues in the long term about what to do when the money disappears.”

The state legislature will debate the governor’s proposal over the next few months before creating its own revised budget for his approval.

“They’ve got a long road ahead of them in many respects,” Beardsley said. “It’s going to be a very difficult road over the next five or six months.”