One week after Gov. Lincoln Chafee '75 P'14 unveiled a budget that would impose new taxes and cut services to close the state's $331 million budget deficit, observers are still trying to sort out what the budget means for Rhode Island.
Though the General Assembly will most likely modify Chafee's budget, the state legislature and the governor "appear to be on the same page," said Maureen Moakley, University of Rhode Island professor of political science.
The two-tiered sales tax — which would lower the current 7 percent rate to 6 percent and expand the tax base by imposing a 1 percent tax on some currently exempt goods and services — is similar to the sales tax expansion Chafee proposed during his campaign. "The whole package came as no surprise," Moakley said.
By recommending the introduction of a broader sales tax, Chafee is "providing political cover" for the General Assembly, so legislators may be more willing to approve the increases to reduce the deficit, she said. But lawmakers will still likely adjust some of Chafee's propositions to appeal to the public, Moakley said.
Ashley Denault, policy analyst at the Rhode Island Public Expenditure Council, called the budget "extremely ambitious." It clearly sets out Chafee's priorities and will not only rein in the deficit but also stabilize the economy in the long-term, she said.
The proposed two-tiered tax would be a "modernization of our tax structure" and would provide the state a stable revenue source, Denault said.
But Chafee's budget does not truly represent a "shared sacrifice," Donna Perry, spokeswoman for the Rhode Island Statewide Coalition, a taxpayer advocacy organization, wrote in an e-mail to The Herald. "Chafee is proposing new taxes on everyday goods and transactions that will hurt the struggling middle and lower class Rhode Islanders and struggling small businesses the most. We don't see how putting new taxes on ordinary goods and services will jumpstart the local economy."
Chafee's budget also addresses education. The budget fully funds the state's education funding formula — which allocates nearly $700 million to schools starting July 1 — and dedicates an additional $10 million to higher education in Rhode Island. While Denault regards additional contributions to higher education as an "important step forward," she said she wonders if the timing is right given the state's debt burden.
Even if Chafee's proposed tax increases are enacted, some of the conditions affecting state finances are out of the governor's control, according to Rep. Edith Ajello, D-Providence. "It can be balanced today and not balanced tomorrow because of fluctuations in revenue and absolute need for services," she said.
The budget proposes measures to increase employee contributions to the state's failing pension program. With a $5 billion to $10 billion estimated gap between the state's obligations to pensioners and the money it has set aside to fund them, the governor proposed that all state employees place their July pay increases toward financing the pension program. His budget also calls for government employees to contribute 11.75 percent of their pay to the system.
In his address to lawmakers last Tuesday, Chafee announced that government spending for health and human services must be reduced. As spending on this sector is projected to grow by $96 million between 2008 and 2012 — the highest growth rate for any portion of the state's expenditures — some services must be cut, he said.
"There will be people who are very unhappy," Moakley said, particularly if Chafee's budget results in spending reductions for Medicaid, the public health insurance program which provides aid primarily to low-income individuals and children. But Mike Trainor, Chafee's communications director, wrote in an e-mail to The Herald that the governor's budget does not address issues of eligibility or access, but rather seeks to standardize the state's payments to health care providers.
"The governor did not try to dismantle any of the services in that regard," said Sen. Rhoda Perry P'91, D-Providence. If cuts are made in the Medicaid program, the resulting reduction in preventive care for the state's neediest patients will ultimately not save money, she added. Calling the program "one of the best things in the state," she said she would oppose any attempt to scale back Medicaid.
But Perry said she thinks the budget is an improvement over past budgets that have sought cuts in the state's entitlement programs. "All in all, this is the first budget that I feel has really not touched some of the very, very needy programs," she said.
Recognizing the enormous task Chafee has to confront, Perry said his proposal succeeds in reconciling the state's competing interests. "Although it surely will have changes made by the General Assembly, it's pretty well balanced," she said.
