Chafee asks for millions in taxes, cuts

PROVIDENCE, R.I. (WPRI) - Gov. Lincoln Chafee outlined a state budget proposal on Tuesday that would raise the restaurant tax to fund a big boost in education spending and apply the sales tax to more items while cutting back elsewhere.

Chafee's proposal would reduce Rhode Island's spending to $7.9 billion in the fiscal year that starts July 1, down about 2.8 percent from this year's final total. The projected shortfall of $215 million for 2012-13 would be closed thanks to pension reform, higher taxes and spending cuts.

Chafee unveiled the proposal in a televised State of the State address to lawmakers at the State House. "These cuts will have very real, very painful consequences for people across our state," the governor wrote in a letter accompanying the budget. "I do not take these decisions lightly."

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The state "must make difficult choices about those services that the state can continue to provide," Chafee said. But he defended the necessity of including tax increases in the mix, saying, "I will not allow the social safety net to be severed."

Chafee's proposal is now in the hands of the General Assembly, which usually passes a final budget in late spring, and its prospects are uncertain. Top lawmakers have called tax increases "a last resort," but House Speaker Gordon Fox has also expressed strong support for improving education.

Restaurants, B&Bs taxed

Chafee's proposal calls for $93 million in tax increases and other new revenue.

The largest change is a rise in the meals and beverage tax from 1% to 3%, which would yield $39.5 million that the governor would direct to local education aid. The lodging tax would be applied to vacation home rentals and bed-and-breakfasts with fewer than three rooms.

Another major change is an expansion of the 7% sales tax to cover more items, including clothing that costs more than $175; limousines, taxis and other hired drivers; moving, storage, warehouse and freight services; pet services except veterinarians and lab tests; and car washes. All that would bring in $27.1 million.

Smokers would pay more, too. The cigarette tax would rise to $3.50 a pack. Taxes would be levied on all cigars with an integrated filter weighing no more than four pounds per 1,000 cigars. Four new tax investigators would investigate those who fail to pay.

Bed and breakfasts with fewer than three rooms and vacation-home rentals would be subject to the 13% lodging tax. And Department of Motor Vehicles fees would rise on Jan. 1 to pay for road and bridge repairs.

PBS, dental work axed

Chafee's proposal also calls for about $45 million in spending cuts and program eliminations, alongside a sizable increase in education funding at all levels. It also banks $117 million in savings from the new pension law.

Most of the largest cuts are focused on social services, which make up the largest portion of the state budget. Providers would face closer supervision and, in some cases, get paid lower rates. Low-income Rhode Islanders ages 21 and older would no longer receive dental care, saving $2.7 million.

Dozens of other cuts are scattered across departments. The Bureau of Adults would disappear into a new Office of Management and Budget. The few boards and commission that still pay their members would stop doing so. Election Day would no longer be a paid holiday for state employees, and Rhode Island PBS will lose its state funding.

The winner in the budget is education, with $22 million to fully fund the new school aid formula plus an additional $11 million on top of that. The Office of Higher Education would merge with the R.I. Higher Education Assistance Authority, allowing the creation of a new $20 million scholarship fund. Another $20 million would put Wi-Fi in all the state's K-12 classrooms.

Voters asked to borrow

Chafee's aides emphasized their efforts to find ways of managing state government's limited resources more effectively.

The proposed Office of Management and Budget, modeled on the federal one, would keep close tabs on programs and departments. Energy programs would be centralized in the Office of Energy Resources. The personnel management system would get its first full revamp since 1956.

The governor will ask lawmakers to put about $200 million in proposed borrowing on the November ballot for voters to decide on.

The big-ticket items there are $65 million for the new nursing school jointly run by the University of Rhode Island and Rhode Island College, and nearly $45 million for infrastructure at RIC. Other funds would go toward transportation, wastewater, affordable housing and open space bonds.

Full details about the governor's budget and supporting documents will be posted at budget.ri.gov.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi