Chafee seeks lower corporate tax rate, more school funding

PROVIDENCE, R.I. (WPRI) - Gov. Lincoln Chafee on Wednesday proposed a state budget that doesn't raise taxes on individuals and would actually lower them for companies, while boosting funding for education and job training, in an apparent sign he's changed his approach after previous budget battles.

Chafee emphasized his desire to hold the line on taxes while protecting needy residents during a televised State of the State address he delivered to state lawmakers and other public officials, including Congressman Jim Langevin, who assembled in the House of Representatives' chamber at the State House.

"We have avoided tax increases and are lowering the corporate rate through both good fiscal management and a strengthening economy," Chafee said in his prepared remarks. "As we move forward, it is important to keep investing in the building blocks of this progress - that is, investing in education, infrastructure, and workforce development."

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In addition to the budget, Chafee said he wants to work with state lawmakers to pass legislation responding to last month's school shooting in Newtown, Conn., and he also called on the House and Senate to legalize same-sex marriage. "For our economic development, for civil rights, and for basic fairness, we must extend the rights and benefits of marriage to all Rhode Islanders," Chafee said.

The governor's budget proposal would increase Rhode Island's state spending by 1.2% to $8.2 billion in the 2013-14 fiscal year that starts July 1. The year's original projected shortfall of $128 million would be closed with a mix of improving tax revenue, lower-than-expected spending by agencies and new initiatives to contain costs.

The proposed budget is due on Thursday under state law, and Chafee's office said this is the first time in more than 20 years Rhode Island's governor submitted a budget on time without an extension. "We are providing certainty, predictability, and stability," he said in his speech. "And that’s what businesses demand to have the confidence to create jobs in Rhode Island."

The governor also expressed optimism that the state's financial situation is improving, six years after Rhode Island first started losing jobs ahead of the rest of the country. "It takes time for the sun to break through, but it is," he said. The 2012-13 fiscal year will be the third one in a row that ends with a budget surplus, he said, with state agencies on track to spend less than lawmakers authorized last spring.

"My goal was to combat our projected deficit on the expenditure side of the ledger so we can keep our taxes competitive," Chafee wrote in his budget presentation for lawmakers.

The marquee tax idea in Chafee's budget is a proposal to lower the state's corporate tax rate from 9% to 7% over the next three years, which would move it from one of the highest in New England to the lowest. The governor would offset most of the lost revenue from lowering the rate by reducing the value of two tax credit programs that primarily benefit CVS Caremark, the state's largest private employer.

The governor acknowledged he may be criticized for cutting the corporate tax rate during a time when the state has reduced its budget for social services. "I would not make this recommendation if I did not truly believe that in the long run it will result in a stronger economy, more Rhode Islanders working, and fewer of our citizens in need of state support," he said.

Chafee also cited figures showing Rhode Island ranks 26th in the burden of state-level taxes on business but 41st in the burden of municipal-level taxes on business - a sign, he argued, that ever-rising local property tax bills are "the real major barrier to economic growth."

More than half the $8 billion state budget is spent on human services and education. The Chafee administration is trying to hold down increases in the first, but his budget proposes significant new money for education: another $30 million for K-12 schools, fully funding the school funding formula, and another $6 million for the three state colleges. In return, the colleges won't be allowed to raise tuition this fall.

Chafee has also made infrastructure spending a top priority in his budget. He proposed that a number of "shovel-ready" projects scheduled to be done in future years start now. "These have the dual benefit of strengthening our economic climate while putting Rhode Islanders back to work now," he said. He also wants $2.5 million to rehabilitate the former Rocky Point Amusement Park, which the state is buying.

Other proposals by Chafee to boost employment in the short term include bringing back the historic tax credit, which used to provide a state subsidy for developers that renovated old buildings, and creating a new $3 million subsidized internship program to train students and unemployed residents. Another $3 million in federal money would be used to subsidize child care for low-income families.

Rhode Island's cities and towns, which have been financially stressed in recent years, would get additional support under Chafee's budget. He wants to provide an additional $20 million to municipalities, some of which would be awarded based on whether they file plans to fix their pension systems.

"I may sound like a broken record at this point, but in the years before I took office, cities and towns bore the brunt of the downturn in state revenues," the governor, a former mayor of Warwick, said in the speech. "Those most severely affected were the distressed communities that could least afford it."

The budget also includes $4.1 million to help communities recover from the effects of Hurricane Sandy, $600,000 for tourism marketing and $500,000 to help fund the I-195 Redevelopment Commission.

Chafee's speech alluded to the dramatic collapse of 38 Studios last year, asking lawmakers and citizens to "be skeptical and wary of deviating from the steady, methodical construction of a Rhode Island economy built for today and for the future."

"We tried the 'get rich quick' approach by giving $75 million to a retired baseball player with zero business experience," he said. "We cannot make such panic‐driven decisions again."

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