Raimondo’s $9.3B budget targets online sales to spend on schools

Eyewitness News Investigates

PROVIDENCE, R.I. (WPRI) – Gov. Gina Raimondo unveiled her third state budget on Thursday, asking lawmakers to hold down health costs and collect more taxes from online shopping and cigarettes in order to fund free tuition and tax breaks for companies.

Raimondo, a first-term Democrat, released the $9.3-billion proposal two days after delivering her televised State of the State speech to lawmakers. The massive document fleshes out the details on some of the ideas she laid out two nights ago.

The proposed budget would increase Rhode Island government’s total spending by 3.5% in the 2017-18 fiscal year that starts July 1, compared with the budget lawmakers approved last spring. The state budget would top $9 billion for the first time, with a third of the money coming from the federal government.

Much of the new spending would be covered by rising tax revenue thanks to an improving economy. But Raimondo is also seeking to raise nearly $35 million by enforcing the 7% sales tax when residents make purchases online – Amazon.com has already said it will begin doing so Feb. 1 – and nearly $9 million by hiking the cigarette tax another 50 cents, to $4.25 a pack.

On the taxation of e-commerce, R.I. Department of Revenue Director Rob Hull said, “This is already the law, that you have to pay this – it just puts the Internet retailers in a position to step up and do the right thing.” He noted that a number of other states, including Colorado, have made similar moves recently.

Beyond that, Raimondo suggested no changes to Rhode Island’s income, sales or corporate tax rates. She’s also seeking to create new tax credits to subsidize manufacturers and job training, and to add money for various tax incentives and other programs that the R.I. Commerce Corporation has been using to woo companies such as General Electric and Johnson & Johnson.

Health spending a target for savings

On the other side of the ledger, Raimondo is seeking significant new money for education, partly paid for by holding down the growth of social services, including the largest program in the state budget: Medicaid. The budget would save more than $11 million by freezing or cutting rates paid to nursing homes and hospitals and more than $12 million by reducing administrative fees paid to Neighborhood Health Plan for some nursing home residents.

“We’re trying to move away from consumption-oriented spending and more toward growth-oriented spending,” said R.I. Office of Management and Budget Director Jonathan Wormer, adding: “That’s one of the larger goals of this budget – trying to really contain costs and invest in growth areas.”

Notably, despite the budget’s heavy reliance on federal dollars, it includes no contingency plans for the possibility that President-elect Donald Trump and his newly empowered Republican colleagues in Washington will make significant cuts to programs that Rhode Island runs using federal money. That’s a particular question in social services, with GOP leaders pledging to repeal the Affordable Care Act and revamp Medicaid, as well.

Health and Human Services Secretary Elizabeth Roberts denied that the decision was irresponsible, saying officials from Rhode Island – “along with states both red and blue” – are talking to federal leaders about the impact of any changes they make.

“In my mind, it’s irresponsible not to continue to serve the people we are able to serve under current rules,” Roberts told reporters. “We should do that while paying attention and being mindful on a daily basis of what might change in Washington and how that might impact us here in Rhode Island.”

House Republican Leader Patricia Morgan, who was briefed on the budget Wednesday, offered a negative review of the governor’s plan, saying she saw “a lot of new spending” in the proposal. And she panned the new effort to collect sales tax revenue from online purchases.

“It’s just another tax, another source of revenue – instead of using the money that we already take wisely and well, we’re going to find another source,” Morgan said. She added: “All money comes out of the little guy – whether it’s filtered through companies or filtered through truckers, it’s all filtered through the little guy.”

More details on free college, car tax cut

The budget includes $10 million for the first year of Rhode Island Promise, Raimondo’s program to provide two years of free tuition at the state’s public colleges; its estimated annual cost will be $30 million once it’s fully up and running by 2020-21. She’s also proposing more than $40 million to fully fund the state’s K-12 funding formula, which was enacted a few years ago.

The budget documents shed more light on Raimondo’s proposed cut in the car tax, which she highlighted Tuesday in response to calls by House Speaker Nicholas Mattiello to eliminate the tax. Raimondo would reduce the value of a car used to levy the tax from 100% to 70% starting in July 2018 and reimburse municipalities for the revenue they lose.

The governor’s proposal would cut the car tax in 2018 rather than this year – a delay Mattiello has already said he opposes – and thus there’s no money for the phaseout in the budget she unveiled Thursday. But documents show her plan would cost the state $58 million in 2018-19, rising to $62 million by 2021-22.

Raimondo is asking lawmakers to fund a wide variety of other initiatives in the budget, from $2.5 million for First Gentleman Andy Moffit’s outdoor recreation proposals to $11 million in raises for care workers and funding for eight additional DMV employees. She also urged them to raise the state’s minimum wage to $10.50 an hour effective Oct. 1.

Not all of Raimondo’s budget proposals strictly relate to money.

The plan includes a proposal to merge the R.I. Emergency Management Agency with the R.I. Department of Public Safety, and to have the latter department run by a newly appointed civilian director instead of the Rhode Island State Police colonel as is currently the case. She’s also once again seeking legislative support for changes that she argues will modernize the state personnel system.

Notably, the budget does not include the annual appropriation of roughly $12.5 million that has been required in recent years to pay off the debt from the failed 38 Studios deal. The governor’s aides said proceeds from legal settlements reached in a lawsuit over the deal have provided more than enough to cover the next year’s debt payments.

Raimondo’s proposal would still leave the state facing budget deficits in future years, but the projections are down markedly compared with a year ago thanks to an improving economy, tax revenue from online sales, and a better outlook for Twin River Casino. The yearly shortfall is now projected to grow from $151 million in 2018-19 to $194 million in 2021-22.

Thursday’s release of the governor’s blueprint kicks off the months-long budget process at the State House. The House Finance Committee, chaired by Newport Democrat Marvin Abney, will spend the coming months evaluating and taking testimony on the proposal, while the governor and top lawmakers negotiate behind the scenes over what will make the final cut.

The General Assembly usually gives final approval to the budget around June.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter, Facebook and InstagramDan McGowan and Susan Campbell contributed to this report.

Copyright 2019 Nexstar Broadcasting, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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