PROVIDENCE, R.I. (WPRI) — Goodbye, car tax.
State leaders announced Thursday they plan to eliminate the much-derided Rhode Island motor vehicle excise tax this year, one year ahead of schedule.
The tax was already being phased out under a law that passed five years ago, with the state reimbursing cities and towns for the lost revenue each year.
But with a surplus of funds in the state budget unveiled Thursday night, the leaders are proposing to do away with the tax one year early.
The budget was approved by the House Finance Committee in a vote of 11-3 late Thursday night. It will be considered by the full House next Thursday.
House Speaker Joe Shekarchi, Senate President Dominick Ruggerio and Gov. Dan McKee announced the car tax cut earlier in the day as part of an agreement between the three top Democrats on “targeted tax relief” to be included in the budget.
The other major item is a $250 child tax credit for tens of thousands of families.
Shekarchi said the car tax would be eliminated this year for every municipality except East Providence, since they operate on a Nov. 1 fiscal year schedule (rather than July 1) and are a year behind on the car tax phaseout.
East Providence’s spokesperson initially confirmed the city would send out bills for one more year. But a short time later, Mayor Bob DaSilva told 12 News he’s hoping to find a way to eliminate the car tax in his city as well, rather than waiting another year.
“I’ve spoken to our finance director,” DaSilva said. “I’m working to give East Providence residents the same car tax break as every other Rhode Island resident.”
“I feel confident we’ll be able to come up with a solution,” he added.
Ending the car tax one year early is expected to cost the state $64 million more than expected for the car tax phaseout this year. The plan needs to be approved by the House and Senate.
“I am absolutely elated by the car tax phaseout,” Ruggerio said. “We are looking to do meaningful relief for Rhode Islanders.”
The state leaders also announced a $250 one-time child tax credit for families, who would receive the $250 for each child, up to three children.
The credit is for dependents in tax year 2021, so babies born in 2022 won’t be eligible. The credit will be available for single tax filers who make less than $100,000, or joint filers who make less than $200,000.
The checks are expected to be sent out to families in October as a refund on their 2021 taxes.
The budget is also expected to dump $100 million from the state’s massive surplus into the unemployment trust fund, which was severely depleted during the pandemic. The move amounts to tax relief for businesses, which pay into the fund.
There is no plan to cut the sales tax this year, something McKee had floated on the campaign trail. There is also no plan for a cut to the gas tax, as gas prices rise above $5 a gallon.
“I am interested in lowering the sales tax,” McKee said. “This is not the moment to do it.” He said he would seek to lower the sales tax in the future.
“The money we have right now is all one-time money,” Shekarchi said. “We would lower the tax this year, and we would have to raise it back next year.”(There are two new additions to the list of items exempted from the sales tax: breast pumps and funeral items.)
Shekarchi said cutting the gas tax is “a lot easier said than done,” due to expenses tied to the gas tax revenue. He said lowering the gas tax might not provide any noticeable relief for drivers, since prices change so frequently.
The leaders also said the state will cover the $8 cost for drivers to get Rhode Island’s new license plates, when those are released.
Also included in the tax relief package is an increase in the so-called “circuit breaker” tax credit for elderly and disabled people from $400 to $600, also increasing the income limit for the program from $30,000 to $35,000.
Lawmakers also included a proposal to fully exempt military pensions from taxation. They declined to lower the corporate minimum tax by $25, which McKee had proposed, nor did they include his proposal to exempt the trade-in value of motorcycles from the sales tax.
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How the state plans to spend $13.6 billion dollars
The tax changes are incorporated in a massive budget bill that was released and immediately approved in the House Finance Committee late Thursday night. The plan is an amended version of the budget submitted by McKee in January.
The $13.6 billion plan includes the nearly $900 million surplus and more than $1 billion in American Rescue Plan Act money, leaving lawmakers inundated with requests for how to spend the one-time cash.
“This has been an incredibly challenging budget,” Shekarchi told reporters in a briefing Thursday night. He said there were an “inordinate amount of requests” for how to spend the federal and surplus funds, but the lawmakers sought to find one-time expenditures that would not leave the state responsible for continuing expenses when the federal money dries up.
“We have tried to look at balancing the needs of the community as well as what we can do to keep the economy prepared for the future,” he said.
Shekarchi said lawmakers opted to spend more on school construction than McKee proposed, adding an additional $50 million on top of the $250 million bond question that will go to voters this fall.
The Finance Committee agreed with McKee’s plan to spend $250 million of the ARPA funds on housing, which includes a down payment assistance program, affordable housing, homelessness infrastructure and more.
But the committee did not fund McKee’s $15 million proposal for municipal learning centers, a priority for the governor modeled on a similar program in Cumberland where he was once mayor.
“It’s untested,” Shekarchi said. “I think there’s some merit, to be quite honest with you, but I think it needs to be … a little bit more baked.”
“There was not a lot of interest from my colleagues in the House,” he added.
The House Finance budget also does not fund McKee’s proposal for higher education academies, which were aimed at helping adults enroll in college.
Shekarchi said the new budget plan instead adds $17 million more for public school districts through the existing funding formula, adding to the more than $1 billion in education aid directed to towns and cities.
The budget also includes a plan to increase the state pre-K seats by 5,000 over the next five years. The bill requires the Department of Education come up with a plan by the end of this year to reach that goal, including how to build more classroom capacity and train early educators so the expansion can be achieved.
The budget adds $10 million to McKee’s plan to provide ARPA money to nonprofits, for a total of $20 million.
Another new program in the House Finance version of the budget would incentivize families on food stamps to buy fruits and vegetables, reimbursing them 50 cents for every dollar spent on their EBT cards. The program is expected to cost $11.5 million.
The lawmakers also added a $1 million effort to prevent suicides on state bridges, and a $2.5 million pilot program to make one bus line — the R-line — free for a year.
The budget proposal does not include any money for the proposed Pawtucket soccer stadium project known as Tidewater Landing, which is currently seeking $30 million in additional state support amid soaring costs tied to inflation and supply-chain issues.
Shekarchi said he hadn’t received any “formal asks” for any additional funding from R.I. Commerce Corp., developer Fortuitous Group or Pawtucket city leaders. And he was adamant any future requests would have to go through a regular House Finance Committee vetting process.
The new budget keeps McKee’s proposal to spend $108 million to build a new, 100-bed facility at Eleanor Slater Hospital’s Zambarano campus in Burrillville. The new facility would replace the existing building, which houses mostly long-term patients – many of whom have lived there for decades.
Whether the $108 million cost estimated in January will be enough to build the new facility, however, wasn’t immediately clear. Considering the cost overruns seen at the Pawtucket soccer stadium project, Shekarchi said he was concerned the estimate could be outdated. But he argued the state needs to start somewhere because a new building is needed.
“We know we’re going to have to do something there,” Shekarchi said, describing the initial allocation as a “down payment.”
The amended budget also sets aside $12 million from the ARPA funds and another $45 million from R.I. Capital Plan funds to put towards renovating or building a state-owned psychiatric treatment facility for girls, who currently have to be sent out of state.
Shekarchi said the potential plan is to reopen an old facility as a temporary home while a permanent residential facility for girls is built over several years.
The budget only assumes a small amount of net tax revenue — $1.2 million — from the sale of recently-legalized recreational cannabis, which will start halfway through the fiscal year in December. The budget proposal assumes the sales will bring in $6.6 million in taxes, but costs to implement the program including hiring new regulators will utilize $5.6 million of that money.
Shekarchi said lawmakers didn’t want to over-estimate how high sales would be in the first year of legalized cannabis, especially as it’s unclear how many stores will be up and running at first.
This story will be updated.