PROVIDENCE, R.I. (WPRI) – Rhode Island lawmakers on Tuesday evening unveiled an $8.67-billion proposed state budget for the 2015-16 fiscal year that offers tax breaks to businesses and retirees while creating most of the new economic-development programs Gov. Gina Raimondo wanted.
“The budget that’s going to be voted on tonight is pro-business, pro-economy,” House Speaker Nicholas Mattiello, D-Cranston, told reporters. “It’s going to serve as a catalyst for existing businesses as well as working to attract new businesses to the state of Rhode Island.”
The budget unveiled Tuesday is a revised version of the tax-and-spending plan put forward in March by Raimondo, the first Democrat elected governor since 1992 in a State House dominated by the party. Legislative leaders acknowledged they went along with most of the governor’s key proposals, giving her a major political victory during her first year in office.
Lawmakers’ revised budget makes no changes to Rhode Island’s sales tax or income tax rates, but it repeals the sales tax on energy for businesses; eliminates surcharges on imaging procedures such as X-rays and outpatient services; and reduces the minimum corporate tax from $500 to $450.
“We want to send a message that Rhode Island is open for business,” Mattiello said. “While neighboring states are increasing taxes and fees, Rhode Island has been reducing taxes and fees.”
On the other side of the ledger, the budget includes Raimondo’s proposal to expand taxes on the Airbnb service and vacation home rentals as well as bed and breakfasts and online room resellers. The cigarette tax will increase by 25 cents, to $3.75 a pack. As expected, though, the so-called “Taylor Swift tax” on million-dollar second homes was dropped.
The House Finance Committee approved the budget on a unanimous 19-0 vote around 11:30 p.m. Tuesday, almost immediately after it was unveiled. The full House will debate the budget bill next Tuesday, with the Senate to follow. If both chambers pass it, as expected, the spending plan will go to Governor Raimondo for her signature. The one-year budget will cover the new 12-month fiscal year, which starts July 1.
“Our focus this session has been on creating jobs and expanding opportunity, and we’ve worked hard with General Assembly leaders on these priorities,” Raimondo spokeswoman Marie Aberger said in a statement.
One Raimondo proposal that isn’t in the budget, though: her proposed toll on commercial trucks to fund road and bridge repairs. Mattiello said Tuesday more needs to be done to mitigate the impact the tolls would have on local companies, but reiterated his support for the general concept and suggested lawmakers could create the toll in a special session later this year.
Among the new economic-development programs lawmakers agreed to create at Raimondo’s request is a Rebuild Rhode Island tax credit, which will provide state subsidies to reduce costs for real-estate developers. But lawmakers capped the amount each project can receive at $15 million – significantly less than the owner of the vacant “Superman building” has sought.
The various other planks of Raimondo’s so-called “jobs package” – including a $25 million fund to subsidize redevelopment of the vacant I-195 land, a tax credit for suppliers, and a shift from regional tourism bureaus to a central statewide campaign – also made it into the final budget.
However, House Finance Committee Chairman Raymond Gallison emphasized that lawmakers put additional limits on the economic-development programs. “That was a major concern that was raised in committee,” he said.
Rep. Joe Shekarchi’s proposal to give employers a tax credit when they add new higher-wage jobs is included in the final budget agreement, with the credits ranging from $2,500 to $7,500 and capped at the amount of state income tax revenue generated by each job.
The budget adds a new tax break on Social Security benefits, which has been a key priority for Speaker Mattiello. The final agreement will exempt Social Security benefits from income taxes for single filers who make up to $80,000 and married filers who make up to $100,000. The earned-income tax credit will be expanded to 12.5% of the federal credit, as well.
On Medicaid, the state-federal health insurance program for low-income people, Gallison said lawmakers largely backed the governor’s proposals for various structural reforms to reduce its cost. But the cuts to rates for hospitals and nursing homes will be less severe than those proposed by the governor, he said. The final budget’s Medicaid cuts total about $67 million, down from the $90 million put forward by Raimondo.
“We concurred with many of the governor’s initiatives for economic development with some additional controls,” Gallison said. “We also concurred with her structural changes to modernize the Medicaid program, while lessening the impact to hospitals and nursing homes.”
On education, lawmakers agreed to Raimondo’s proposal to increase K-12 school spending by $35.8 million to fully fund Rhode Island’s education funding formula, as well as her proposals to add $20 million for school construction; $7.5 million for higher education; and $1.4 million to expand all-day kindergarten across the state starting in the fall of 2016.
HealthSource RI, the state-run insurance marketplace Rhode Island set up to implement Obamacare, successfully beat back an effort to shut it down and switch the state to the federal HealthCare.gov system. But lawmakers amended Raimondo’s proposal to fund the agency with a new fee on insurance premiums, reducing the average fee to 2.6% for individuals and 0.59% for small employers. Gallison said the change was made to mirror how the federal government pays for HealthCare.gov. HealthSource will also receive $2.6 million “to cover certain technology and call center contracts currently in place.”
On pensions, the budget includes the full legal settlement between the state and the labor unions who sued to overturn Rhode Island’s 2011 pension overhaul, which saved taxpayers roughly $4 billion; workers and retirees have agreed to drop their litigation in exchange for some concessions on benefits. A judge gave final approval to the settlement Tuesday, leaving an OK from legislators as the last remaining step before the deal becomes final.
Also on pensions, lawmakers agreed with Raimondo’s proposal to use some of the money the state received a few years ago from a legal settlement with Google to seed a fund to pay for older state police officers’ pension benefits. And they waived a requirement that when tax revenue comes in above forecasts, it goes into the state pension fund; a previous effort to do the same in 2013 was reversed after a revolt on the House floor.
The budget contains no provisions to help the Pawtucket Red Sox build their proposed new stadium in downtown Providence, though Mattiello has said he continues to support the project and hopes to tackle it at a later date if the state can reach a deal with the team.
The budget would reduce Rhode Island government’s spending by 1% in the 2015-16 fiscal year that starts July 1 compared with what they approved a year ago; about a third of the funding will be provided by the federal government. The final negotiated budget deal includes about $38 million more in spending than Raimondo proposed in March.
“I’m very proud of the budget,” Mattiello said. “It’s bold, it’s balanced and it’s going to move the state forward.”
There was no immediate word on how the final budget agreement would impact Rhode Island’s structural deficit – the state’s perennial gap between revenue and expenses – down the line. Raimondo’s aides estimated her original proposal would have lowered the 2016-17 deficit from $256 million to $75 million, and the 2018-19 deficit from $496 million to $286 million.Ted Nesi (email@example.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesiPerry Russom contributed to this report.