BY JIM BARON

PROVIDENCE — Despite the headlines about the nationwide recession and Rhode Island’s 9.3 percent unemployment; despite the wrangling with state employees and people who receive dwindling state services over the need for budget cuts that are now reaching the city and town level, and despite forecasts that the economic situation is going to get worse before it — slowly — gets better, Gov. Donald Carcieri still isn’t sure that people get it.

“These are extraordinary times,” Carcieri said during a meeting with editorial staffers of The Times and The Call. “I still don’t believe that people understand fully yet how significant this is, and its potential impacts.”
That is why, he explained, he took what he called the “unprecedented” step of requesting a half hour of airtime from the three major television stations last week to speak directly to the citizens of Rhode Island about the economic situation we find ourselves in.
“You see some of the reaction right now,” he said with a somewhat rueful chuckle, “that we’re just going to keep doing what we’ve been doing. We’re at one of those times where we can’t keep doing that. We don’t have the resources right now.”
It wasn’t all that long ago, just last summer in fact, that the governor was among those who thought the state was doing alright.
The structural deficit that had dogged state budgeters for years seemed to have been brought to heel and it appeared that Rhode Island was on the right track for the first time in a long while.
“We had taken the workforce down to just under 1,800 people in the last 18 months,” Carcieri said. “This is the lowest level of state employment anyone can recall, since they began keeping records” sometime in the early 1990s.
“I have talked to fellow governors; there is no state in the country that has done what we have done in terms of reducing 12-13 percent of the workforce, we have reorganized the departments, we have had some tough negotiations with labor, getting the (health care) co-shares up to 20-25 percent.
Then the foreclosures hit, unemployment went through the roof and with the high-profile failures of some of the nation’s biggest and, until just recently, strongest financial institution the state and national economy was in a dizzying tailspin that probably has not hit bottom even yet. Just six months after the current year’s budget passed, the November Revenue and Caseload Estimating Conference showed that revenues would come in almost a quarter billion dollars less than was expected.
“I know there is a lot of pushback from the cities and towns that somehow we are balancing the budget on their backs, that’s not true,” the governor asserted. “They are a piece of it, no question.
“But the basic problem is the revenues,” he added. “our revenues are down 10 percent. It’s mostly the sales tax, some of the income tax, its spread pretty broadly.  Last year the corporate income tax brought in $110-$115 million, but I don’t see a lot of companies making money right now. And on the personal income tax, there are a lot of components to that, capital gains, stock options and things that get taxed at ordinary rates — that’s all gone.”
That, he said, is why measures like the flat tax — a separate way of calculating tax obligations for the state’s wealthiest taxpayers that assess them at a single rate without deductions; which is slated to go from 6.5 percent this year to 6 percent next year — need to continue.
“At the end of the day our problem fundamentally is that we are not growing the economy,” the governor noted. “People can disagree, but a lot of people agree with me that our basic problem in growing the economy is the tax burden.”
Repeating statistics he now knows by heart, Carcieri said that when he took office, Rhode Island’s tax burden, between state taxes and local property taxes, was the fourth highest in the country, as calculated by the conservative group The Tax Foundation. We have now dipped to 10th, he noted, one of the steepest drops in the nation, he said, but added that is still high compared with Massachusetts’ ranking of 23rd and nearby New Hampshire’s 49th.
Over the decades, Carcieri said, “we have put ourselves into a position where the level of spending built into the labor contracts, you name it, has not been sustainable. And our taxes as a result have been the highest. That is not going to grow the economy.”
What the governor hopes is that in his final two years in office, “once we get through this hump, position ourselves, do the right thing, get the benefits and the structure under control and sustainable, get the tax burden down,” that the state’s economy will be back on track.