By JIM BARON

PROVIDENCE — Warning that the worst could still be yet to come for the state and national economy, Gov. Donald Carcieri proposes using more than three quarters of a billion dollars of federal stimulus money to restore some aid to cities and towns in the current year, boost school spending this year and next and to begin providing tax reductions to corporations and some individuals.

The governor rolled out his second revised budget for the fiscal year that ends June 30 on Tuesday at the same time he introduced a $7.6 billion budget for the following year.
But despite the influx of funds from Washington, Carcieri cautioned that “the pressure on the state and cities and towns (caused by the economic downturn) is not going to abate.”
The revised supplemental budget adds back the $1 per pack hike in the cigarette tax that was in the governor's original supplemental budget, but which he threatened to veto when the House Finance Committee pulled that and several other revenue items out of the budget and made them into a separate bill.
It also freezes the automobile excise tax phase out, where the state reimburses cities and towns for eventually eliminating local taxes on motor vehicles at the first $6,000 of a vehicle's value. The phase-out is funded by video lottery terminal receipts from the Twin River casino.
When all is said and done, local school districts would have a tiny bit more money to work with by the end of June and substantially more in the budget year that begins July 1 under the governor's budget plan.                               
Of the $55 million the administration cut from general revenue sharing in the revised 2009 budget Carcieri introduced in January, $31 million would be restored in the new revision unveiled Tuesday, but 12 million of that will have to be put toward education, on top of the tens of millions of dollars that flow directly to schools from the federal stimulus package. In Carcieri's 2010 budget, however, there is no money allocated for revenue sharing.
Some local municipalities would see tight restrictions on the use of those restored funds in the current year.
Central Falls, because it does not use any local funds for schools, would have to use 100 percent of the $805,518 it is slated to receive in revenue sharing funds for education. Pawtucket and Woonsocket, because they pay less than 25 percent of the cost of education in their cities, would have to dedicate 75 percent of the money they would receive — $2.6 million  for Pawtucket; $1.8 million for Woonsocket — to their school systems for technical infrastructure or deficit relief. So in Pawtucket, $1.9 millionof the restored funds would go to the schools and $651,000 would be spent for municipal uses and in Woonsocket, the schools would take $1.3 million of the funds and the city side of the budget would get just under a half million dollars.
Almost all other communities (except West Warwick and Providence, which because they fund less than 50 percent of their school budgets must put 50 percent of their restored revenue sharing toward the schools) can use 75 percent of their revenue sharing money for municipal purposes and put only 25
percent into their school budgets.
Cumberland would get $743,568; Lincoln, $457,207; North Smithfield, $312,790; Burrillville, $335,885; Glocester, $270,438; and East Providence, $1.2 million.
But that is only the governor's proposal.
House Finance Committee Chairman Steven Costantino, who will have a significant influence in shaping the final budget, warned municipalities Tuesday to not count on those numbers.
“I would not expect the type of restorations (of state aid) that have been promised in this budget,” Costantino said when asked what he would tell cities and towns trying to fashion their own budgets in the midst of the fiscal uncertainty.
He said he would also suggest that municipalities be wary of what will come out of the Revenue and Caseload Estimating Conference in May, where the final budget assumptions for the year are established.
Lashing out at the administration, Costantino said, “this budget is designed around the principle of avoiding tough decisions. Nothing in this budget takes a risk in terms of minimizing the devastating effect the May estimating conference may have. It minimizes the risk of the state at the expense of the local communities and taxpayers.”
Costantino said the budget “assumes a whole lot, particularly on the stimulus money.” He says it assumes the stimulus will not require a maintenance of effort (at least level funding with state money) for schools and that the state will be allowed to use stimulus money for things it is currently funding on its own. “If none of these assumptions come through, what's the back up plan” the finance chairman asked.
“I see major revisions to the budget when it arrives,” Costantino said.
When it arrives could be another question. The budget bill was not introduced in the House of Representatives on Tuesday, and the six-member Republican caucus in the House seems to be having a hard time finding a sponsor for it.
Tim Duffy of the RI Association of School committees, said, “we understand how bad the situation is, but what we are doing is bridging the gap to 2011 by plugging the holes in the state's budget problems with stimulus money. If we don't have a clearly articulated exit strategy by then, we are going to be left with an unfunded liability in terms of what the state has to take care of.
“This does not lead to a state aid formula, I think that is critically important,” Duffy said. “This is the time for us to articulate just how much we expect the state, the federal government and property tax payers to pay to educate a child.
“This is a recipe for raising property taxes in every city and town in the state,” he said.
Dan Beardsley, executive director of the RI League of Cities and towns, told reporters “the state has supplanted general revenues that go to cities and towns with stimulus money. Two years from now (when the stimulus money is all spent) when the cities and towns are looking for a continuation of that aid money, it is not going to be there.”
Carcieri's successor, Beardsley said, is not going to be able to come up with more money “because it is going to pay for tax breaks for the business community.
Starting next January 1, Carcieri wants to start phasing out the business corporation tax, lowering it from its current 9 percent to 7.5 percent. Under the governor's plan, it would drop to 6 percent in January, 2011, to 4 percent in 2012, 2 percent in 2013 and to zero in 2014.
The first cut in January would cost the state $14.5 million.
Carcieri said this would “make an enormous statement to the rest of the nation, to the region, that Rhode Island is serious about growing businesses, keeping businesses that are here growing and not leaving and attracting other businesses, they are not going to be dissuaded by the tax uncompetitivenesss.”
Also starting January 1, Carcieri wants to increase the amount of an estate that is exempt from taxation upon the death of its owner from the current $675,000 to $1 million. That would eliminate all estate tax for 45 percent of Rhode Islanders.
Changes to the personal income tax proposed by a Tax Policy Group headed by administration director Gary Sasse would begin to be implemented in 2011 under Carcieri's plan.
The one part of that Tax Policy Group's recommendation that Carcieri did not include in his budget plans would provide property tax relief.
Carcieri said he would have liked to include the property tax relief, as he would have liked to accelerate the phase out of the corporate taxes, but given the economy there is only the ability to do so much. Property tax relief, he said, would have to come in the form of his proposals for a statewide school transportation plan, a statewide food service plan, pension reform and other steps he proposed in his first supplemental budget, including eliminating minimum manning for police and firefighters and other provisions in municipal labor contracts.