By JIM BARON

PROVIDENCE — Cumberland Mayor Daniel McKee's mayoral academy and the Office of the Health Insurance Commissioner apparently escaped the budget ax, but general revenue sharing aid to cities and towns and public employee pensions did not, in a marathon session of the House to approve a 2010 budget.

Lawmakers debated the $7.7 billion tax and spending package long into the night and many of the tentative decisions were not given final approval until after presstime. Restoring the $1.5 million for the mayoral academy and the proposed Segue charter school in Central Falls, as well as the $665,000 to keep the health insurance commissioner's office open were items slated to be in the last budget article to be voted on Wednesday night, or in the early morning hours of today, as the case may be.
Since both actions were initiatives of House Finance Chairman Steven Costantino, they enjoyed a high presumption of success.
The Senate is scheduled to vote on the budget today.
The 2-cent per gallon increase in the gas tax won approval, as did a change in the capital gains tax that assessed those earnings at the owner's personal tax rate. The estate tax, derided as the “death tax” by its opponents, was also changed. Now the first $850,000 of a person's estate would be exempt, up from the current $675,000. That number would increase each year by the rate of inflation.
Revenues from the gas tax hike will go toward RIPTA the state's public transit agency.
Lawmakers also cast the tax net to capture on-line shoppers, passing what is called the “Amazon law” to redefine the word retailer so that any Internet business that has a direct relationship with any Rhode Island business must collect sales tax at the time of an on-line purchase.  
A large factor that helped budgeters close a $590 million deficit was federal stimulus dollars from Washington D.C. The budget uses more than $225 million worth of so-called “Obama money” to plug the budget hole. It also calls for nearly $58 million in unspecified across-the-board spending cuts throughout state government.
As is the case each year with budget bills, there are a few leadership-approved amendments that are approved by lopsided majorities and several hours are spent debating and, in most cases, ultimately defeating attempts to change what is brought forward by the House Finance Committee.
Wednesday's session played out true to form, with hours spent arguing scores of amendments.
The most contentious budget article of the day – the session started shortly after 3 p.m. and was still  going strong at 11:30 p.m. – was the one that eliminated the $55 million revenue sharing aid and in particular the proposed  amendment to freeze the alternative flat tax for the state's wealthiest taxpayer in order to get funds to restore that program.
 Democrat Costantino declared the issue “a litmus test on where we want this state to go,” urging colleagues to “not be bogged down by tax policy that drives business away and doesn't allow business to come in.
“We are going to say we are going to raise taxes on this group that pays 39 percent of our taxes,” Costantino said, noting it is only about 2,300 Ocean State taxpayers who shoulder that burden. “When you talk to executives, he added, “this is the (tax break) that matters.
As for the argument that only about 840 of those taxpayers live in Rhode Island, Costantino said, “they aren't using services, either.” He said the small number of people who take advantage of the tax, rather than being a reason to eliminate it, is actually an indictment of Rhode Island because it has so few affluent residents. “Isn't that the issue? Why aren't there more?” he asked.
Proponents of the flat tax said accountants urge their wealthier clients to leave Rhode Island for nearby Massachusetts or Connecticut towns to avoid the high marginal tax rates here.
Coventry Rep. Scott Guthrie, a freshman Democrat, championed the effort to freeze the tax scheme that generally affects Rhode Islanders making more that a quarter million dollars a year. His plan would save $92 million over three years that would be distributed to cities and towns in the form of revenue sharing.
He, too, cited jobs as a rationale for his argument.
Guthrie noted that, unless voters in West Warwick approve a tax increase at a second financial town meeting, the town will be required to lay off eight firefighters, eight police officers and nine public works employees. In Coventry, he said, nine jobs will be on the chopping block.
“This is huge,” Guthrie said, adding that “5,800 Rhode Islanders have lost their jobs in the last month.”
Refuting the argument most frequently made against eliminating the flat tax, Guthrie said, “I do not want to soak the rich. All I ask is that people who have wealth should take the opportunity to sacrifice a little bit, like we have to sacrifice a little bit.”
The flat tax is an alternative way of computing tax obligation that allows people to pay a straight percentage of their income without any deductions, credits or other considerations. It gradually drops the percentage those people pay from the 9.9 percent marginal tax rate in effect during the 2005 tasx year to 8 percent in 2006,  to 7.5 percent for 2007, and 7 percent last year. That is the rate where Guthrie wanted to freeze the tax. The reate is slated to go to 6.5 percent in the current year and 6 percent next year.
Woonsocket Rep. Jon Brien argued against altering the flat tax.
“Taxation on those who earn is not a virtue,” Brien said. “Class warfare is not a viable political strategy.”
When Brien cited several Wall Street Journal articles that praised Rhode Island for instituting th flat tx several years ago, Coventry Rep. Ray Sullivan retorted “We don't read the Wall Street Journal in Coventry; we read the Kent County Daily Times.”
Sullivan laid out the principal argument for restoring the local aid: “Cuts in general revenue sharing is going to cause property tax increases.
“The flat tax is a privilege and we can't afford it,” Sullivan said.
Costantino disputed that there is a correlation between state aid to municipalities and property tax increases, noting that in many years where there were increases in state aid, cities and towns raised their property taxes anyway.
Warwick Rep. Joseph Trillo, frequently mentioned as a Republican candidate for governor, noted that if capital gains are treated as regular income, and the flat tax is done away with, people would be charged a 9.9 percent tax on the sale of a home or other property.
“We have to get our money from the rich,” Trillo said, “but the way to get money from the rich is not to  rob them. They will give it to you. But if you rob them, they will leave.”
Guthrie's amendment to freeze the flat tax in exchanged for increased revenue sharing died on a 23-52 vote. Other amendments to restore revenue sharing by other methods were killed by even larger margins.
On a vote of 50-24, the House put its imprimatur on cuts to the state pension system.
The retirement age for state employees and teachers was increased from 59 for many employees to 62, but on a proportional basis, depending on how much time they have spent in the system and their current age. The system is designed so that no employee will lose what he or she has already earned. But from September 30 onward, they would start moving toward their retirement date more slowly.  Those who would be eligible to retire by September 30 would see no change at all in their situation.
The cost of living allowance, currently at 3 percent a year, would be reduced to the inflation rate each year, with a cap at 3 percent.
The amount of an employees pension would be based on the highest consecutive five years of income, up from the current top three years.
Numerous attempts to beat back the pension changes were defeated.

Attempts to reach Cumberland Mayor McKee were not successful Wednesday night. Bill Fischer, spokesman for the mayoral academy, declined to comment until the House's action was official.