PROVIDENCE — Pawtucket Mayor Donald Grebien liked a lot of what he heard from Gov. Lincoln Chafee's first major presentation — a combined State of the State address and budget speech.
“It means $800,000 for Pawtucket this year and $1.6 million next year,” Grebien said in the House of Representatives chamber after the governor spoke. “It comes with some strings attached, but in this tough economy, this benefits the city and education.”
“This is is the first time in eight years that there was recognition that $195 million was taken away from cities and towns,” Cumberland Mayor Daniel McKee. “When you lose revenue, it does impact your ability to pay bills.”
In a 25-minute message that was carried statewide on the state's major television stations, Chafee told a joint session of the General Assembly that “We have to retool and rethink our place in the world” to meet the challenges of the 21st century.
“I intend to show the people of our state that they can again count on their government to make wise financial decisions, protect the common good, and build a 21st century Rhode Island that makes us proud,” Chafee said.
The governor defended his plan to rejigger the state sales tax, lowering the rate from 7 percent to 6, but broadening the definition to apply the tax to more items. He is also proposing a special 1 percent levy on other goods and services that have not been taxed until now.
“While I do not like the idea of imposing taxes,” he said, “we must take this vital step to address our structural deficit...By directly confronting our challenges, we may take the first steps on a path to prosperity.
“During the campaign,” Chafee said, “I recommended taxing currently exempt goods at 1percent, and I remain committed to that plan to help us reduce our deficit. However, I also believe that government should always listen to its citizens. In response to concerns that the 1 percent sales tax may pose a hardship to our more vulnerable populations, I propose maintaining our current exemptions for food, gasoline, prescription drugs and medical devices. All would remain exempt from sales tax.”
“I understand the concept of what the governor is trying to do as far as the change in the tax structure,” Woonsocket Rep. Lisa Baldelli-Hunt said when the speech was concluded. “I think what he would need is a complete breakdown of what would be taxes and wouldn't be taxed and what we would generate in revenue. (Such a list is contained in the body of the budget.) That is something you have to analyze very carefully because reducing the tax from 7 percent to 6 sounds good, but would it make more sense to make it 5” percent.
“I like the fact that he talks about the urbans and Main Street,” she said. “That's important to me, being from Woonsocket. I think he understands the problems the urbans are having. I think if we can get urban communities on their feet – structurally sound, fiscally sound – then it benefits the entire state.
“Any talk of taxes is painful in a time of recession,” Chafee told the lawmakers. “But we have to make our state solvent if we are to rebuild. The sacrifices we make today will be bearable if they are shared equally by all of our citizens and if they lead clearly and unmistakably to a better future for our children. To avoid solving our problems is not only a failure to discharge our responsibility; it is, in the long haul, more expensive. By confronting these problems immediately, we will show the world that we are serious about returning Rhode Island to greatness.”
Chafee said, “We need a climate where all businesses are encouraged to grow and prosper.
Our corporate tax code also creates an unfair advantage for multistate companies with operations in Rhode Island by allowing them to send profits out of state to avoid taxes here. Rhode Island companies with most of their sales here enjoy no such advantage. By moving to a system of combined reporting, which is used by the federal government and most New England states, we can treat all of our businesses fairly.
Tonight, I propose that we phase out the Jobs Development tax credit and adopt a system of combined reporting for corporate taxation. The revenue we gain from those changes will allow us to lower the corporate minimum tax from $500 to $250 for more than 30,000 small businesses. We will also reduce our corporate tax rate over three years from 9.0% – one of the highest in the nation – to 7.5%, putting us on par with Connecticut and lower than Massachusetts. This lower corporate tax rate will benefit existing businesses with plans to expand their operations, as well as make our state more attractive to companies looking to relocate.”
North Smithfield Rep. Brian Newberry, a Republican, said he found “nothing very surprising” in Chafee's proposals. “When you start off your budget address by talking about increasing taxes you are getting off on the wrong foot.
“Frankly, the thing that struck me about the whole concept is that it looks like he's trying to find a compromise here, a compromise there to satisfy all different people. I think what he is going to find is that he is going to satisfy nobody,” Newberry said. “If you don't satisfy anybody, it's not a good idea.”
Another Republican, Glocester Rep. Mike Chippendale, said, “for my liking, there was too much revenue enhancement. I read that as taxes. I'm not sure his proposals are going to achieve anything in the long term.”
House Minority leader Robert Watson acknowledged that, “It's tough to be governor for 60 days and have to create a budget that solves a $300 million problem. Having said that, it's easy to rely on tax increases and a lot more challenging to look at where we can find savings through consolidation and more efficiencies in the providing of government services.”
But Watson criticized the increases in the pension payment for teachers and state employees. “Once again, we are balancing the budget on the backs of men and women who go to work for a living.
J. Michael Downey, president of Council 94 AFSCME, the largest state workers union, said Chafee's recommendations “are different from other budgets we have seen; it isn't a total attack on state workers.
Downey said he credits Chafee for looking at raising revenues. “At least that's different from the last governor.
“I can't say I'm happy with the proposal to increase pension contributions,” Downey said, adding that it could get to the point where workers are paying more into their pensions than the benefit is worth. We need to have some guarantees that they are not going to do this every year.
Harriet Lloyd, executive director of the RI Statewide Coalition (RISC) issued a statement after the speech that said, “To say this budget is way off the mark of what we needed to see is a gross understatement, There’s too much of an emphasis on new taxes and far too little of an attempt to address any real pension changes.
“In terms of the proposed broadening of the sales tax to all kinds of everyday transactions like a car repair, dry cleaning, a hair salon service, even movie tickets,” Lloyd said, “We still have among the nation’s highest rates of people losing their homes in foreclosure, businesses dwindling or closing altogether, people going a year or longer without jobs, communities struggling to stay out of bankruptcy, and the governor wants to force a whole array of new taxes on everyday transactions? How does that help jumpstart this economy?”