RIMA Newsletter Update
<럌>2/3/10
Work in the Rhode Island General Assembly is taking on an accelerated pace in recent days. On February 2nd, Governor Carcieri unveiled his FY2011 state budget – a $7.5 billion spending plan that addresses a projected $427 million deficit. The introduction of the FY11 budget comes on the heels of a FY2010 supplemental budget (introduced in January), that addresses a $220 million deficit for the current fiscal year which ends on June 30th. Both spending measures propose a series of spending cuts, most notably in the area of aid to cities and towns. The General Assembly will now debate the course of each spending bill.
For the current fiscal year shortfall of $220 million, Governor Carcieri’s proposal calls for deep cuts in aid to cities and towns as well as a proposal to alter retirement benefits for state workers. The supplemental budget plan includes cuts to state hospitals, as well as calls for the sale of certain properties owned by the state. There are no provisions in the supplemental budget that will alter taxes on businesses, nor are there calls for increases in personal income tax.
For the FY2011 (beginning on July 1st), Governor Carcieri has addressed a $427 million projected deficit by again proposing cuts to cities and towns. These cuts include $135 million in direct support to the communities and $27 million in aid to school districts. To help municipalities manage the lost revenue, the Governor included in his budget a series of proposals to lift mandates (mostly related to union work rules) that will result in savings to offset the loses in state aid.
The Governor’s plan also relies on an infusion of nearly $100 million in federal stimulus funding for Medicaid services (funds that have yet to be approved by Congress). There are numerous other spending cuts proposed in the FY2011 budget, including proposed reforms on state employee retirement benefits and savings to human service programs through streamlined purchasing. The Governor has also proposed new fees for various state services as well as a new toll for travel over the Sakonnet River Bridge.
On a positive note, the FY2011 budget preserves the continued phase-in of the flat tax option for individuals. The phase-in will eventually bring the highest marginal income tax rate down to 5.5%. A repeal of the flat tax option has been an ongoing target of unions and human service lobbies, but remains unscathed in the Governor’s spending plan. Another positive recommendation in the Governor’s proposed budget involves lowering the minimum corporate/franchise tax from $500 to $250. Finally, Governor Carcieri is proposing a $10 million tax credit program for employers (with between (5-100 employees) a $2,000 tax credit for hiring new workers off the state’s welfare and unemployment rolls. A number of stipulations are tied to the credit, including provisions for providing the new employees with health insurance coverage, a minimum salary level of $40,000 per year, and an 18-month minimum employment commitment.
The Governor’s spending plan was greeted with mixed reaction from General Assembly leaders. There was sentiment that the spending plan does not address structural issues on government services, specifically any call for combining or consolidating services. There is also concern that cuts in aid to municipalities will only result in increases in property taxes. The House and Senate Finance Committees have already begun debate on the supplemental budget for the current year, and will take up debate on the FY2011 budget in the days ahead. RIMA will continue to monitor these discussions, and advocate for responsible tax policies and incentives for businesses to grow.
