House Approves $8.7 Billion State Budget

By the Rhode Island Legislative Press and Public Information Bureau

The House of Representatives Thursday night approved a revised budget bill that closes an unexpected $67 million gap, fully funds education aid while averting bridge tolls and tax increases, establishing a steady source for transportation funding, promoting economic development and reducing the corporate and death taxes.

With a 63-to-11 vote, the House approved the $8.7 billion budget, which will now be sent to the Senate. The Senate Finance Committee is scheduled to take it up Monday.

 “This is a very responsible budget that establishes a sensible, steady source for transportation funding without burdening the East Bay and islands with tolls. It lowers the tax rate on businesses to boost employment and improve our appeal to those looking for a place to locate their business. It requires leanness from state agencies, but it fully funds education and state aid to cities and towns while holding the line on broad-based taxes. It’s the result of a lot of hard work and collaboration, and in the end, it puts our state on a more stable path – one that we believe is leading toward a better economy,” said House Finance Committee Chairman Raymond E. Gallison Jr. (D-Dist. 69, Bristol, Portsmouth).

The budget bill (2014-H 7133Aaa) closes the gap in part by requiring state departments to identify money for the recently negotiated raises for state employees – which account for $24.3 million of the $67 million budget gap, with the rest caused by higher-than-expected human services caseloads – through their existing department budgets. Another $14.7 million in savings was identified through an accelerated recertification of human services caseloads. The remaining gap was bridged through program reductions, rejections of new initiatives and maximizing revenues.

The plan permanently eliminates the toll on the Sakonnet River Bridge on July 1, currently set at 10 cents as a placeholder for what could have been higher future tolls. Instead, it includes a 1-cent gas tax effective July 1, 2015, which would be indexed to rise along with inflation every other year, to help fund bridge maintenance and other transportation infrastructure.

The plan would create a new fund for maintenance of roads and bridges and gradually redirect all vehicle-related fees, which currently go to the state’s general fund, to that fund over the course of five years. The plan involves gradually moving all vehicle-related revenue to the fund, and using the fund to pay for all transportation infrastructure costs, beginning in the 2016 fiscal year.

As part of the plan, the cost of the vehicle inspection required every other year would rise from $39 to $55 starting July 1 to raise a total of $4.8 million in new revenue, and the fee for having a violation dismissed on the basis of a previously clean driving record would rise from $35 to $60, to raise about $600,000.

To those funds, the budget adds unallocated proceeds from bonds and funds from the Rhode Island Capital Plan Fund.

The plan also transfers the revenue from 3.5 cents of the state’s existing gasoline tax to the Rhode Island Turnpike and Bridge Authority in lieu of tolls for the operation and maintenance of the bridges in its purview.

The bill as approved by the House reduces Rhode Island’s corporate tax from 9 percent to 7 percent. The governor had proposed a reduction in the corporate tax rate, but only if Congress first passed legislation to allow states to collect “remote” sales taxes for online and catalog sales. The budget approved by the House did not include that contingency.

As a means to help Rhode Island better capture all its tax revenue, the budget implements a “combined reporting” requirement for multi-state or multi-national corporations. Under combined reporting, corporations that have businesses in other states or countries must combine all their subsidiaries as a single entity and then pay taxes to Rhode Island based on the percentage of net single sales generated by its operations in this state. Combined reporting is expected to net an additional $2.2 million.

To help make Rhode Island’s tax structure more competitive with that of other states, the bill raises the credit on the death tax from $921,655 to $1.5 million, and eliminates the “cliff” provision that currently requires heirs to pay taxes on the entire estate if it exceeds that amount. Once adopted, the provision would limit the taxable amount to only the amount above $1.5 million. The $1.5 million credit would be adjusted annually for inflation.

Said House Speaker Nicholas A. Mattiello (D-Dist. 15, Cranston), “This is a very good budget that promotes economic development and encourages businesses to invest in Rhode Island. I have been hearing from leaders in the business community who strongly believe that to get our state moving forward again, we must be more competitive with our tax structure. Our high corporate tax was keeping prospective businesses away, while the high estate tax was actually driving business owners to relocate to other states. The combination of these tax changes, as well as the significant investment in our state’s public education system and our infrastructure, will send a clear signal that Rhode Island will once again be open for business. I am tired of Rhode Island ranking last in unemployment and this budget will get us on the right path toward an improved economy.”  

The House eliminated future funding for the Historic Preservation Tax Credit program from the proposal, for which Governor Chafee had proposed $52 million.

The House restored the lead paint abatement program, which was slated to be cut under the governor’s plan, by identifying a new funding stream: an increase in the real estate conveyance tax from $2 per $500 of value to $2.30. Also helping to restore that program is a $600,000 grant from the Attorney General from the federal mortgage settlement. The additional conveyance tax revenue will also help contribute to shelter operations and rental subsidies, restoring funding to last year’s levels.

The House made no changes to the governor’s proposal for municipal aid.

The plan fully funds the continued implementation of the state’s education aid formula, adding $34.2 million over the 2014 level. Also included is an additional $10 million for the Community College of Rhode Island, Rhode Island College and the University of Rhode Island to extend their tuition freeze.

It also includes two new facilities for higher education. One would transform the former South Street Power Station – also known as Dynamo House – in Providence into a nursing education facility and administrative offices for Brown University. Both RIC’s and URI’s nursing programs would be housed in a new 132,500-square-foot facility there, and Brown University would lease about 135,000 square feet for its offices. The construction would be privately funded. The budget authorizes the lease.

The other would put a $125 million bond referendum on the November ballot for the renovating and expanding URI’s College of Engineering complex as a means to strengthen a program that attracts top students to the school and plies Rhode Islanders with the advanced skills they need for highly paying jobs in growing sectors.

The House included a proposal by the governor for a ballot question to allow a $45 million bond to fund construction of a new garage with retail space at the Garrahy Judicial Complex in Providence, but included a recommendation that it not be constructed until at least three of the parcels at the adjacent land formerly occupied by the old Route 195 are under purchase and sales agreement.

Another bond question included in the bill would allow $35 million for the construction of Rhode Island Public Transit Authority hubs at the Garrahy complex and the Amtrak station in Providence. That grant is a $5 million reduction from the governor’s proposal.

It also includes a ballot question for $53 million in bonds for numerous environmental and water initiatives, including a new proposal for $18 million in improvements to Roger Williams Park and Zoo.

Also included is a $60 million revenue bond for a runway extension at T.F. Green Airport in Warwick.

The House avoided the governor’s proposal to slash $43 million in Medicaid funds from hospitals and nursing homes by raising the hospital licensing fees, which allowed hospitals to leverage more federal funding, then putting the revenue from the higher licensing fees back into the Medicaid reimbursements to facilities and insurers.

The House eliminated a proposal by the governor to require families in the Katie Beckett program, which allows severely disabled children a waiver to receive Medicaid-funded treatment at home instead of in a medical facility, to pay a $250 co-share.

Included in the budget is $12.3 million for payment of bonds for the collapsed 38 Studios, as a means to protect Rhode Island’s bond rating and save on interest for current and future debt.

No funding is included for any redevelopment proposals for the Industrial Trust Building, also known as the Superman building, in downtown Providence, nor was Chafee’s request for 10 new employees for HealthSource RI.

The House did include some of the money that Twin River had requested from the state’s share of video lottery terminal income to boost its marketing efforts at a time when the Lincoln gaming facility will soon face increased competition from expansion of gaming in Massachusetts. Twin River had requested $3.6 million more, but the House granted it $1.1 million as a means to protect one of the state’s biggest sources of revenue.