The 10 Budget Issues to be Resolved for FY'15

38 Studios Bonds

The 800 pound gorilla in the FY15 budget is the inclusion of $12.3 million to pay down the 38 Studios bonds.

While Governor Chafee and Speaker Mattiello are strong supporters of paying the bonds, an 11th hour hearing to consider Representative MacBeth's bill to not pay them back is scheduled for House Finance on Tuesday, June 10.

With an election year on the line, watch to see how 38 Studios factors into the budget debate as legislators keep an eye to November. 

State Employee Pay Raises

The House budget requires that raises for state employees, as negotiated and proposed by Governor Chafee, would be up to state departments to identify the money for them to be made possible -- which amounts to $24.3 million. 

Governor Chafee spokeswoman Faye Zuckerman said the most important provision that wasn't in the House budget, that the Governor believes should be in there -- "Fulfill the terms of the contract with our State employees."

Electricity Tax

House Bill 7727, the Distributed Generation Growth Program, which would create a tariff-based renewable energy distributed generation financing program, has landed in the sights of at least one advocacy group.

The RI Center for Freedom & Prosperity sent a release "reminding lawmakers that such schemes have a dismal track record when it comes to producing economic benefit, and recommends that they do not move forward with this added burden to the state's already struggling economy."

"Keep the Electric Tax Out of the 2015 Budget," the Center has urged. 

Auto Inspection Fees

As part of the House Budget, the cost of the vehicle inspection required by car every other year would rise from $39 to $55 starting July 1 to raise a total of $4.8 million in new revenue.

The fee for having a violation dismissed on the basis of previously clean driving record would rise from $35 to $60, to raise about $600,000.

"These are taxes on the middle class," said Mike Stenhouse with the RI Center for Freedom and Prosperity. 

Estate Tax

The House budget raises the credit on the estate 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 the 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.

The proposal has its supporters -- and detractors. 
 

Earned Income Tax Credit

"In the coming year, the state will eliminate $3.9 million worth of tax assistance for low- and modest-income taxpayers by modifying the EITC and eliminating the property tax relief circuit breaker program for low- and modest-income Rhode Islanders who are not elderly or disabled," said The Economic Progress Institute. 

The Institute has "urged lawmakers to restore balance to these tax changes before enacting the final budget by retaining the property tax circuit breaker for households earning less than $30,000 and paying for it by reducing the estate tax break."

Minimum Corporate Tax

Missing from the budget?  "The removal of the $500 "doing business in Rhode Island fee" which stops many individuals from starting and registering businesses and promotes an under-ground economy where small businesses do not report their existence," said URI Distinguished Professor of Business Edward Mazze. 

RI Taxpayers Monique Chartier concurred.  "[The budget] keeps in place the $500 minimum corporate tax and does little or nothing to address the state's regulatory climate."

Corporate Tax Reduction

The bill as approved by House Finance reduces Rhode Island’s corporate tax from 9 percent to 7 percent, to a chorus of approval from the state's business community. 

"There's some question that this corporate tax is even a tax cut," said Stenhouse. "We're dropping the rate, but they're saying it will create more revenues.  They're taxing companies with out of state subsidiaries more -- if the net effect is to increase revenue, it's a tax increase."

Superman Building

As it stands, the House Finance budget contains no funding for the redevelopment of the Industrial Trust Building downtown. 

However, the existence of a stand-alone bill, coupled with a strong lobbying effort by Superman backers and developers, can't discount the possibility of a go-around to put the necessary pieces together for some version of state support.   
 

Structural Deficits

Former Director of Administration Gary Sasse pointed to what he saw as a budget "deficit" -- structural deficits. 

"Unfortunately, the budget still contains structure deficits and Rhode Island’s economic revival may have to await more serious proposals to get Rhode Island’s fiscal house in order," said Sasse. 

Pam Gencarella with OSTPA spoke to the same.  "The most impactful item in the budget is the $1 billion in future deficits.  When the House Finance Chairman's response to the structural deficits is "We're going to have to deal with it when they come", it doesn't provide the taxpayer or the business community with any assurances for the future of RI's economy," said Gencarella.