Business leaders back budget plan

Large companies, wealthy retirees and East Bay drivers should benefit from the state budget backed by House Democratic leaders, while some developers, real estate agents and hotel workers are among those feeling aggrieved by it.
The budget, expected to be voted on by the full House last week, followed through on new House Speaker Nicholas A. Mattiello’s promise to remove longstanding black marks on the state’s business climate, or at least how it is perceived, by cutting the corporate tax rate and lowering estate taxes.
The highest praise for the fiscal 2015 budget plan came from Rhode Island chambers of commerce, who have rallied behind the Cranston Democrat since he took over in March, citing his sensitivity to the interests of major employers.
“Many of the reforms and investments included in the House budget will help Rhode Island improve its business climate, strengthen economic development efforts and get Rhode Islanders back to work,” said Laurie White, president of the Greater Providence Chamber of Commerce.
The budget reduces the corporate tax rate from 9 percent to 7 percent, as proposed by Gov. Lincoln D. Chafee, while requiring companies to include revenue from subsidiaries in tax calculations, known as combined reporting. The House Fiscal Office estimates the changes will result in an additional $2.2 million in revenue.
On the estate tax, the budget ends the “cliff,” caused by the old $921,655 threshold above which the full value of estates were taxed, by replacing it with a $1.5 million credit and an application of the tax only on that amount above the limit. The change is estimated to cost $9.4 million next year and $18 million in fiscal 2016.
The other major issue taken up by the budget, and subject of an agreement with Senate leaders, was how to fund ongoing highway and bridge maintenance while eliminating the unpopular tolls on the Sakonnet River Bridge.
The budget creates a new state road and bridge maintenance fund – starting at $28.4 million next year and growing to $71.4 million in fiscal 2019 – drawn from increased motor vehicle fees, a 1 cent hike in the gas tax (indexed to inflation going forward), unallocated borrowing capacity and transfers from the Rhode Island Capital Plan Fund.
And it appears to have headed off potential opposition – from those who support public transportation or would have used the Sakonnet revenue – by dedicating 3.5 cents per gallon of gas-tax collections to the R.I. Turnpike and Bridge Authority and 5 percent of motor vehicle fines and fees to the R.I. Public Transit Authority. A spokeswoman for the Turnpike and Bridge Authority, which wanted Sakonnet tolls to help pay for the Pell and Mount Hope bridges, said the agency would not comment on whether the new revenue was enough to head off a threatened toll increase on the Newport Pell Bridge.
In an email statement on the budget, John Flaherty, co-chairman of the Coalition for Transportation Choices, wrote “the inclusion of additional operating funds for RIPTA in the proposed budget, while not completely sufficient, is an essential step in the right direction to making our transit system more fiscally sustainable.”
No state budget is universally popular, however, and this year the loudest protests revolved around real estate taxes, historic tax credits and the minimum wage.
The budget would raise the real estate conveyance tax, paid by property sellers upon closing, from $2 per $500 of value to $2.30 per $500 of value. The increase will raise an additional $2.8 million annually and fund lead abatement, homeless shelters and low-income rental subsidies. (Chafee’s budget appropriated $2.5 million from general revenue for those programs.)
Robert Martin, president of the Rhode Island Association of Realtors, said the tax increase, adding $120 to the sale of a $200,000 house, will chill an already lukewarm housing market.
“Neighboring states’ [real estate] is coming back faster than we are, and this sends the wrong message by making it more difficult to sell a house,” Martin said. “We are now lower than Massachusetts and this would make us 4 cents per $1,000 of value higher than Massachusetts.”
Also impacting the real estate market would be the House’s decision to remove $52 million in new historic tax credits from the budget that developers had been counting on to help finance rehabilitation projects.
“There were 27 projects on the waiting list for tax credits [this year] and those projects are not going to wait indefinitely,” said Scott Wolf, executive director of Grow Smart Rhode Island, a long-time advocate of historic tax credits. “If they feel the program’s funding is in doubt, they may withdraw.” With corporate and estate tax cuts among its most prominent measures, the budget has drawn fire from progressives, who note that they are accompanied by the elimination of $8.2 million in property tax refunds for low-income households.
“It is extremely disappointing that lawmakers would shift resources from tens of thousands of low-and modest-income Rhode Islanders to just a handful of wealthy taxpayers, especially given stagnant wages and persistent unemployment,” said Kate Brewster, executive director of the Economic Progress Institute, a liberal think tank.
And then there is the minimum wage, which the budget would prevent Rhode Island cities and towns from raising above the state level.
The budget item would block an ordinance pending before the Providence City Council that would raise the minimum wage to $15 per hour for city hotel workers, who responded with protests at the Statehouse.
On the other side of the ideological spectrum, budget criticism from the General Assembly’s small Republican caucus has been modest compared with most years.
“I respect that the speaker has played the cards he was dealt and am glad there are no broad-based tax increases,” said House Minority Leader Brian Newberry, R-North Smithfield. “But I still think we need to be bolder in the budget process and think more long term.”
Newberry said he won’t be voting in favor of the budget, citing the gas tax and real estate conveyance hikes, plus the “elephant in the room,” the $12.3 million payment on the 38 Studios bonds.
One significant issue the House budget does not address are the budget deficits projected in future years caused by using one-time revenue and an expected decline in gambling revenue.
“The House Finance Committee’s budget does not resolve the out-year budget gaps,” House fiscal staff wrote in a report on the budget. “It does move a number of projects for which the governor had proposed be financed, to pay-as-you-go sources, thereby limiting expenses in the out years. The proposed increases to transportation funding do incrementally decrease available general revenues for other purposes, adding to the out-year deficit projections.” •

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