Updated March 25 at 12:28am

Chafee proposes tax hikes to boost aid to schools

‘We’re talking about 2 cents on a pizza.’


PROVIDENCE – In a state of the state speech promising “the future is today for our cities and towns,” Gov. Lincoln D. Chafee Tuesday unveiled a $7.94 billion state budget for fiscal 2013 that boosts spending on local schools by extending the reach of the state sales tax and cutting spending on areas including health care services.

The budget, which represents a $241.5 million, or 3.1 percent, spending increase from the fiscal 2012 budget, would tax transactions now exempt from the 7 percent sales tax, such as pet supplies, taxi rides, freight shipments, car washes, warehousing, storage and clothing items worth more than $175. The combined sales tax increases are projected to contribute $27.1 million to state coffers.

To pay for a $38.2 million increase in school aid - including $11 million above the current education aid funding schedule - Chafee’s budget would raise $39.5 million by hiking the tax on restaurant bills from 1 to 3 percent. Added to the sales tax, the total tax rate for food and drink purchases would rise to 10 percent.

“Cuts in state aid to cities and towns have not only led to higher property taxes and stifled job creation, it has also drawn resources from our schools,” Chafee told lawmakers gathered at the Statehouse. “If we want our children to compete for the jobs of the future, they must have good schools. I am proud to announce tonight that my budget maintains my commitment to education, while also reducing the financial burden on Rhode Island property taxpayers.”

Taxes on tobacco would also rise, from $3.46 to $3.50 for a pack of cigarettes and from 50 cents to $1 per cigar. Small cigars would be charged as cigarettes and four new tobacco tax investigators would be hired, bringing a combined boost in smoking-related revenue to $7.2 million

Vacation room rentals at bed and breakfasts and other establishments with less than three rooms, now exempt from state hotel tax, would be subject to the tax, bringing in an estimated $1.9 million. $300,000 will go to the R.I Economic Development Corporation’s tourism-promotion campaign.

“I know that this will be controversial, but the money we raise will go to the most important investments we can make: educating our young people and helping the property taxpayer,” Chafee said.

Central to Chafee’s campaign to help cities and towns has been an effort to help solve the budget crises in many of the state’s larger communities resulting from unfunded and burgeoning local pension plan liabilities.

While the budget did not contain any provisions relating to the locally run pension plans, Chaffee in his speech promised again to file separate legislation on the issue “soon.”

“I will soon introduce legislation that provides a path to solvency for our underfunded local plans,” Chafee said. “My budget provides revenue to cities and towns, but at the same time we must empower these municipalities through legislation that strengthens their abilities to make reforms. The fiscal health of our state relies on the well-being of our cities and towns, and I urge you to join me in this effort.”

Chafee’s focus on raising revenue by broadening sales and use taxes in the budget proposal, his second as governor, echoes the tax proposals in his first budget, most of which were not approved by the General Assembly.

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