Legislators vow to stick with income-tax reforms<br> <i>Governor’s budget cuts also seen as necessary</i>

Facing a $350 million budget deficit, leaders of the overwhelmingly Democratic General Assembly signaled last week that they probably won’t be playing hardball this year with Gov. Donald L. Carcieri during budget negotiations.
In fact, they’ll probably seek to cut the budget even more than Carcieri has proposed, said Rep. Steven M. Costantino, D-Providence, chairman of the House Finance Committee.
“This is going to be a very, very difficult year,” Costantino said, speaking last Wednesday at the Greater Providence Chamber of Commerce’s annual legislative luncheon. “We’re going to have to probably go a little deeper than the governor in some of these cuts – maybe we spread them a little differently than the governor has in his proposal – but we’re going to have to concur with many of the items in that budget.”
The deficit, which will probably result in cuts to programs that Democratic legislators have historically sought to protect, is partly the result of one-time fixes in past budgets that failed to provide steady revenue streams and have caused “structural deficits,”
Costantino said. That problem has been compounded by recent tax policies such as the flat tax, historic tax credits and film credits that have robbed the state of further revenue, he said.
Eventually, some of these tax policies may need to be re-examined if new, high-wage jobs aren’t produced as a result, Costantino said.
“Ultimately the long-term investment has to make it for Rhode Island,” he said.
But House Speaker William J. Murphy, D-West Warwick, assured business leaders that the General Assembly has no plans to modify the flat tax initiative approved last year, which aims to reduce the state’s top personal income tax rate from 9.9 to 5.5 percent in six years.
Calling the flat tax necessary to make Rhode Island competitive with the rest of the region, Murphy said the General Assembly would approach the issue as a football coach approaches a game in which his team is behind.
“If you spend all week having a playbook and you have a bad set of downs, you don’t throw that playbook away. So although we’re in a tough economic situation right now, as far as the state’s budget is concerned, we will not deviate from our implementation of the flat tax.”
Costantino said he is more concerned with the state’s stagnant sales tax revenue than with dropping gambling revenue – a concern that he said has been overblown in the media. Many people have less disposable income as a result of higher energy prices and a sagging housing market, he said, and that is holding down sales tax revenue.
Sales taxes are the state’s second highest revenue source, and although the 7-percent sales tax is among the highest in the nation, it is also one of the narrowest. Rhode Island does not tax the sale of food, clothing, water and heating oil, among other items.
Sen. Stephen D. Alves, D-West Warwick, chairman of the Senate Finance Committee, said the General Assembly would consider proposals to lower the sales tax rate and tax more items. But Alves said he and other lawmakers would be loath to alter the sales tax in a manner that caused economic hardship for some Rhode Island residents.
“If there’s going to be some type of expansion – and obviously I think we’re all willing to look at that – we would want to do it very cautiously and to see what the cause and effect may be,” he said.
Senate Minority Leader Dennis L. Algiere, R-Westerly, said Rhode Island’s lack of affordable housing and limited mass transit system were contributing to the state’s steady loss of college graduates. To combat the problem, Algiere said a program could be created to provide high school students with scholarships to Rhode Island’s state colleges in return for signing an agreement to work in the state for several years upon graduating.
He hailed initiatives such as the Brain Drain project of Brown University, the Providence Foundation and nine local colleges to double internships with local businesses, and called on both government and the private sector to create more entry-level jobs for college graduates.
Senate President Joseph A. Montalbano, D-North Providence, said work force development was crucial to Rhode Island’s economic future, given that young, educated workers are leaving the state and a generation of baby boomers has already begun to retire. In particular, focus should be put on adult literacy programs and programs that enable older workers to remain longer in the work force, he said.
Discussing education – which Carcieri has made a priority for his second term – House Minority Leader Robert A. Watson, R-East Greenwich, said the state needs to rein in expenditures on local education.
“We have a moral obligation to educate K though 12, and we have a very difficult time funding that mission,” Watson said.
Speaking about a bipartisan effort involving the General Assembly and the governor’s office to come up with a new education funding formula, Senate Majority M. Teresa Paiva-Weed, D-Newport, said disagreements on the issue don’t follow party lines.
“It’s not a partisan issue as much as an issue that divides us geographically, depending on the needs of the cities or towns we represent,” she said. “Last year I went home to my district in an election year with one community happy and one community not happy, and that happens right across the board.”

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