Monday, January 4, 2010

R.I. Assembly faces deficit, taxes as session begins

By Katherine Gregg, Steve Peoples and Randal Edgar

Journal State House Bureau

PROVIDENCE — Governor Carcieri’s attempt to slash $125 million in local aid in mid-budget year has set the stage for a fierce election-year battle at the State House over taxes, spending and how Rhode Island’s 39 cities and towns provide services with less state money to help them.

In many ways, the 2010 General Assembly session that opens Tuesday begins where the last one ended, with a massive budget hole, one of the highest unemployment rates in the nation and polls showing voters none too pleased with their political leaders.

Hearings will be called, and debates will resume over same-sex marriage, the dangers of talking on cell phones while driving, the modest steps a state legislature can take to blunt the impact of the national foreclosure crisis, the court-granted exemption of the lawmakers from Ethics Commission scrutiny and, of course, gambling.

But this is not the typical election-year session that begins with the promise of no new taxes.

Lawmakers are already debating what kinds of tax increases would be the least painful. Property tax hikes? A rejiggering of corporate taxes? A rollback in the tax breaks offered to the wealthiest taxpayers in recent years in the hope of spurring new jobs?

Republican Carcieri argues no tax increases are necessary if the lawmakers give municipalities the “tools” they need to reduce spending.

But key lawmakers are unconvinced. Their local leaders are crying foul. Organized labor and the advocacy groups are primed for battle. Even Carcieri felt compelled to offer the communities an escape route: the legal authority to impose “supplemental” taxes mid-year.

“I don’t see anything but probably the most difficult session we’ve ever had coming up,” said AFL-CIO President George Nee.

And all this will play out in a supercharged political atmosphere. The term-limited governor is barred from running again, but all 113 lawmakers have to run for reelection, and House Speaker William J. Murphy’s announcement that he will relinquish the post this session has sparked a leadership fight within the House.

From the outside looking in, there is anger in some quarters.

“I don’t know of too many people who think Rhode Island is thriving and are happy with the way the legislature is dealing with the problem, or should I say not dealing with the problem,” said Colleen Conley, president of the Rhode Island Tea Party.

Murphy acknowledges “the public is upset,” and that will complicate the Assembly’s efforts to tackle the budget crisis because “squeamish” lawmakers will be looking over their shoulders. “As the old saying goes, there’s no interest like self interest, and you know, members who are running for reelection want to make sure that they are going to be victorious,” Murphy said in an interview last week.

He also acknowledged that he will step down before the session ends to allow his chosen successor –– House Majority Leader Gordon Fox –– to take over. Fox is competing for the job against Rep. Gregory Schadone, D-North Providence.

Asked when he will step aside, Murphy said: “I am starting the session on the rostrum and I will continue to get through the budget.” As speaker? “I will not answer that question.” Why not be more specific? “Because if I do decide that I am stepping down early, it would be my membership who I would tell first.”

THE HOUSE OPENS at 2 p.m. Tuesday, the Senate at 4 p.m., with veto override votes likely before the 2010 session officially starts. Among the vetoed bills slated for likely rescue is a measure to allow partners in same-sex relationships to make funeral decisions for each other. The session opens under the cloud of unrelenting deficits –– $219 million this year, more than $400 million in the budget year that begins July 1 –– that have made it harder and harder for the state to pay for basic services, from snowplowing to keeping motor vehicle registries open.

Demands for government help — such as state-subsidized medical care — have surged at the same time revenues have plummeted.

As an interim solution, Carcieri is proposing to cut as much as $125 million in education and municipal aid over the next six months, eliminate guaranteed cost-of-living increases for thousands of future retirees, and plug more than a quarter of the current shortfall with one-time fixes such as sales of state property.

The lawmakers are hoping for other options, including a possible new round of federal stimulus dollars. “Over several of our budgets, it seems that we’ve been able to pull a rabbit out of a hat. I don’t know if there’s any rabbit left, but if there’s one left down there, we’ll come through,” Murphy said. The governor’s tax overhaul may provide another rabbit.

While a final plan has yet to emerge, Carcieri has had preliminary discussions with legislative leaders about creating a new tax on business — a “net receipts tax”— while eliminating at least one other tax, such as the state’s corporate income tax, the sales tax or the personal income tax.

The governor wants such a plan to be “revenue neutral” — meaning that any new taxes would be completely offset by tax cuts elsewhere — but the Assembly will have the final say. Minor tweaks in Carcieri’s plan could produce tens of millions of dollars.

Until a rabbit emerges, however, the budget debate will be dominated by Carcieri’s reliance on local aid cuts to close the budget hole.

Some frustrated local officials have already promised the midyear cuts will lead to increased property taxes.

“The only thing I’ve heard as a statewide solution is raise taxes, and I just don’t accept that,” Carcieri responds. But his recent budget proposal outlines a step-by-step process by which communities can raise their taxes in midyear to offset the state aid cuts.

Said Senate Majority Leader Daniel Connors in a recent interview: “I don’t think Rhode Island taxpayers are going to make a distinction between whether the tax is coming out of their right pocket or is coming out of their left pocket. And to suggest that [Carcieri’s] corrective action plan does not result in a tax increase is not honest.”

ORGANIZED LABOR –– which represents thousands of teachers and municipal workers –– will form an unlikely coalition with mayors and town managers to fight the local aid cuts.

But the groups will fight each other on the governor’s proposed “tools” that he says will help them survive the cuts.

Carcieri has asked lawmakers again to prohibit minimum-manning requirements in future labor contracts, require municipal employees to pay the same, generally higher, co-share toward their health insurance as state workers, and lay the groundwork for a “statewide purchasing system.”

House and Senate leaders indicated a willingness to provide some relief from state mandates, but reject changes in contractual minimum-manning requirements and health-care costs.

“To suggest that [minimum manning] specifically is a mandate … jumps out at me as being part of the spin,” said Connors. “A legislature is not allowed under the Constitution to impair the obligation of a contract. It’s unconstitutional.”

The clash leaves Assembly leaders with few other obvious budget-cutting alternatives — especially in the middle of a fiscal year.

While he opposes raising property taxes, Peter Asen, executive director of the advocacy group Ocean State Action, said the state needs to look at “all possible options and other ways to raise revenue.”

The group has pushed lawmakers to eliminate the flat tax alternative, a tax break for high earners adopted under Murphy’s leadership. In a recent interview, Murphy said he could not guarantee the flat tax could be preserved in this fiscal environment.

David Carlin, lobbyist for the Chamber of Commerce Coalition, said the assembly needs to fix the budget without “raising taxes or creating new taxes.”

“We vehemently disagree … that new taxes might be necessary to solve the budget problem,” Carlin said. “We believe that any time you increase taxes or create new business taxes you are putting a major roadblock on the way to recovery.”

ANY DISCUSSION about the state’s financial plight leads to an inevitable debate over state-sponsored gambling and the threat to the state’s third-largest revenue source if Massachusetts allows casinos and slots at its racetracks.

The Twin River track-and-slot parlor in Lincoln has about 4,750 video-slot machines placed there by the state Lottery; the state keeps roughly 61 cents out of every lost dollar. During the year that ended on June 30, that produced $242.3 million for the state.

With Twin River in bankruptcy, lawmakers face a series of decisions. Twin River’s owners want to be freed from a state law requiring them to offer at least 125 days of greyhound racing to stay open. Their U.S. bankruptcy court filing would also require the state to pay up to $11 million in “annual support,” including a new management fee of up to $1.4 million.

Murphy favors — and Carcieri has said he would not oppose — a referendum to allow full-fledged casino gambling at Twin River and Newport Grand.

“All but for table games, they are almost casinos now,” Murphy said. “With Massachusetts breathing down our necks … I say we go forward.”

But Connors, whose district includes a portion of Lincoln, notes that state law requires the host community to initiate a casino referendum, and doubts that will happen. He also questions the notion that “casinos are a panacea to all of our problems.”

ADVOCATES OF same-sex marriage are pushing for an opening-day override of Carcieri’s veto of a bill that would let “domestic partners” make funeral arrangements for their loved ones. They will also resume their drive to legalize same-sex marriage.

“I don’t think that something incremental like civil unions is something we want, we want full marriage equality,” said Susan Heroux, a member of Queer Action of Rhode Island.

The Rhode Island chapter of the National Organization for Marriage will oppose such moves, said chapter director Christopher Plante.

“Thirty of 31 states that have had a chance to vote on this have rejected homosexual marriage,” he said. “It’s clear that America doesn’t want this.”

The lawmakers themselves are at the center of a major ethics issue that demands swift action, according to citizens advocacy groups such as Common Cause and Operation Clean Government.

A June decision by the Rhode Island Supreme Court essentially exempted legislators from prosecution by the state Ethics Commission for their official acts even if they are accused, for example, of selling their votes.

The ruling — in a case involving former Senate President William V. Irons — was based on an unprecedented reading of a speech-in-debate clause that has, for centuries, protected lawmakers in many states from civil suit or prosecution for their public utterances.

Senate leaders are not convinced legislative remedy is needed.

“If any legislator in this building commits any illegal act, there is no loophole which would prohibit their prosecution by the U.S. Attorney and the U.S. District Court and [conviction] of a federal crime,” says Connors.

But Common Cause is urging lawmakers to give voters a chance in November to amend the state’s Constitution to make it clear “that the Ethics Commission has jurisdiction to hear and decide all potential violations of the Code of Ethics notwithstanding the protections of the Speech in Debate Clause.” And Fox has pledged to introduce a measure to address the issue.

“Obviously, nobody is going to say that they do not think legislators’ actions should be under some sort of Ethics Commission authority. That’s what the people want. That’s what the people demanded,” Fox said.

For Carcieri, the 2010 session will be his last as governor.

When asked about Carcieri’s lame-duck status, Senate President M. Teresa Paiva Weed said: “Does it change anything?” Then, she said: “I’m hoping it will make him willing to work with us.”

But the governor said his status will not affect what he does, and he hopes the election year will not dissuade lawmakers from making tough decisions.

“I’ve learned in life that if you do the right thing and you explain to people why you’re doing it, I think that people understand.”

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