Assembly Approves 2014 State Budget

The Senate voted 32 to 6 Thursday to give final legislative approval to an $8.2 billion 2014 state budget bill that includes no tax or fee increases, contains numerous economic development initiatives, fully funds the implementation of the school funding formula, adds funding to higher education and provides additional funding for cities and towns.

The budget bill, which was approved by the House on Wednesday and will now go to the governor’s desk, takes into account the over $30 million reduction in available resources caused by lower-than-anticipated revenue, but still includes funding for the restoration of the historic structures tax credit program, workforce development, and a 16-month trial period for tax-free wine and spirits sales to help Rhode Island stores compete with tax-free liquor sales in neighboring Massachusetts.

The legislation (2013-H 5127Aaa) delays the implementation of tolls on the Sakonnet RiverBridge, which were scheduled to begin next month, until at least Feb. 1, 2014, while legislators work to identify other ways to fund bridge maintenance in Rhode Island.

“No budget is without difficult decisions, particularly during lean times, but this is a responsible budget that reflects the many months of hard work by members of the Senate Finance Committee and our counterparts in the House,” said Senate Finance Committee Chairman DanielDa Ponte (D-Dist. 14, East Providence). “Without raising taxes, this budget makes important investments in economic development initiatives to help put Rhode Islanders back to work. It fully funds the education funding formula and supports vital human services.”

Legislators included the first $2.5 million payment, due in May, on the moral obligation bond issued for the now-bankrupt 38 Studios, an amount that was also included in Governor Chafee’s proposal. Also included is $50,000 for a market analysis of the potential consequences for the state should it fail to pay back the bonds. Major bond rating agency Moody’s Investment Service downgraded the bonds two notches last week in response to debate by Rhode Island leaders over whether the state is obligated to pay, and not repaying would put the remainder of the state’s total of $2.1 billion in debt at risk for lower ratings as well. Borrowing at a lower grade could cost the state more than paying back the bond. The budget bill also eliminates the Job Creation Guaranty program that provided the $75 million guaranty for 38 Studios.

Legislators restored a $12.9 million transfer to the pension fund, taking $3 million originally planned for a new roads and bridge revolving loan fund, $6 million in personnel and operating expenses from all three branches of state government, $850,000 from the mortgage fraud settlement and $3 million from other one-time sources.

On the economic development front, the Assembly restored the historic structures tax credit program by using $34.5 million previously approved for projects that were never completed. While that part of the plan was included in the governor’s budget proposal, the Assembly version also includes a $5 million per-project cap.

Lawmakers also included $4.5 million, some from federal sources, for workforce development. Among the programs included is the Rhode Island Back to Work program, proposed by Sen. Erin P. Lynch (D-Dist. 31, Warwick, Cranston) and Rep. Joseph M. McNamara (D-Dist. 19, Warwick, Cranston), and included in both the House and the Senate economic development legislative packages. The program would pair a person collecting unemployment benefits with a business for training at no expense to the business, which could then hire the trained employee if it chooses. 

Another program included in the budget is the Jobs Match program sponsored by Sen. James C. Sheehan (D-Dist. 36, Narragansett, North Kingstown) and Rep. Donna M. Walsh (D-Dist. 36, Charlestown, Westerly, South Kingstown, New Shoreham) to use a computerized system to match employers and job-seekers and identify skills gaps in the workforce.

Legislators included an amendment submitted by the governor to create a pilot program to allow families receiving state-subsidized child care to remain in the program if their income increases to exceed the current limit of 180 percent of the federal poverty level, allowing them to earn up to 225 percent.

The plan includes $7 million to start the Municipal Roads and Bridges Revolving Loan Fund, sponsored by Speaker Gordon D. Fox and backed by General Treasurer Gina M. Raimondo, to establish a revolving loan fund to help municipalities perform major road repairs at a lower borrowing cost.

Also included is the Innovate RI Small Business Program by Rep. Christopher R. Blazejewski (D-Dist. 2, Providence) to assist Rhode Island small businesses in applying for federal funds targeting research and innovation, to match some or all of the federal funds awarded, and to establish a paid internship program for bioscience students to help encourage the growth of that high-paying industry in the state.  

Lawmakers did not include the governor’s proposal to lower the corporate income tax rate from 9 percent to 7 percent over three years, nor his proposal to help make up the corresponding lost revenue by eliminating the jobs development tax credit and the enterprise tax credit. Instead, they included a new plan to accelerate depreciation on the value of new equipment purchased by businesses and manufacturers and taxed by the state. Instead of that depreciation being spread over several years, it would be aligned with federal standards that allow much more of the depreciation the first year. The budget includes $10 million for the impact next year. 

The budget ensures that the Unemployment Trust Fund debt is retired in time for employers to avoid an $84-per-employee fee that would have been charged if the fund were not solvent.

The plan includes a proposal introduced separately by Senate President M. Teresa Paiva Weed (D-Dist. 13, Newport, Jamestown) and Representative Walsh to implement a statewide tax exemption on art, including books, paintings, performance, traditional and fine crafts and more.

Legislators included a new proposal to eliminate the sales tax on spirits and wine for a 16-month pilot program to see whether it yields gains. Massachusetts eliminated its sales tax on alcohol in 2011, and since then Rhode Island retailers have complained of a competitive disadvantage. Under the bill, the sales tax would be eliminated on spirits and wine from Dec. 1, 2013 to April 1, 2015. Beer was not included, since Massachusetts requires a 5-cent deposit on each beer can and bottle, and Rhode Island does not. The loss in revenue for the state as a result would be partly offset by an increase in the excise tax that liquor sellers pay on wholesale purchases. Additionally, the bill eliminates the mandatory 6 percent-over-wholesale markup during the trial period, giving retailers more freedom to set their own prices during that time.

Also included is a proposal originally sponsored by Senate Majority Whip Maryellen Goodwin (D-Dist. 1, Providence) and Rep. Marvin L. Abney (D-Dist. 73, Newport, Middletown) to temporarily allow Newport Grand to keep a bigger share of video lottery terminal revenue generated there. The venue sought an additional $1.5 million for each of the next two years as a means to stay afloat as Twin River in Lincoln begins table games and casino plans inMassachusetts develop; legislators trimmed the proposal to $1 million a year. Newport voters last year rejected table games at that venue.

The bill continues to fully fund the decade-long phase-in of the education aid formula approved by legislators in 2010, at a cost of about $30 million in 2014. Included in that total was $500,000 for early-education programs and $250,000 to fund an all-day kindergarten pilot program.

To help Rhode Islanders afford a higher education, the Assembly concurred with the governor’s proposal to add $6 million to funding for the state’s colleges and university, in conjunction with a requirement that that tuition be frozen at the current level.

Legislators also maintained the governor’s proposal to freeze the reimbursement rate for hospitals and nursing homes for one year.

They also maintained a proposal to provide health care coverage through federal Medicaid funds to non-disabled adults without dependent children whose annual incomes at or below 133 percent of poverty, or approximately $15,500, beginning January 2014, in accordance with the Affordable Care Act. The bill also includes a $3 million savings anticipated in the second half of the fiscal year, and double amount that the next year, when the federal Affordable Care Act takes effect and the state shifts about 6,000 low-income parents out of RIte Care health coverage to the new health care exchange where their health care will be federally funded. The budget also includes $500,000 to assist with any coverage gaps they experience. Additionally, the budget eliminates the cost-sharing requirements for all RIte Care families.

To help the homeless, legislators added $750,000 in rental assistance. The bill also includes an appropriation from the Rhode Island Capital Fund of $1 million for renovation of Harrington Hall, a major shelter in Cranston, freeing up $600,000 that the House of Hope agency was going to use for those renovations for its regular expenses.

Besides the creation of the Municipal Roads and Bridges Revolving Loan Fund to help cities and towns, the budget includes an additional $9 million for municipalities. It adds $2 million for 2013 and another $2 million for 2014 for the Payment in Lieu of Taxes program that helps offset tax revenues municipalities lose on tax-exempt properties in their communities. It also adds $5 million, to be distributed based on population, to municipalities as long as they comply with pension reform requirements.

The proposal includes no pay raises for state employees in 2014, and the Assembly slashed $800,000 from its own personnel budget to pay for other costs.