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Thursday, January 17, 2013

State of State Analysis

Governor Chafee was a man confident of what our government can achieve in the annual State of the State speech. He’s optimistic about what Rhode Islanders can achieve with steady hard work, and willing to boast about it. In that pride and his faith in government, I would call it progressive in its essentials.

But there are things I worry about in the Governor’s budget proposal.

He points out in his address that, “Shortsighted decisions in better times left us struggling to provide the most basic services,” and yet has chosen not to propose undoing those decisions.  Presumably being rebuffed two years in a row by the Assembly has weakened his appetite for that kind of battle, but it is disappointing that the Governor will apparently not be a voice for tax equity at the state house.

I also worry about his proposal to lower the state’s corporate income tax.  There are some good parts to this.  Chafee suggests that we offset the cost by reducing the benefit of the Jobs Development Tax Credit by 50%.  

This tax credit cost us $16.4 million last year (see here), and CVS took $15.4 million of it, so cutting this by 50% means cutting our subsidy to CVS by almost $8 million, something I can certainly support since I’m not at all clear why CVS needs a subsidy from state taxpayers.  

Overall, though, doing anything at all to reduce state revenue certainly works against what Chafee says is among his priorities, lowering the state’s reliance on the property tax.

On that point, Chafee was slightly apologetic, but firm: “I may sound like a broken record at this point, but in the years before I took office, cities and towns bore the brunt of the downturn in state revenues. Those most severely affected were the distressed communities that could least afford it.”

He is proposing some new state aid, some of which will go to the state’s poorest cities and towns, but the $30 million he proposes isn’t much.  By themselves, the budgets of Providence, Woonsocket, Pawtucket, Central Falls, East Providence, and West Warwick add up to more than $1.4 billion, so we’re talking about adding 2% to that mix.  It’s not completely clear how much that can help.

Chafee justly boasts about fully funding the state’s education funding formula, while glossing over the many ways in which the formula is neither fair nor adequate.  And he does propose increasing state aid to the state colleges by $6 million, while in the same sentence demanding they cut $6 million more from their budget.  With luck and a new education board, he’ll get cuts from administration and overhead and not from programs, but I’d like to see the cuts before deciding whether this is the way to go.

About economic development he said, “My hope is that you all will be skeptical and wary of deviating from the steady, methodical construction of a Rhode Island economy built for today and for the future.” He explicitly cautioned against looking for the quick fixes, and pays special attention to the risks of ex-baseball players. And I also enjoyed his expression of skepticism about the many rankings that always seem to so upset people here.”

Overall, I have to agree with Chafee that he is moving us in the right direction. “The state of our state is steadily improving,” he said.  And I appreciate his refrain throughout the speech about the slow-and-steady time scale of lasting improvements.  Unfortunately, some of the problems are substantially larger than the scale of the solutions he proposes.  Again, it’s hard to fault a man who has been turned back by the legislature so firmly the past two years.  The dismal state of the state’s budget is really their doing, and Chafee’s administration is doing its best to make the best of a bad hand.

Tax inequity has economic consequences as it deprives people who spend the bulk of their income of money to spend. Over-reliance on the property tax has economic consequences to both businesses and citizens that far outweigh the effect of state taxes.  Funding inequity among our cities and towns has social consequences that far outweigh the savings the rich enjoy from the past several years of tax cuts.

To his credit, the Governor addresses all of these in his budget, but the solutions he proposes are within the radically constrained limits set by General Assembly leaders who choose to ignore or belittle the biggest challenges we face.

Tom Sgouros is a freelance engineer, policy analyst, and writer. Reach him Buy his book, "Ten Things You Don't Know About Rhode Island" at