May 11, 2007

Budget looks worse, Usual Suspects Scream for Higher Taxes

Marc Comtois

It turns out that the budget cut proposed by Governor Carcieri won't go far enough, so what is the solution? The ProJo's Steve Peoples went to the usual suspects:

“There’s no easy fixes. The programs that all Rhode Islanders support are in danger,” said Ellen Frank, senior economist at Rhode Island College’s Poverty Institute. “If you don’t look at revenue, you’re not going to solve the problem.”

Frank, like Guillette and Karen Malcolm, the head of Ocean State Action, pointed to the state’s tax system, especially the capital gains tax (set to be phased out next year at an estimated cost of $25.4 million), the historic tax credit (the state will distribute credits worth an estimated $82.5 million this year — the cost will likely come next year) and the television and film credit ($10 million).

The governor, no surprise, isn't about to accept higher taxes as a solution. Hopefully, the leadership in the General Assembly won't cave, either. It's a spending, not a revenue, problem.

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There is an "easy fix". Cut the number of state workers by 40% and make those left work until 62, pay 20% health care co-pays and retire to a 401k pension. Mission Accomplished!

Posted by: Mike at May 11, 2007 9:04 AM

I don't if I'd consider your suggestions as "easy", but many of them need to be implemented even if it's on a gradual basis.

I wouldn't change the rules on state workers who have 18 years, but if you've only been working for the state for 5 years, would it be devastating to have to start contributing to a 401(k) like everyone else?

The current state system evolved when employees in the private sector would stay with one company for their entire working life. They'd get a pension and a gold watch when they retired. Those days have been over for a couple of decades now.

While the rest of the world has used information technology to make streamline the number of employees used to complete tasks, state government seems to oblivious.

I think cutting 40% of the state's workforce may incapacitate state government, but there has to be a magic number that will reduce labor expenses while still allowing government to operate. Maybe we need to send people to similar sized states such New Hampshire or Delaware to find out how they do it.

If RI just implemented the changes you suggest with recent hires, it would save millions with very little shock to the system.

Posted by: Anthony at May 11, 2007 9:33 AM

While we're on this subject, I was recalling the following comment written on during last fall's election season. We can't say we weren't warned:

"16Sep06: Now here's an issue few candidates will discuss between now and election day. Today's Projo notes that the state Budget Office now estimates next year's deficit at $240 million. And that is probably before the appropriation that will have to be made to cover this year's deficit, caused by overspending and the non-arrival of the $80 million AIG settlement the General Assembly used in June to get the numbers to balance. Yes, our current budget is a complete fudge, but a politically convenient one. So, back to the campaign. Ask your candidates for State Senate and House of Representatives how they plan to eliminate that $240 to $300 million deficit. Raise taxes? Expand the sales tax base (make services subject to sales tax)? Cut state aid to cities and towns, and force them to raise property taxes or eliminate services (can you say no sports on Warwick because we need to pay for our great new teachers union contract)? Cut public employee pensions? Cut social welfare spending? Because those are the options folks..."

And ripolicyanalysis was apparently an optimist about the size of the problem.

Posted by: Susan at May 11, 2007 8:44 PM

It certainly is a spending problem, Marc. "Looking at revenue" for the last couple of decades has made us the fourth highest taxed state in the country.

Posted by: SusanD at May 11, 2007 9:32 PM

The RI fan is looking wobbly, as more and more "stuff" hits those spinning blades ...

Posted by: Tom W at May 12, 2007 11:37 AM


Do you or anyone else know what happened to Tom Coyne and his site? Tom did such great analysis and then just disappeared. Hope Tom is OK and just too busy living life.


I agree wholeheartedly. Mass layoffs of state workers is the place to start. We don't need 15 thousand state employees for a place no larger landwise than the city limits of Phoenix Arizona. Let's take a look at the state of Delaware. Delaware is the anti-Rhode Island. They're about our size in geography, has a couple of hundred thousand fewer in population (= fewer taxpayers) yet they're in the top 10 of least taxed states in the USA. It's not our smallness it's our union heritage that has corrupted us into backruptcy. For those not paying attention the state of Rhode Island is bankrupt right now and the debt problem is only getting worse.

Posted by: Tim at May 12, 2007 11:50 AM

To the best of my knowledge, Tom Coyne took a big job with a company out west (Montana, maybe?) An offer he couldn't refuse, I believe.

Posted by: Marc Comtois at May 12, 2007 6:00 PM

Shoot, Tom Coyne shut down his site? Even if he had never updated it, it was a valuable resource about how and why this state is in trouble.

Posted by: SusanD at May 12, 2007 9:15 PM

As we approach the great budget battle of 2007, Team Anchor Rising should really sink their (our) collective teeth into the piece of analysis that underlies Ocean State Action's call for higher taxes. The link is here:

As you can see, it is a masterpiece of obfuscation. For example, at the lower end of the distribution, it fails to include in income the value of government benefits received (e.g., RIte Care, subsisidized daycare, or Medicare for low income elderly citizens). It also fails to include non-taxed cash income that is never reported to on a tax return. If you take these into account, the effective tax rate that so upsets the Ocean State Action types would be much lower.

At the high end of the distribution, the ITEP analysis conveniently leaves out the impact of the estate tax on high income taxpayers. Since Rhode Island's effective estate tax rate is one of the highest in the nation, one can only conclude that this was an intentional omission. If the estate tax were included, the effective "all in" tax rate on high income tax payers would have been higher.

It is also interesting to estimate by how much the income tax on high income taxpayers would have to rise to meet Ocean State Action's criteria for a "fair, progressive" tax system. Let's just say if that income tax rate were ever enacted, the leadership of the General Assembly would find themselves on the front page of the Wall Street Journal again, and not in a favorable light.

Like I said, if ever there were an opportunity for Team Anchor Rising to offset the influence of Ocean State Action on the General Assembly, this is it.

Posted by: John at May 12, 2007 10:56 PM


Thanks for the update on Tom. Glad to hear he's well and no doubt living large maybe out in Big Sky country. Talk about a culture shock. Oh my God! Would love for Tom to post here sometime about the different worlds Rhode Island and any of the western states (other than Cali) represent. Rhode Island is merely a smaller version of the Fruits Nuts & Flakes state of California. Many Rhode Islanders have no idea how we're so heavily overburdened and underserved by our state and local government. Those who travel know how bad things are around here. Hope Tom checks in sometime.

Posted by: Tim at May 13, 2007 10:06 AM

Not only did Tom move West, but I also believe he moved even further North, i.e. Alberta.

This is what RI Politicians and an apathetic electorate do to the "good guys". They finally hang it up and move out!

Will the last sane person leaving RI please turn off the lights!

Posted by: Aldo at May 13, 2007 6:41 PM
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