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November 16, 2010

Balance Is Unexpected for a Reason

Justin Katz

Much is being made of Rhode Island's unexpected budget balancing. Here's Kathryn Gregg in the Providence Journal:

After meeting on and off over several days, the top financial advisors to the House, the Senate and the governor, determined that revenues are running about $16.7 million ahead of expectations when the General Assembly signed off on this year's state budget last June which, when coupled with an end-of-year surplus from last year, gives the state some welcome elbow-room this year.

And Ted Nesi has more:

[House spokesman Larry] Berman credited the balancing act to higher tax revenue, lower spending, and a surplus left over at the end of last year. "It is also good sign that revenues are running slightly ahead of projections, showing that the economy is turning around slowly," he said.

Of course, the largest factor in this "good news" is the windfall of federal dollars that has helped our state government avoid the really tough decisions that it's going to have to make when that money dries up. (You know, that "stimulus" money that has arguably contributed to the continuing economic malaise.) Another factor has been the state's willingness to push expenses down to cities and towns without easing its requirements (via mandates and regulations) to spend money.

That said, this is a prime example of an issue that frustrates me with regard to my tight schedule. My gut's telling me that there must be more — perhaps having to do with tax code changes that effectively raised taxes on productive and economically active Rhode Islanders. An article that Projo reporter Neil Downing published today supports that conclusion:

For example, the total amount of personal income tax withheld — mainly from paychecks — increased by 7 percent for the first four months of the fiscal year, and by 9 percent in October alone, said state Tax Administrator David M. Sullivan. Those figures indicate that more people are working, he said. (The state's unemployment rate, while still high, has been gradually dropping in recent months.)

But some other figures suggest economic softness in some spots.

For example, cumulative personal income-tax collections came to $322.6 million, up 4.8 percent compared with the same period a year ago. But that was largely on the strength of increases in the first three months of this fiscal year. In October, personal income-tax collections slipped 4.8 percent compared with the same month a year ago.

The parenthetical note about the slowly decreasing unemployment rate misses the point that fewer people are actually working. Folks are just giving up their job searches, driving down the rate of people who are trying to be employed, but aren't. The summer boost in income tax withholding could have indicated a real jump in summer tourism income, or something similar, but it also could have included a boost in withholding based on changes in tax credits and deductions that the General Assembly had recently passed.

News consumers are used to getting the tailored pronouncements of government officials, perhaps mixed by journalists (working with limited space) with a couple of broadly stated opinions from opposing factions. What we need is to see the numbers dollar-by-dollar and aligned with specific policies and decisions.