March 6, 2008

Perspectives on the State Budget Crisis

Carroll Andrew Morse

Last evening, The Taubman Center for Public Policy at Brown University hosted a panel on the Rhode Island budget crisis, moderated by Professor Darrell West. Four panelists presented their perspectives on where the problems are and what needs to be done...

Gary Sasse (Director of the Rhode Island Department of Revenue) classified the Rhode Island budget into 3 main silos...
  1. Personnel and government operations, $950 million.
  2. Entitlements, including Medicaid, $1 billion.
  3. State aid, 80% going towards education, $1.1 billion.
He offered observations on all three silos…
  • Government needs to be redesigned and made to work smarter. The Governor's proposed budget will reduce the state workforce to 14,800 FTEs (Note: down from 15,688.7, according to this year's official state budget document).
  • Medicare needs to be made more efficient, especially in moving long-term care away from institutional settings wherever possible.
  • Schools are being "held harmless", i.e. level funded, for the time being.
Sasse claimed that, if adopted as is, the Governor's proposed budget will get the structural budget deficit down to $12-$20 million by 2012.

Linda Katz (Policy Director, Rhode Island Poverty Institute) observed that 21 states are also facing budget crises, so Rhode Island is not alone. She suggested places to look to for enhancing revenues...
  1. Reverse the recent tax cuts (capital gains, flat tax for higher income taxpayers).
  2. Look closely at tax expenditures.
  3. Modernize the sales tax, especially to include more household services.
Rhode Island has already cut back on programs that help lower income people, by placing caps on eligibility for eligibility to Rite care and subsidized child care; that is not a place to make further cuts.

Katz agreed that Medicare reform is needed and that government needs to be made more efficient. But cuts that ultimately take money out of the healthcare economy can have negative ripple effects.

Paul Choquette (Chairman, Gilbane, Inc) used two phrases to describe the Rhode Island budget crisis…
  • The Perfect Storm
  • The chickens coming home to roost.
Rhode Island's population is declining. 1% of the wealthiest filers pay 40% of the income tax. We've increased spending at twice the rate of inflation over the past 10 years. 15% of the Rhode Island workforce is employed by the government. The Tax Foundation says our business climate is worst in the nation; CNBC says 48th. RIPEC says RI is 7 out of 50 in total tax burden.

What needs to be done…

  1. Reduce the cost and size of government.
  2. Review all services that government delivers, does government need to be doing everything it's doing now, and can it be done more efficiently?
  3. Explore regionalization and sharing of services.
  4. Recognize that government can't provide all the answers.
Non-profits should not be dependent on government, they need to raise more private dollars. If they can't raise money, maybe they shouldn't be in business.
Robert Walsh (Executive Director, Rhode Island Chapter of the National Education Association) said that budgets reflect values. He agreed with Gary Sasse and others that we need to take a serious look at government efficiency, but (and this is an exact quote) "I want to spend a lot more of your money than he does".

He cited the Masonic temple renovation as an example of a good tax expenditure, because it created permanent jobs, involved apprenticeships and removed an eyesore from downtown. But for the most part, because of the development of a secondary market, tax credits are not being used in ways that stimulate the economy.

He challenged the public-employees-are-15%-of-workforce figure as inflated, because of the inclusion of seasonal and ceremonial employees. RI actually has a small state employee workforce, relative to the other New England states.

Walsh cited figures showing wealthy people are not leaving Rhode Island. RI has gone from about 5,700 to over 9,000 people making over $200,000, from about 9,000 to over 14,000 making $150,000-$200,000, and from 28,500 to 41,000 making $100,000-$150,000 in recent years (In scribbling down population figures, I missed the exact years cited [2001 to 2006 says commenter "Red"])

He cautioned that regionalization is not the panacea that some would have you believe. About 4,000 – 6,000 students is the optimal size for a school system. Beyond that point, fiscal savings are limited.

People may oppose the idea of "welfare" in an abstract sense, but when you ask them about the specific functions that government is currently performing, they will support them.

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.

Bob Walsh. Economic Terrorist. Fiscal Jihadist. Union Radical Fundamentalist. He will rape your wallet and pillage your savings and give the spoils to his minions. He and those like him must be stopped in their tracks and forced to retreat back into their spider holes if we can ever hope to fix the problems we have.

Posted by: Greg at March 6, 2008 9:27 AM

The years cited for population figures: 5,700 in 2001 and 9,000 in 2006.

Does this mean the changes to the flat tax and capital gains tax are working and we are indeed attacting high net worth people to RI?

Regrading optimal size for a school system (4000 to 6000) he then said that it could be argued that Providence might be better off with 5 or 6 school districts.

That was a jaw dropper.

Posted by: Red at March 6, 2008 9:41 AM

I wonder how many of those making $150,000 - $200,000 were union police officers counting overtime and details.

Posted by: Greg at March 6, 2008 9:43 AM


Thanx, for both the correction and the observations.


Don't you think that's a tad over-the-top? Isn't there a fundamental difference between someone who wants to blow our society up (literally) and someone who thinks our society will be made better if our government is made stronger and given more money to spend?

Posted by: Andrew at March 6, 2008 9:48 AM


Both want to re-make the world in their image at any cost.

I'm tired of glad-handing the unions in this state. Let's call them what they are. Blood-sucking leeches. Cancers. Threats to the welfare of those the CLAIM to want to protect.

Posted by: Greg at March 6, 2008 10:02 AM


Thanks for stopping by last night (and Greg, thanks for reminding me why I generally don't post here anymore).

A minor correction, Andrew - the development of a secondary market for tax credits is linked, but still a separate issue from economic development- 1) we need to ensure that if we offer credits, the credits are used in logical, measurable ways 2) the secondary market means that the credits can be all taken up front, whereas the project's return might be over several years, creating an imbalance and a budget issue.

Andrew, you correctly noted that while we both support balanced budgets and clearly identified sources of revenue to support them, I want to spend more of your tax dollars than Gary Sasse does. I suspect that surprises no one.

Thanks again for attending.

Posted by: Bob Walsh at March 6, 2008 10:33 AM

Bob, I look forward to your continued not posting here. But you can always send "The Finger" over to embarrass your agency when he's not busy blogging over at RIFuture, which apparently is part of his RINEA job, seeing how much time he spends there.

Posted by: Greg at March 6, 2008 10:57 AM

I suspect that most, if not all (or more) of the increase in numbers of "rich" high income people cited by Walsh are attributable to one time capital gains on the sales of homes, NOT recurring year-after-year income streams.

Heck, some Social Security couple who bought a house in Newport in the 1960's could have a multi-hundred thousand dollar capital gain on the house that they just sold to move to Carolina because they can't afford the property taxes here anymore!

And we all know what's going on with the housing market - so those revenues to the state are, and will continue, to sharply decline.

Another nail in Rhode Island's fiscal coffin.

Posted by: Tom W at March 6, 2008 11:17 AM

Tom W, that is related to the point Justin has been trying to make. Also, in addition to our own intrepid reporter, Mr. Morse, the Brown Daily Herald also covered the event and has a few more quotes, including:

Specifically, Chouquette promoted tax cuts for the wealthy, and said their presence in the state contributes to strong business and philanthropy. "Philanthropy could be a real loser if we see some of these high-income taxpayers move out of state," he said.

Walsh countered Chouquette's position, saying, "I don't see how giving a tax break to people who are already here makes incentives for new jobs." He argued against tax cuts and for increased education funding, but agreed with Chouquette that "spending has exceeded revenues." While he did not explicitly promote raising taxes to the extent that Katz did, Walsh told the audience half-jokingly, "We've become very funny as Americans. ... Paying taxes to me is a patriotic thing."

Posted by: Marc at March 6, 2008 11:42 AM

Of course Walsh's sort of "patriotism" lines HIS pockets and provides HIS job security.

Posted by: Tom W at March 6, 2008 12:00 PM

Just to clarify, the second para above is also from the BDH story. (Formatting problems!)

Posted by: Marc at March 6, 2008 12:06 PM


You don't post here because Don Hawthorne very politely challenged you and asked you to back up your rhetorical claims with facts. Naturally you couldn't do so and 'ducktailed' out of here.
Btw what was the point of last night's Darrell Clintonista West forum @ Brown? Solutions for Rhode Island's problems? From the NEA and poverty pimps? lol Now that's a funny skit worthy of the Follies.

Posted by: Tim at March 6, 2008 3:14 PM

"People may oppose the idea of "welfare" in an abstract sense, but when you ask them about the specific functions that government is currently performing, they will support them."

I "support" a lot of things. In fact, I "support" way more than we already do.

But it all costs money. And the money which pays for these programs is both hard earned and finite. We are now the fourth highest taxed state in the country yet facing a half billion dollar annual deficit. It is difficult not to conclude that, much as we would like to do more, in fact, we have hit a wall and need to do less.

Posted by: Monique at March 6, 2008 9:07 PM

Did either Bob Walsh or Linda Katz acknowledge Bobby Oliveira's triumph over Matt Jerzyk in the recent battle of the local Democratic titans?

And which part of Pennsylvania has Bobby been assigned to in the upcoming shootout on I-76?

Enquiring minds want to know...

Posted by: John at March 7, 2008 11:59 PM
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