The House Finance Committee today gave its approval to an $8.7 billion state budget bill that eliminates state income tax on Social Security benefits for many Rhode Islanders, does away with taxes on utilities for businesses, includes the pension settlement and economic and jobs development initiatives and provides funding for school construction and greater tax relief for lower-income families.
The plan (2015-H 5900A) includes no broad-based tax increases, fully funds the education aid formula and includes Gov. Gina Raimondo’s structural changes to Medicaid, although with a smaller impact on hospitals and nursing homes. It does not include a recently proposed plan to toll large trucks to pay for highway and bridge repairs.
House Speaker Nicholas A. Mattiello said the budget is aimed squarely at improving Rhode Island’s economy and encouraging job creation.
“This is a budget that is pro-business and pro-jobs that will move our state forward. This budget will serve as a catalyst for existing businesses to grow and prosper, in addition to attracting new businesses looking to locate here. That momentum began last year when we reduced the corporate tax rate to the lowest in the Northeast and raised the exemption on the estate tax and eliminated the cliff. This year, top priorities were to exempt businesses from paying sales tax on energy costs and reducing the annual fee paid by small businesses,” said Speaker Mattiello (D-Dist. 15, Cranston).
“We also want to make sure the new Commerce Department has the tools needed to attract and grow businesses in our state with the proper incentives and controls to monitor their effectiveness. A major component we added is Representative Joe Shekarchi’s job development incentive program. Another of my top priorities was exempting the Social Security tax to keep retirees in Rhode Island, freeing up disposable income to be spent here. We help low-income families by increasing the earned income tax credit by 25 percent. It’s a budget that has something for everyone and that continues forward momentum.”
Said House Finance Committee Chairman Raymond E. Gallison Jr., “We continued to moveRhode Island on an economic path for job growth and to enable businesses to grow. We concurred with many of the governor’s initiatives for economic development with some additional controls. We also concurred with her structural changes to modernize the Medicaid program, while lessening the impact to hospitals and nursing homes.”
After the state’s May revenue-estimating conference projected the state had over $100 million more resources available in the current year and $50 million more than expected in 2016, the committee expanded a proposal included by the governor to make Social Security benefits exempt from state taxes for many. The original proposal would have made them exempt for single filers with federal adjusted gross incomes of up to $50,000 and joint filers up to $60,000. The committee raised the limit to $80,000 for single and $100,000 for joint filers. The committee’s amendment provides tax relief for 8,000 more filers than the 25,400 who would have benefitted under the governor’s proposal. The impact on the current fiscal year is $9.3 million, up from $3.85 million as proposed by the governor. Those figures represent six months rather than a full year, because the change will not go into effect until Jan. 1.
The committee also enhanced the governor’s proposal to phase out the sales tax that all nonmanufacturing businesses pay on their electric, natural gas and heating fuel bills. The original proposal would have phased out the tax over a five-year period, but the committee chose to eliminate the tax all in one year. The cost to the state will be $20 million in FY 2016 instead of $4.9 million as originally proposed.
The committee added a provision to cut the minimum corporate tax, paid by about 60,000 businesses in the state, from $500 to $450. While there were legislative proposals to waive the tax for new businesses, legislative leaders felt a fairer solution would be to reduce the tax for all.
A proposal originally introduced by Rep. K. Joseph Shekarchi (D-Dist. 23, Warwick) to provide tax credits to businesses in exchange for creating high-quality jobs was also added by the committee. The credits range from $2,500 to $7,500 per added job and could not exceed the amount of state income taxes generated by the position.
The committee approved the governor’s proposal to increase the earned income credit for low- and moderate-wage earners from 10 percent of the federal credit to 12.5 percent in FY 16. The cost to the state would be $3 million in FY 16 when it is in effect for only half the fiscal year.
The structural changes the governor proposed to Medicaid are included, but the cuts to hospitals and nursing homes have been reduced. Incentive programs and other delivery system changes have also been included in the budget.
The committee included the governor’s package of economic development incentives and real estate tax breaks to attract companies and spur economic growth. However, it placed a $15 million cap on credits available per project on her Rebuild Rhode Island plan for development, and made changes to increase transparency and accountability. The committee also included the governor’s tax-increment financing program, the Anchor Institution Tax Credit, which uses existing Rhode Island companies to attract suppliers to the state, a $25 million I-195 Development Fund to support projects on the former I-195 land and a $5 million First Wave Fund to work with small businesses. It also includes an infrastructure bank seeded with $5 million from federal and other sources to loan cities and towns funds to make buildings more energy efficient.
The committee added $350,000 for the POLARIS Manufacturing Extension Partnershipproposed by Rep. Joy Hearn (D-Dist. 66, Barrington, East Providence) to assist manufacturers. It also added incentives for start-up companies in the STEM (science, technology, engineering and mathematics) fields based on legislation offered by Rep. Christopher R. Blazejewski (D-Dist. 2,Providence).
Funding to maintain the state health insurance exchange, HealthSource RI, is included in the budget, but the cost of the program will now be assessed in the same manner and rate that is used for federally facilitated exchanges for individuals and small businesses. Using this method, proposed premium surcharge are reduced to an average of 2.86 percent on individual monthly premiums and 0.59 percent on small business group monthly premiums. The charges vary based on the different plans offered by each of the health insurance carriers. The committee included $2.6 million to cover certain technology and call center contracts currently in place that will be renegotiated over time.
In other health care initiatives, the Finance Committee eliminated the 2-percent surcharge on imaging and outpatient services, instead of phasing it over four years as the governor proposed.
The committee largely concurred with the governor on education. The committee agreed to continue for a fifth consecutive year to fully fund the education funding formula for cities and towns, an increase of $35.8 million over this year. It also agreed with the governor’s plan to add $7.5 million for higher education.
The committee included the governor’s plan to include $20 million in funding for a new school construction program to address different needs than the existing program. The state imposed a moratorium on school construction in 2011 that ended this spring.
The committee also concurred with the governor’s $1.4 million proposal to expand all-day kindergarten to the seven communities that remain without it.
The committee also restored funding for transportation and the textbook loan program for non-public schools, which the governor’s proposal eliminated. The committee restored $2 million for transportation and $240,000 for textbooks.
To provide assistance to municipalities, the committee restored $5 million the governor had proposed to cut from the Payment in Lieu of Taxes (PILOT) program. Those cuts would have cost Providence $3.5 million and Cranston $700,000.
The committee also rejected a proposal by the governor that came to be known as the “Taylor Swift tax,” which would have been assessed on second homes valued at greater than $1 million.
The Finance Committee concurred with the governor’s plan to centralize tourism promotion funding through the Commerce Corporation, but revised the plan and made it effective Jan. 1, 2016, instead of July 1, 2015. All eight local tourism bureaus will equally face cuts, but there will be a new $4.6 million effort to market the state as a whole.
The committee added $2 million to the governor’s proposed budget for the Rhode Island Public Transit Authority as a means to improve service and access to public transportation.
It also included her proposal to raise cigarette taxes by 25 cents per pack, raising the total tax to $3.75 per pack and raising $7.1 million in new revenue.
The committee reduced state personnel cuts proposed by the governor from $22 million to $5 million and rejected the governor’s proposals, including those to roll back benefits.