By Katherine Gregg and Cynthia Needham
Journal Staff Writers
PROVIDENCE - A cigarette tax hike, more than $74 million in municipal and education aid cuts and a rollback in pension benefits for state workers and teachers who wait until after April 1 to retire are key pieces in Governor Carcieri's proposal for averting a potential $357.4 million current-year deficit.
The deficit-avoidance plan he unveiled during a televised address from his office tonight was a patchwork of tax and fee increases, state-spending cuts and one-time revenue boosters, such as the sale of three state-owned pieces of land - including a Cranston parcel eyed as the new home of the state motor-vehicle registry - to Rhode Island Housing for a quick infusion of cash. He is also banking on $27.5 million in Medicaid bonus money from the Obama administration.
"Tonight, I've taken the unprecedented step of speaking to you directly, because we are facing extraordinary circumstances,'' Carcieri said in a speech he prepared for a 7 p.m. address from his office, broadcast live on local television and radio.
"How we decide to cure this deficit will have long-lasting consequences for Rhode Island's future. We can avoid the tough decisions and drift into more troubled waters, or we can set a new course that leads to sustainable spending and a brighter, more prosperous future for us all,'' he said.
"I know there are some out there who believe we need to increase taxes to solve this budget problem. I am firmly convinced that raising broad-based sales or income taxes would be disastrous for our state's future -- it will merely prolong the economic decline, hasten job losses, and hurt more of our families.''
Reaction to Carcieri's plan was swift and, in some cases, negative.
"The state doesn't want to raise taxes to bail itself out of its deficit hole, but it is willing to eliminate aid to cities and towns that was designed to lessen Rhode Island's over reliance on local property taxes," said Dan Beardsley, executive director of the Rhode Island League of Cities and Towns.
Among the highlights of the governor's deficit avoidance plan:
**A $1 hike in the state's $2.46-a-pack cigarette tax that will make the Rhode Island tax the highest in the nation. But the increase will not necessarily make the cost of a pack of cigarettes here any more expensive than it would be in Massachusetts because of the proposed repeal of a minimum mark-up requirement here that currently adds to the cost.
Even with the tax hike, state officials say, a pack of brand-name cigarettes would sell for an estimated $6.67 here, compared to $7.12 in Massachusetts.
*The doubling of motor-vehicle title fees to $50, with even steeper increases from $75 to $250 in the cost of reinstating a suspended license.
*A cutback in state aid to the 39 cities and towns, including the withholding of $55 million in promised revenue sharing funds, and at least $10 million in anticipated school aid.
*A projected $3.7 million hike in the gross premiums tax paid by health insurers.
*The imposition of a minimum retirement age - 59 - and the repeal of laws requiring the payment of automatic annual cost-of-living increases to all future municipal and state retirees, including judges and state police, who leave after April 1. In addition, the retirement plan would shift from a defined-benefit pension to a government-style version of the 401K retirement plans common in private industry for new employees.
"None of these changes, however, will apply to those already retired. And, even with these changes, state and municipal employees and teachers will still enjoy an extremely competitive retirement package that rivals the best in the private sector,'' Carcieri said. "For example, at age 59, and after 35 years of service, they will still receive a pension of 75% - 80% of their salary. In addition, they will receive health insurance with a 20% co-pay. Many of you watching tonight don't have retiree healthcare provided by your former employer.''
He said the potential state and local savings could reach a potential $100 million annually.
"I have also considered the possibility of closing all non-essential state offices for certain days,'' he said. "At present, I have chosen not to but it may become necessary.''
While slashing state aid, he acknowledged the state's taxpayers are already reeling under the weight of heavy local property taxes. He said "various studies show that Rhode Island's property tax burden is the 7th-highest in the country. That's because of the cost of municipal services and public education. Our school spending per pupil is the 8th-highest in the nation; spending for fire service is number one in the nation; and spending for law enforcement is number 13."
Carcieri acknowledged the mid-year aid cuts he is proposing will be difficult on our cities and towns. "However," he said, "to help offset this reduction in aid, I have asked the General Assembly to enact several changes that will lessen the burden and help our municipalities reduce spending.''
He is proposing, for example, a series of moves aimed at getting the cities and towns and local school districts to save money - maybe not immediately, but eventually - by signing on to statewide health, food service and transportation contracts, and requiring minimum 25 percent "co-sharing'' by their employees on the cost of the health coverage.
He also asked the General Assembly to create a "high-level Government Reform Commission to study the feasibility of consolidations and regionalization of services in our cities and towns - including public education,'' and said "this new commission, unlike others, will have special powers and the authority to make detailed recommendations to the General Assembly for a mandatory vote during the next legislative session. Following that, if necessary, it will be brought to the general public as a referendum during the next election.''
"The time has come to get serious and decide once and for all if we as a people have the will to come together, break down boundaries, and share our resources,'' he said.
The only silver lining, said Beardsley of the League of Cities and Towns', is if the legislature agrees to release the communities from a host of mandates including required bus monitors, mandatory minimum staffing levels and changes to the local pension systems.
But those are long-term solutions. Cities and towns more immediate concern is how to make it through the coming months.
"I have absolutely no idea how some communities are going to make it until June," Beardsley said. At least a few will be forced to raise taxes, he acknowledged. "But some [city and town] councils will have to force communities to live with these cuts. What that's going to mean? [Things like] garbage collection every other week instead of every week. It means that Fourth of July celebrations are going to be eliminated, and senior citizens programs are going to see a reduction."
And these were among Carcieri's more obvious proposals.
Buried within the piles of paper were less obvious attempts to cut the numbers of people enrolled in state subsidized health care, "customize'' the health benefits available to this low-income population, and steer the elderly away from nursing homes.
For example, one proposal would impose a new $10,000 "liquid resource test'' for the 41,000 adults currently enrolled in the state-subsidized health insurance program known as RIte Care, that would effectively eliminate anyone who owns a home and a car.
Department of Human Services director Gary Alexander said his agency has "found that there are some adults who own a nice home, have a car... [who] don't want to go to work.'' Alexander said the new resource test is aimed at rooting them out.
Carcieri said: "Unfortunately, some are under the misconception that we are going to remove people from nursing homes. Let me be very clear; we will not remove anyone from a nursing home unless they choose to be moved.''
To produce its share of the promised savings, Alexander said his agency will need to create a preferred pharmacy list to cut Medicaid-paid pharmacy bills, and to steer 196 people away from nursing homes and assisted living facilities to less expensive alternatives over the next six months, or cut short their stays after their release from a hospital.
Under the terms of an embargo dictated by the governor's office, state lawmakers, mayors, union leaders and social service advocates were unable to get details on the budget plan and make comments on it until after Carcieri officially unveiled his proposal.
Democratic Legislative leaders said they were only partially briefed on the budget, in short conversations with Carcieri -- not state budget officials -- yesterday morning.
"We have not yet had the opportunity to see the budget proposal in detail or digest its contents," said Senate President M. Teresa Paiva Weed. "He talked in broad streams, but I didn't even leave there with a piece of paper," added House Majority Leader Gordon D. Fox.
Lawmakers say they don't expect to see the complete budget bill until it is submitted to the legislature tomorrow.
"I'm waiting to see something in writing ... so we can make some sort of statement on this that deals with fact rather than what may or may not be," Fox said.
But Carcieri got a thumbs up from one of the Democrats hoping to replace him in two years, state Treasurer Frank Caprio, who said: "The budget correctly focuses on reductions in spending and not raising taxes. Rhode Islanders are taxed enough."
Of the proposed pension-benefit cuts, Caprio - who oversees the state pension fund - said: "The reforms proposed by the governor now lie in the hands of the legislature, who will be the ultimate judge of whether or not they are fair, reasonable and achievable. My office stands ready to ensure the viability and sustainability of Rhode Island's pension system."