During the days following its release, reporters, analysts and observers worked to unpack the budget that Governor Raimondo sent to the General Assembly — and found some unpleasant items therein. Here is a bullet list of some of the bigger ones.
Proposed Statewide Property Tax
… aka, the Taylor Swift tax.
Justin got clarification from Governor Raimondo’s office that the INTENT is not to include apartment buildings as properties to be taxed. This conforms to Governor Raimondo’s attempt to sell this tax as having only a narrow list of targeted properties. (So, gosh, don’t worry about it. And, anyways, we only want to tax those icky rich people.)
Intent, however, is completely secondary. If this tax passes into law, the door will be opened wide for future – and current! – governors and General Assemblies to tax apartment buildings (of all classes and sizes); commercial buildings; second homes of less than one million dollars; PRIMARY homes of more than one million dollars; primary homes of $750,000 – $1,000,000; et empty state cetera. The critical issue is not that the initial list of targeted properties is short. It’s that the list comes to exist at all. To subject just one property classification to a new, statewide tax would set the precedent to subject virtually all real estate in Rhode Island to a statewide property tax via an easy tweak of the targeted property list.
In a perfect bit of timing, RIPEC released an analysis right before the governor released her budget of just how much Rhode Islanders are already taxed. By one measure, Rhode Island already has the fourth highest property taxes in the country. The governor is seriously proposing to raise that ranking? In fact, the one thing above all that our elected officials should not do is exacerbate this burden.
Further, there’s the matter of Rhode Island’s already undesirable reputation as a high tax state. On Twitter, Gary Sasse correctly asks,
When Tax Foundation.et. al.rank tax climate will new statewide property tax impact rankings w resulting reputation risks?
Further to “reputation risks”, WPRO’s Gene Valicenti pointed out Friday morning that the governor’s mere proposal has made the national news via the AP’s feed. This is exactly the kind of publicity that Rhode Island needs to avoid, not curry.
Governor Raimondo’s Proposed Statewide Property Tax Redefines Ownership of Real Estate as a Privilege
This one was a great catch by Justin.
Technically, Raimondo’s new property tax (on top of a new healthcare tax, remember) is not a property tax at all; it’s a “privilege tax.” Here’s the legal language (emphasis added):
The tax administrator of the state of Rhode Island is empowered to impose a tax upon the privilege of utilizing property as non-owner occupied residential property within the state during any privilege year commencing with the privilege year beginning July 1, 2015 and every tax year thereafter.
This is a dangerous re-definition. It decidedly is not in government’s purview to take away a significant right such as the ownership of real estate by defining it away. Why does Governor Raimondo want to shift the property ownership paradigm from right to privilege? Could this be her way, the R.I. Center for Freedom and Prosperity asks, of easing in to RhodeMap RI which, inadvertently or not, weakens the entire premise of private property?
New Tax on Many Health Insurance Policies
Justin points out, in an eye-opening post on Watchdog last week, that state officials were warned in 2009 that the numbers simply did not work for a state-run ObamaCare exchange for Rhode Island.
Insufficient scale to justify investment. Do not pursue.
Yet our elected officials pursued anyway, spending a stunning $134 million in federal tax dollars to set up an exchange. And now that federal dollars are receding, as they often do, the governor proposes a tax … excuse me, a fee on a large number of health insurance policies. At the moment, the proposed tax … er, fee is 1% for small group plans and 3.8% for individual plans. However, Justin calculates that this tax … er, fee will need to ramp up to 13.1% in order to cover even a “stripped down” (Christie Ferguson’s characterization) HealthSource RI budget of $17 million/year.
Like our health insurance premiums aren’t already high enough, Governor Raimondo wants us to pay even more via this new tax. Like small businesses aren’t already staggering under all of the taxes, fees and costly regulations dreamed up over the decades by elected officials, Governor Raimondo wants to add to the burden.
The other killer here is that this new tax would go to fund the COMPLETELY USELESS new bureaucracy created by our state and federal elected officials. ObamaCare has not reduced the cost of healthcare premiums as advertised; in many instances, it has only served to raise them or has compelled the customer to take a worse plan in order to continue to afford a premium – any premium. Equally infuriating, Pam Gencarella points out in Thursday’s GoLocalProv that uncompensated (i.e., largely taxpayer funded) care, which was supposed to go down under ObamaCare because “everyone will have insurance”, is actually projected to RISE in the governor’s 2016 budget to $137 million, up from $118 million in 2012.
Much of what we pay (albeit too much in) taxes for at least has a tangible or useful product: first responders from the police and fire fighter section of the budget; roads and road repairs from DPW; schools that educate our children. In this case, our elected officials are compelling us to pay for a shiny new bureaucracy that does ABSOLUTELY NOTHING for taxpayers and customers; a bureaucracy whose sole product is more government FTE’s and contracts on the state level for elected officials to hand out for their own political advantage, with zero product or service to benefit the people paying for it.
Hypothetical Cuts & One Time Fixes to Address the 2016 Deficit
The House Finance Committee, of course, has also been digging into the budget. They note that Governor Raimondo proposes to close one third of 2016’s deficit with one time fixes.
The biggest chunk of one-time revenue is $23 million that will be scooped out of Rhode Island’s quasi-public agencies, including $11 million from the R.I. Clean Water Finance Agency, $5 million from the R.I. Health and Educational Building Corporation and $1.5 million from the R.I. Resource Recovery Corporation.
Another big source of one-time revenue: $19 million from a recent refinancing of the R.I. Tobacco Settlement Financing Corporation’s debt, which gets paid off as the state receives its share of proceeds from the landmark 1998 legal settlement between state attorneys general and the tobacco companies.
Now for the hypothetical cuts. $46 million in cuts hinge on the results of the Medicaid Working Group, whose work product is expected April 30. Additionally, the governor is looking for “$22 million in unspecified personnel savings” which will have to be negotiated with public labor unions. Such reductions are desperately needed, both to balance the budget and to begin to lower the state’s high taxes. But these cuts have not yet been achieved. It seems irresponsible, to say no worse, to have included phantom spending cuts in the budget. Does the governor undertake to find cuts elsewhere in the event her placeholder cuts do not materialize?
Creation of a “Rhode Island Infrastructure Bank” – and Employment – at Taxpayer Expense
From the Providence Journal:
Governor Raimondo is proposing a state loan program that, if approved by lawmakers, could have hundreds of carpenters, electricians and other trades workers busily working by year’s end improving the energy efficiency of public and private buildings.
Part of Raimondo’s proposed budget includes creation of the “Rhode Island Infrastructure Bank,” which, despite its vague and bureaucratic title, would serve a specific function: to offer low-cost financing for municipalities and private property owners who want to save money by improving the energy efficiency of their buildings.
This raises a critical question about the “jobs” characterization of the governor’s “Jobs Budget”: of the total jobs projected to be created by this budget, what percentage would be partially or entirely funded at taxpayer expense or financial risk, like this proposed new loan program, rather than private sector jobs?
Creation of make-work jobs at the expense of state or local taxpayers (remember, loans made to municipalities under this program would have to be repaid by local taxpayers) is a completely non-viable way of boosting employment. It would be like a hungry animal eating a limb to survive. Someone may comment here that no animal would be stupid enough to do that. Exactly. Aren’t we smarter than most animals?
So we are definitely looking for an answer on this point: what percentage of the jobs in the governor’s “Jobs Budget” would be created in the private sector and what percentage would have taxpayers underwriting, partially or entirely, the payroll?
Little Improvement to the State’s Business Climate
As my OpEd in March 17’s Providence Journal begins,
For good or ill, business is what drives an economy — and fills tax coffers.
The private sector furnishes jobs and tax revenue, direct and indirect, to an economy. And a state’s business climate is a major factor in whether businesses 1.) choose to come in to a state and 2.) florish or fold. Regrettably, while the governor’s budget includes some isolated measures on this critical front, it falls far short of the wholesale overhaul of the state’s business climate that the governor herself indicated is needed, in her inaugural speech and elsewhere.
This raises the important sidebar of words that diverge from deeds. During the campaign and after she was elected, the governor also said, “We are not going to tax our way out of this”. Yet this is another huge area where her budget flies in the face of her words. Do we have to start wondering now which of Governor Raimondo’s statements she will stand by and which she will in due course contradict via action?
We would appeal to Speaker Mattiello and his leadership team to keep uppermost in their mind, as they begin to modify the governor’s budget, the best interest of the state and how to put it on the path to improvement. All of the governor’s proposals outlined here (and this is not a complete list of all of the bad items in her budget) are flat out non-starters as they would only exacerbate some of Rhode Island’s worst problems, not begin to address them.
Monique Chartier is Communications Director of Rhode Island Taxpayers, a non-partisan taxpayer and business advocacy organization, and Editor of the R.I. Taxpayer Times.