Sales tax reduction is out; RIC programs, housing initiatives are in revised state budget

A proposed reduction to the state sales tax is out, while funds for housing projects and a cybersecurity institute at Rhode Island College are now in the revised fiscal 2024 budget given first passage by a panel of House lawmakers Friday night.

The $14.0 billion spending plan is 1.4% more than the $13.8 billion proposal Gov. Dan McKee introduced in January, with the extra funds largely reflecting a reallocation of money left unspent from the fiscal 2023 budget.

Among the most notable of the 143 changes to the governor’s original tax-and-spend plan: the proposal to shave off 0.15 percentage points from the state sales tax – reducing it from 7% to 6.85% starting in October – was taken off the table. 

Trimming the sales tax would have lowered state revenue by $35 million a year, saving the average resident $77 annually. 

House Speaker K. Joseph Shekarchi named a lower than expected surplus (down about $61 million according to revised estimates adopted by state budget crunchers in May) plus new areas of spending including on housing and higher education, as reasons why the sales tax reduction was removed. 

Fiscal 2023 revenue projections reduced by $61M

Despite economic projections for tighter financial times ahead, McKee suggested he’s already going to push to revisit the sales tax proposal in the fiscal 2025 budget.

Also axed from $100 million tax relief McKee proposed in his January budget is a two-year freeze in the gas tax, which would have cost the state $25 million, coming from stimulus funds. Without the freeze, the gas tax will increase by 3 cents per gallon this summer as planned. 

What is preserved from McKee’s tax credit plan is a four-month rebate on gas and electricity taxes will be offered to Rhode Island Energy customers in fiscal 2024 rather than fiscal 2023. The rebate comes with a $35.6 million cost.

Tangible tax exemption still in play

Senate President Dominick Ruggerio in prepared remarks alluded to a revised version of McKee’s proposal for four-month rebate in gas and electric bill taxes, but declined to provide details on the revisions.

A tangible tax exemption, which would give businesses a break on taxes for tangible assets up to $50,000, has been added to the budget. Ruggerio has championed this tax break, which would wipe out the bill for an estimated 75% of small businesses. Offering the tax exemption will require the state to reimburse cities and towns for $25 million in lost tax revenue.

Shekarchi stressed the need for concessions in the budget negotiations, which were ongoing Friday afternoon.

“No one, including me and everyone else here, got everything they wanted,” Shekarchi said.

For the immediate future, though, state coffers remain flush with federal stimulus funds and surplus revenues, with the revised spending plan “likely” to break the $14 billion mark for the second consecutive year, Shekarchi said.

That spending includes hefty chunks to higher education and housing. 

In addition to the 14-bill legislative package of housing reform policies championed by Shekarchi, the revised spending plan preserves – and adds to – the $2.7 million McKee proposed to hire staff for the newly created state Department of Housing. The updated budget also incorporates the $29 million package of housing incentives – including a tax credit for developers that build low-income housing projects  – that McKee and Housing Secretary Stefan Pryor introduced last month. This is on top of the $250 million in federal recovery funds the department is already charged with spending on housing and homelessness solutions.

“It’s all in the budget, and maybe even a little bit more to fund some really good, shovel-ready projects,” Shekarchi said. 

That “little bit more” is a $10 million, to create a revolving fund administered by the state housing department to help with “shovel-ready” housing projects, Shekarchi said.

“I just don’t think the General Assembly should be in the business of picking winners and losers,” Shekarchi said. “I think Secretary Pryor is more than capable of making those decisions.”

Another key priority for Shekarchi, growing the state’s nascent life sciences industry, is also included in the updated spending plan, with the $45 million chunk of funding McKee proposed. The budget also adds the quasi-government agency Shekarchi proposed to oversee that funding, mirroring successful models used in Massachusetts.

RIC cybersecurity institute looking good

Higher education funding, including two new initiatives at RIC, also features prominently in the updated plan. That includes a $4 million cybersecurity education and workforce training program out of RIC, to be headed by former U.S. Rep. Jim Langevin. Another $10.4 million chunk, mostly from stimulus funds, will offer free tuition to in-state, full-time RIC students for their third and fourth years. 

“We’ve gone all-in on higher ed,” McKee said. 

Of RIC, McKee added: “We know we need to do certain things to change it, to make sure we protect that history we’ve had for teachers and nurses and now cybersecurity being another area as well.”

As for McKee’s revisions to the much-maligned state education funding formula, there have been more changes, with extra categorical funding for multi-language learners and special education. The revised budget adds $20 million more to the $1.2 billion in education funding included in the governor’s proposal.

Also preserved from McKee’s budget is the $20 million Municipal Grant program, offering grant funding to cities and towns for street and sidewalk repairs.

AG would make out, RIPTA would not

New to the latest plan: General Peter Neronha will get 15 of the extra 20 staffers he asked for, including a four-person cold case unit, with funding coming from the state opioid settlement with Purdue Pharma.

The spending plan does not include designated funding for the financially endangered Rhode Island Public Transit Authority, despite projections that the agency is headed toward a fiscal cliff. 

Calls for reforming the cost-of-living adjustments for retired state workers won’t be addressed immediately, though the payments will now be made annually rather than a larger sum once every four years. The budget does require the Rhode Island General Treasurer’s Office to submit a comprehensive report by March detailing the impact of 2011 pension reforms on current and retired state employees. 

The revised budget strikes the extra $25 million that McKee included for an East Providence marine terminal. The South Quay project will still receive the $35 million in the fiscal 2023 budget, with consideration of additional funding in future years once lawmakers receive a formal update, Shekarchi said. 

The budget does not include funds for the troubled Tidewater Landing project nor the redevelopment of the Cranston Street Armory building.

A proposal to allow iGaming is not included in the tax and spend plan, but may be considered as separate legislation.

The House Finance Committee’s 13-3 Friday sends the revised tax-and-spend plan to the full House for further debate and consideration at a future hearing.