Category Archives: State Budget

In case you missed it, and so you don’t

In case you missed it, we had a quick response to the recent ProJo article on the Jack McConnell nomination to the U.S. District Court. These all follow our PR on the subject issued the day before.

The Journal reported that Senator Whitehouse defended answers to the Judiciary Committee by U.S. District Court nominee Jack McConnell as “accurate in every respect.” We beg to differ, as did Senator Grassley, the ranking Republican (“Senate panel endorses McConnell for R.I. judgeship, ”April, 1).

McConnell said, “My law firm entered into an agreement with the State of Rhode Island that set forth the attorney fees as 16 2/3% of any recovery obtained as a result of the litigation.” In fact, the contract says: “In the event the litigation is resolved, by settlement or judgment, … the parties hereto agree to seek . . . compensation.”

The fee agreement is triggered not by “any recovery” but by “settlement or judgment,” neither of which occurred in the DuPont Deal by the testimony of both Dupont and then Rhode Island Atty. Gen. Patrick Lynch. In the event of “in-kind” payments we would not be obligated to pay a fee.

Continue reading HERE.

And so you don’t miss it, I’ll be on Channel 10 news this evening (6:00) interviewed by Bill Rappleye on the recently reported raises given out at the State House.

It is difficult to say exactly which 10 second quote will be taken from the 10 minute interview, but here’s the point I made, I don’t begrudge anyone making money from hard work, but it is understandable why people are outraged by these raises as we suffer in an economy where benefits are being cut and people are leaving our state because of the onerous taxes (see our Leaving RI study for documentation of this fact).  Handing out raises to anyone in government in this environment is offensive. But I think the ire is misguided when you consider the fact that teachers in Rhode Island who happen to be in the first 10 years of employment get close to a 9% raise NOT because of their job performance, but simply because they were employed another year.  Those and other exorbitant contractual raises based solely on seniority that apply to everyone are the real budget deficit driver.

Of course, if more government services were provided by private entities, who have “competition” to ensure compensation is judiciously allocated, then all these problems would go away, now, wouldn’t they…

Licht says Felkner got it wrong, but Walsh confuses issue

In OSPRI’s recent OpEd in the Providence Business News, “Rhode Island spending well above documented need,” we use a comment from Richard Licht to make the point summed up in the title. Here’s what we said:

Rhode Island Department of Administration Director Richard Licht nailed it at the New England Public Policy Center at the Federal Reserve Bank of Boston presentation recently, when he pointed out that the cost of government in Rhode Island is so far above the calculated “need” that if we just lowered it to that level, our deficit would be gone. (March 3, 2011, The Rhode Island Foundation) At that point, I considered the day a success.

Mr. Licht’s statement came in reaction to the presentation, “How does New Hampshire do it,” which diagrams the Granite State’s ability to operate at a cost 20 percent below the New England average. New Hampshire also spends well below the “Expenditure Need,” a metric calculated by a state’s poverty rate, prevailing wages and other demographics, weighed against the New England average. No surprise, Rhode Island spends well above that calculated “need.”

Licht quickly, with a back of the napkin calculation, said that the amount we spend above that need threshold is about the same amount of our current deficit – approximately $295 million. That’s right! Rhode Island spends more than we “need” to. But how do we spend less?

Much to our surprise, Licht took exception to this piece on the Dan Yorke show yesterday (podcast available here).  Compare the bold sections above where I paraphrase the comment made by Mr. Licht at the event to the bold section below where Mr. Licht describes on the Yorke show what he meant to say.

“First of all, I did not say what Mr. Felkner said, or, first of all I didn’t use the words he said- secondly, I did make a comment it’s totally out of context and has no, didn’t understand the tone of which I said. . . I did, without an envelope, because I didn’t need an envelope I could do it in my head, it showed a little, that we spend close to 8 billion, and it was a bar graph so it didn’t have exact, but the amount of space it looked like it was a $300 million difference, so I said, by the way, this difference of 300 million, I deal with every day, that’s our budget shortfall and if just had that I could solve our budget problems, I said it lightly, and I said it jokingly everybody laughed in the room, and I went on to say, really what my point was…  How do you define need?  I was giving an explanation that I’m hard pressed to repeat because I didn’t understand it. I went up to the women (who gave the presentation) afterwards, Dan, and said,  your numbers on need are based on 2007 fiscal yr, which was from July 06 to June 07, I said, that was at the height of the economic boom, have you done an analysis for 2010? “

YORKE: “Gotcha, so you’re suggesting that’s he’s completely misinterpreted your reaction to the presentation.”

I never said, nor did I imply, that Richard was deadly serious about using this analysis as a template for cutting the budget.  I  apologize if he took offense (but I’m not sure why).  Yes the observation he made was obvious and off the cuff — if not the back of an envelope.  But taken under the rule that one’s first intuition is best, it is clear that the presentation had an impact. Indeed he goes on to say he followed up afterwards looking for updated figures, implying that “need” may have risen as the economy cooled.

This doesn’t impress me as the response of someone who thought Rhode Island’s overspending relative to a low tax neighbor unimportant, or the comparative approach nothing but a joke. If you think people aren’t telegraphing when they joke, think again. Bob Walsh of the NEA followed up Richard’s comments by pointing out that Rhode Island fairs better by comparison to Southern New England, so maybe we should be spending $100 million more.  Yeah, people laughed at Bob’s comment too, but do you think he was kidding?

I’m not suggesting that Licht came into the room as a tax and spender and left as a fiscal conservative. But even a joking acknowledgment of the obvious relation of our deficit to overspending is a step in the right direction. I know that when he is not joking Licht is a consummate administrator and I hope he will take the message of state competition seriously as he helps guide the Chafee administration through budget negotiations.

It does appear that Mr. Licht, or perhaps the Chafee administration in general, wants to distance itself from the idea of cutting the RI budget by reducing the number of people we provide government services to – which was the point of my article. But, I didn’t imply the administration supported the changes to Medicaid eligibility I outlined. I did take advantage of the subject of spending beyond need being raised to open the tough discussion of trimming our priorities.

Even if the “need” is higher in 2010, I believe Rhode Islanders think it is no joke that we are overspending, indeed if our services, benefits and eligibility have been relatively generous, they should be trimmed in order to insure that our safety net remains available to those actually facing real poverty. To be faced with a proposal for $160 million dollars in structural tax increases with no structural cuts in expenses has not distinguished the Chafee effort coming out of the box. The general economic rule is that you can’t tax yourself out of a structural deficit. You must cut $3 for every $1 raised. I’m a no new taxes guy and I’m bidding against myself by pointing this out, but if frank discussion is necessary at this juncture, so be it.

I trust the administration is actually committed to the same. True, the figures at that presentation were for 2007, but are they willing to consider cuts based on 2010 figures?

PS. If they are interested, may we suggest reviewing our report on Medicaid spending – Doing Long Term Care RIght.

In case you missed it

In case you missed the debate with Bill Felkner and Tom Sgouros on Newsmakers, we have posted the video and the extended interview below.  Enjoy!

Initial interview (second half of show)

Extended interview.

Public Pension Costs Continue to Rise

It seems like almost every other week now we get a report saying that the costs of the public pension system are higher than previously expected. Here is the latest one from The Providence Journal:

The Rhode Island public pension system may soon cost taxpayers far more than previously believed.

The consultant for state government’s $7-billion pension fund issued a report last week recommending that state officials revise overly aggressive investment assumptions that could be masking the true cost of the system. The change could cost state and local taxpayers as much as $63 million.

And that’s on top of the projected $218 million that state taxpayers are expected to contribute in the coming year.

“There is a widespread sense that the market meltdown in 2008, which has only partly been offset by subsequent gains, signaled that the financial world has changed in fundamental ways,” reads a draft report by Texas-based actuary Gabriel Roeder Smith, which recommends that state officials significantly revise the current assumption that the state pension fund will grow 8.25 percent each year in investments managed by the state treasurer’s office.

The report comes as the General Assembly wrestles with plans to trim costs from the pension system to help fill ballooning budget holes.

In addition to limiting cost-of-living adjustments for newly retired state workers, teachers and judges, the House of Representatives hopes to generate short-term savings by refinancing the retirement system’s $4.3-billion unfunded liability. Akin to refinancing a home mortgage, the move would produce short-term budget relief but cost taxpayers $2.2 billion over the next 25 years.

The actuary’s recommended change could wipe out much of the savings in the legislature’s plans.

More on Rhode Island Taxes

As a follow-up to our piece yesterday on Tax Freedom Day in Rhode Island, below is more information on Rhode Island taxes from the Tax Foundation. Click here to view this on their Web site.

Tax Freedom Day Arrives on April 12 in Rhode Island
Tax Freedom Day is the day when Americans finally have earned enough money to pay off their total tax bill for the year. In 2010, Rhode Island taxpayers work until April 12 to pay their total tax bill, ranking it 12th highest in the nation, 3 days after national Tax Freedom Day (April 9). The Tax Freedom Days of neighboring states are: Connecticut, April 27 (ranked 1st nationally) and Massachusetts, April 14 (ranked 6th nationally).
Full study of Tax Freedom Day, nationwide and in each state

Rhode Island’s State/Local Tax Burden Above National Average
Estimated at 10.2% of income, Rhode Island’s state/local tax burden percentage ranks 10th highest nationwide, above the national average of 9.7%. Rhode Island taxpayers pay $4,533 per capita in state and local taxes.
Rhode Island’s State-Local Tax Burden, 1977-Present
Other States’ State/Local Tax Burdens
Historical Chart Comparing All States’ State/Local Tax Burdens from 1977 to 2008

Rhode Island‘s 2010 Business Tax Climate Ranks 44th
Rhode Island ranks 44th in the Tax Foundation’s State Business Tax Climate Index. The Index compares the states in five areas of taxation that impact business: corporate taxes; individual income taxes; sales taxes; unemployment insurance taxes; and taxes on property, including residential and commercial property. Neighboring states ranked as follows: Connecticut (38th) and Massachusetts (36th).
50-State Comparison of Business Tax Climates (data only)
2009 State Business Tax Climate Index, Sixth Edition (full study)

Rhode Island‘s Individual Income Tax System
Rhode Island’s personal income tax system consists of five brackets and a top rate of 9.9%, kicking in at an income level of $373,650. Rhode Island’s income tax system closely adheres to the federal income tax code. Among states levying personal income taxes, Rhode Island’s top rate of 9.9% is the 4th highest nationally. Rhode Island’s 2008 state-level individual income tax collections were $1,036 per person, which ranked 17th highest nationally. Continue reading

Unions Step in Way of Budget Savings

In the private sector, the idea that employees might have to contribute to the cost of their health insurance is pretty commonplace. But in the public sector—oh the horror! Indeed, once he found out it, AFL-CIO President George Nee decried the change as “a totally unacceptable intrusion into collective bargaining” and promised he would be “aggressively lobbying every member of the House” to block the plan. There, in a nutshell is the union mentality: common-sense health care policy and budget savings don’t mean anything if they infringe upon the sacred inviolability of collective bargaining! For some more reaction to this, read this Providence Journal story. And below, is a press release from the Rhode Island GOP with some choice words for Nee.

Is Anyone Truly Shocked by George Nee’s Quid Pro Quo Offer to Chairman Costantino over Supplemental Budget?

Warwick – RI Republican Party Chairman Giovanni D. Cicione today reacted to a statement attributed by the Providence Journal to AFL-CIO President George Nee in response to a provision in the General Assembly’s supplemental budget plan to require public employees to contribute to the cost of their taxpayer funded health insurance coverage.

As reported by the Providence Journal, Nee threatened to spend his time “aggressively lobbying every member of the House” and also stated, “This is an election year” and “It could be a factor in how endorsements are made.”

“There are only two ways to interpret George Nee’s comments on the issue of public employee contributions to health care coverage costs,” remarked Cicione. “Either George Nee was offering to trade union endorsements for changes to the proposed budget or he was threatening to use the union endorsement process against any official who refused to buckle. Now we know who the AFL-CIO will endorse for Mayor of Providence and Speaker of the House,” speculated Cicione. “The evidence that union bosses pull the strings in the General Assembly could not be any clearer,” concluded the Republican Party Chairman. Continue reading

April 12 is Tax Freedom Day in Rhode Island

Tax Freedom Day—when Americans stop working to pay all their taxes and start making money for themselves—is coming later in Rhode Island than it is for the country as a whole. Below is more from the Tax Foundation:

Tax Freedom Day – the date on which Americans will have worked long enough to have earned enough money to pay this year’s tax obligations at the federal, state and local levels – will fall on Monday, April 12, 2010 for residents of Rhode Island. The date for all Americans will be Friday, April 9, 2010.

Tax Freedom Day answers the basic question, “What price is the nation paying for government?” An official government figure for total tax collections is divided by the nation’s total income. The answer this year is that taxes will amount to 26.89 percent of our income, and the stretch of 99 days from January 1 to April 9 is 26.89 percent of the year. Overall, Americans will pay more taxes in 2010 than they will spend on food, clothing and shelter combined.

In the study, “America Celebrates Tax Freedom Day,” our staff economist Kail Padgitt traces the course of America ’s tax burden since 1900, examines the composition of today’s tax burden by type of tax, and calculates a Tax Freedom Day for each state.

Each state has its own Tax Freedom Day. Alaska and Louisiana celebrate Tax Freedom Day earliest on March 26, the 85th day of the year. Connecticut celebrates last on April 27, the 117th day of the year. Joining Connecticut in the latest celebrations are New Jersey (April 25), New York (April 23), Maryland (April 19) and Washington (April 15). Alaska and Louisiana are joined in early celebration by Mississippi (March 28), South Dakota (March 29) and West Virginia (March 30).

For more information, go to http://www.taxfoundation.org/taxfreedomday.