The Governor's 2005 Budget

Mr. Speaker, Mr. President, members of the General Assembly, members of the judiciary, my fellow general officers, my family, distinguished guests, and my fellow Rhode Islanders

For the last three years we have spent a half billion dollars more than we collected in taxes. Let me repeat….That's an average of $185M per year.

How did we do that? We spent our surplus ($130M), we sold our tobacco settlement ($300M), and last year the Federal government gave us a one-time, $102M gift.

We've drained the cupboard bare, and the problem still exists. We now face a deficit of $192M in fiscal year 2005, basically the same as we've had for the previous three years.

Eliminating this deficit has been extraordinarily difficult. It has necessitated cuts that we have not had to face for many years. We have worked very hard to find solutions, but the choices are few.

The budget I submit to you tonight is based on three principles:

1. Spread the cuts fairly across all sectors of the community.
2. Look for new revenue opportunities, but do not increase broad-based taxes like the sales and income tax.
3. Investments for the future.

This budget matches spending to our revenue growth. We have cut over $92M out of the requests from state departments.

Seventeen departments and agencies will spend less money next year than they will this year.

The Fiscal Fitness Team found more than $37M - both new revenues and expenditure savings.

The team identified overall savings of $180M per year for the state when fully implemented.

Achieving that amount will take time - probably two years - a great deal of work, and the cooperation of this body and many others. But, the rewards are huge, $550M over the next 5 years.

Still, after doing this, our total spending will increase 2.2% and require us to find new sources of revenue.

Many major budget increases are largely out of our control.

The Department of Human Services and the Department of Mental Health Retardation and Hospitals will see the largest increase in the budget: a combined $64M. These increases are driven almost exclusively by increased medical inflation, higher caseloads in entitlement programs, and reduced federal assistance.

The Department of Administration budget will increase by the next largest amount, $23M. Nearly all of it, $22M, due to increased debt service payments and additional costs to maintain our buildings. Local municipal aid is level-funded.

The third largest increase in the budget is education. The Elementary and Secondary Education budget will increase by $11M, most of that for mandatory teacher retirement contributions and school construction costs.

The rest of state government is essentially level-funded or funded with less money than this year.

To solve this deficit we cannot raise our broad-based taxes. The people of Rhode Island are already too heavily taxed. Rhode Island has the 4th highest state and local tax burden in the nation. That's right - according to the Tax Foundation, taxes in Rhode Island are higher than those in 46 other states. In 1970 we ranked 32nd highest.

We must stop raising our taxes, and learn to live within our means. That's what our taxpayers are doing!

Our citizens are under financial pressure themselves. We cannot ask them to pay more! We cannot and must not raise the taxes that weigh down working families and chase away good jobs.

Last year, the General Assembly raised the sales tax on meals and beverages by an additional 1% - from 7% to 8%.

I opposed that tax and I ask this General Assembly to repeal it beginning July 1, 2005. This will give us sufficient time to allow further Fiscal Fitness savings and provide assistance to local municipal governments.

These taxes hurt our economy and they hurt working families. And the meals tax - paid equally by everyone regardless of income - is a regressive tax. Rich or poor, everyone pays the same meals tax. Let's begin to lessen the load of our onerous tax system. Start this year with the meal and beverage tax.

There is one tax that I do support however. According to most experts, the number one public health risk in America today is tobacco smoke.

Every year, second-hand smoke leads to 3,000 lung cancer deaths in this country, while complicating the medical conditions of tens of thousands more. I propose to increase the cigarette tax by $0.75/pack.

By increasing the tax, we raise revenue, while decreasing smoking. It's a win - win!
Finally, we need to do more to collect unpaid taxes. Currently, we project that we can collect $10M owed to the state by instituting a simple computer check of taxes and court fines. We will aggressively pursue those taxes owed to our state.

The sobering reality is that we cannot close this deficit without cutting spending across all of state government.

The plan asks everyone to share the cuts: state employees, human service programs, local governments, capital projects, community organizations, businesses and yes, even the General Assembly and the Governor's Office.

Let's begin with the last two. I propose in my budget that the Governor's contingency fund be cut in half and that the General Assembly's legislative grant fund also be cut. This will save $1.75M.

We have also begun the process of addressing state employee health care costs.
As of July 1 of this year, all non-union employees will receive a 2% wage increase. At the same time, they will begin contributing 7% of the cost of their health insurance premiums. Massachusetts state employees pay 15% of the cost of their health insurance premiums. The average contribution for private sector workers is 16%. It's time, and it's fair. As we negotiate our labor contracts this year, I expect that our union employees will be on a similar plan.

Unfortunately, resolving this deficit has meant finding cost savings in our human services programs. They make up about 40% of the entire general revenue budget - over $1.1B next year. These programs are also growing faster than the rest of the budget.

The choices of program reductions here are extremely difficult, and I make them with a heavy heart.

The generosity of Rhode Islanders is evident in these programs. Our Rite Care program for children and mothers is a national model.

More children are covered by health insurance in Rhode Island than in any state in the nation. That is an important achievement, and I propose no programmatic changes to Rite Care.

Our welfare to work program is also one of the most generous in the nation. While many states allow welfare recipients only 24 months of cash assistance benefits, Rhode Island provides 60 months of benefits, the maximum allowed under Federal law.

Our child care subsidies are also generous and costly. Spending on child care subsidies has increased 162% in just five years.

This year, taxpayers will spend $82M on this program, an increase of $51M in just 5 years.
We will continue to support these programs. But, we also must find ways to slow their costs.
Every program can be made more efficient. And, we owe it to our taxpayers to continually review all our programs, compare them to other states, and ask ourselves if adjustments should be made.

One area we identified is to increase accountability in our welfare program. Employment is a key component of family independence.

To encourage employment, we will increase the penalties for people who refuse to follow job search rules.

Our childcare program costs are among the most rapidly increasing of all in our state budget. This budget proposes targeted changes to the co payments made by families and the income eligibility requirements.

These are not things that I do lightly. Even with these changes the cost of all human service programs will increase by $54M, an 8.5% increase.

Even with this difficult budget year, we must find ways to invest. Although we do not have the luxury of making ambitious commitments to large new programs, we can make a few targeted strategic investments in key areas. I'd like to focus on education, job growth, and capital improvements.

Elementary and Secondary Education spending will increase under my budget by $11M to a total of $774M next year. This increase is the third largest departmental increase in my budget plan.

The budget fully funds public charter schools and the Metropolitan School in Providence. It is important to remember that these public schools serve overwhelmingly urban communities - 80% of children in our ten charter schools live in Providence, Pawtucket, and Central Falls. 79% are minority students.

The achievement results from these schools are clear: children who attend charter schools that have been given time to develop perform very well. We are giving our parents a valuable choice.

I also propose continued investments in higher education. Last year, we doubled need-based scholarship support. I can report to you that the increase is a huge success. We have increased the average award from $600 to $1,100, and we have helped nearly 800 additional students. This budget maintains that investment.

I propose that we continue on the same path towards good jobs. This budget:

1. Maintains funding for the Slater Centers;
2. Continues the economic and community development fund at EDC. This has helped 23 communities begin new local economic development projects;
3. Includes $1.5M in seed capital enabling our universities to attract three million dollars in new National Science Foundation research funds;
4. Proposes a new tax incentive program - called the "Creative Companies Act" - aimed at attracting ambitious entrepreneurs to Rhode Island to found new businesses;
5. Having reviewed the effectiveness of our tax incentives, I propose eliminating five of them. Together with other tax law changes, this will save $11.5M.

Let me briefly discuss a few additional investments that we must make:

• I propose additional staffing for the State Fire Marshall which would provide the Marshall with the support he needs to enforce our new Fire Safety Code.
• I propose a new trooper class for the State Police. We have not graduated a new class of trooper since 2000.
• I also propose a new class of 65 correctional officers. These are necessary public safety investments.
• Further, I propose that we continue to collect data on racial profiling by law enforcement agencies.
• Finally, I propose that we continue to fund affordable housing. We are now in the third year of a ten-year plan to build 1,000 new affordable housing units through the Neighborhood Opportunities Program.
• Actually, the program has exceeded its goal of creating 100 new units each year. That is why I propose another $5M for that vital effort.

In addition, I am putting forward a package of bonds to be submitted for voter approval this November.

I am proposing $60M in new bond money to protect open space and farmland; to preserve land vital to our drinking water supplies; and to continue the work of cleaning up Narragansett Bay. Last summer's fish kill was a wake-up call that we cannot ignore.

We must also invest in a long-ignored state asset: Quonset Point. This year I ask you to put before the voters a bond referendum for $50M to transform Quonset into a modern industrial site capable of producing thousands of good jobs.

My capital improvement strategy closely ties economic development to our higher educational institutions. That is why we are proposing a $50M investment at the University of Rhode Island to build a new Center for Biotechnology. It will be a world-class research facility that will provide both exciting new educational opportunities for students, as well as a stimulus for our growing biotech economy.

I know there are some difficult choices in this budget - some things we would all prefer not to do!

We have tried to spread the burden, and ask everyone to make sacrifices. If our May revenue estimates improve, I am prepared to revisit some of these cuts.

I pledge to work closely with the legislature on this budget. These are difficult times and it is more critical than ever for us to work together. I want the same things that you do - a state that is prospering, generating good paying jobs, giving our children a first-rate education, and assisting those that need our help.

I know many of you are asking, "Why is this necessary?" The truth is, as I've said earlier, we have been living beyond our means for several years. We can no longer!! We are at a critical juncture in our great state. If we face the difficult decisions now, we will chart a robust future.

These are not partisan issues, it's about doing the best job we can for all our citizens.

Let's join together and show the citizens of our state that they can be proud of their government!!

Ladies and gentlemen, an exciting future is within our grasp - but we must be willing to grasp it.

Thank you. God bless Rhode Island and God bless the United States of America.

Governor Donald L. Carcieri today unveiled his legislative agenda for 2004. The Governor submitted 18 pieces of legislation designed to address statewide issues such as gambling, ethics, health care, homeland security, the environment, and economic development.

“As I said in my State of the State address, the four pathways to Rhode Island’s future prosperity are good government, good schools, good jobs, and a good place to live,” Governor Carcieri said. “The bills that I have submitted to the General Assembly this year attempt to address these four fundamental issues.”

Good Government:

Governor Carcieri: “We must begin to provide good government by getting our fiscal house in order. We can begin to make state government more accountable for tax and spending decisions by requiring super majority votes on all tax increases, by instituting a line-item veto, and by capping the rate of growth in the state budget.”

“Good government is also ethical. I have proposed the creation of a Select Commission on Public Integrity to review our state’s ethics system, and to make recommendations on how to encourage compliance with the highest ethical standards.”

Tax & Spending Accountability Act: This legislation would provide increased accountability for state spending and taxation decisions. It includes three provisions:
Tax Super Majority: The bill requires that any tax increase would require the approval of two-thirds majority. Under current law, a tax increase could be buried within a much larger bill and pass by a simple majority.


Budget Line-Item Veto: The bill also includes a referendum to amend the Constitution to grant the Governor a budget line-item veto.


Constitutional Spending Cap: The bill also includes a referendum to amend the Constitution to prohibit state spending from exceeding the three-year average annual percentage increase in personal income growth.



Select Commission on Public Integrity: The Select Commission on Public Integrity would examine Rhode Island’s current ethics system, and make recommendations designed to improve public confidence.


Greyhound Subsidy Elimination Act: This bill would eliminate the 3.4% share of the video lottery terminal proceeds that is currently paid to the kennel owners at Lincoln Greyhound Park.


Municipal Health Care Provider Choice Act: This legislation would mandate that no collective bargaining agreement covering any group or groups of state employees, public school teachers, or employees of any city or town may specify that an employer must procure a health care benefit plan from a specific provider.


School Budget Arbitration Act: This legislation is designed to provide municipal governments with increased control over local school budgets. Specifically, this legislation would establish an arbitration process to resolve disputes between local school committees and municipal governments in setting school budgets.


Municipal School Contract Control Act: This legislation would require any collective bargaining contract entered into by the school committee to be ratified by the city or town council.


Judicial Nominating Committee (JNC) Reform Act: This legislation would provide the Governor with greater flexibility in nominating judicial candidates by increasing the pool of potential candidates. Specifically, this legislation would amend the judicial nominating process to permit candidates submitted to the Governor by the JNC to remain eligible for selection by the Governor for five years (provided that there is no material change in their status that would affect their eligibility). The act would also remove the present limit of five names that the JNC can submit to the Governor for each judicial opening.

Good Schools:

Governor Carcieri: “We must provide good schools by increasing educational opportunities for Rhode Island children. To do this, I am proposing to eliminate the artificial limit on the number of charter schools in each district.”

Charter School Choice Act: This legislation would eliminate the current artificial cap on the number of charter schools in each school district. State law currently limits the number of charter schools to twenty throughout the state, and to two for each school district (except Providence, which serves more than 20,000 students). Rhode Island currently has 10 charter schools, enrolling approximately 1,700 students. This bill would allow additional charter schools to be established in each district based on actual demand.

Good Jobs:

Governor Carcieri: “We must encourage economic growth and the development of new jobs by attracting new businesses, supporting the growth of entrepreneurial companies, and redeveloping the Quonset/Davisville Commerce Park into a destination of choice.”

Quonset Davisville Management Act: This legislation provides that the Quonset Point/Davisville Port and Commerce Park be governed by a board of directors with the powers to directly manage the affairs and assets of the park. The seven-member board would include representation from the towns of North Kingstown and Jamestown, and would be chaired by the executive director of the Rhode Island Economic Development Corporation.



Human Resources Investment Council Restructuring Act: This legislation would restructure the Human Resources Investment Council to optimize its ability to assist in the creation of jobs throughout Rhode Island.


Surplus Property Optimization Act: This legislation would provide the Economic Development Corporation (EDC) with the right of first refusal on real estate that is being disposed of by other state agencies. This will allow EDC to market these properties to companies and businesses wishing to relocate.


Rhode Island Tourism Development Corporation Act: This legislation is designed to help Rhode Island market itself as one of the best year-round tourism destinations in America. Specifically, this act would create the Rhode Island Tourism Development Corporation (RITDC) to coordinate the state’s tourism promotion efforts and to oversee the expenditure of funds generated through the state hotel tax. This act also directs a portion of the hotel tax to RITDC for use in statewide tourism promotion efforts, and places all tax collection responsibility with the Division of Taxation.

The RITDC will develop a tourism guide plan to: increase the number of tourists visiting Rhode Island; increase the per person expenditure of visitors; establish accountability measures for all organizations receiving state funding for tourism programs; encourage cooperation among all state tourism organizations; and secure predictable funding of tourism organizations.



Creative Company Act: This legislation is designed to encourage the establishment of entrepreneurial companies in Rhode Island. Specifically, this act would allow the Economic Development Corporation to grant capital gains tax exemptions for investors, owners, and managers of companies achieving significant growth in Rhode Island. To qualify for the incentive, a company must create and maintain at least 200 such jobs or $10,000,000 in Rhode Island payroll. No more than 20 companies per year may be granted tax exemptions.

Good Place to Live:

Level Playing Field Casino Act: This legislation is designed to create a level playing field between Rhode Island’s current gaming facilities and any potential casino. This bill would require any new casino to provide the state with the same share of its revenues that we currently receive from Lincoln Greyhound Park and Newport Grand. The state currently receives sixty percent of the video lottery terminal revenues at Lincoln and Newport.


Casino Dual Ownership Act: This legislation is designed to prevent any one company from owning more than one gaming facility in the State of Rhode Island. This measure would prevent a single owner from establishing a casino, purchasing Lincoln Greyhound Park or Newport Grand, then intentionally siphoning customers to the casino, where they hope to receive a lower tax rate.


Health Care Tort Reform Act: This legislation would provide effective health care liability reform designed to improve access to health care services; reduce the incidence of "defensive medicine"; ensure fair, prompt and adequate compensation for meritorious claims; and reduce the time necessary to resolve liability claims. The bill is also designed to reduce the rate of cost increases in medical malpractice insurance, which often force physicians to limit or abandon their practices. Specifically, this act would cap non-economic damages at $250,000 per claimant; and reduce the rate of prejudgment interest assessed on malpractice awards from 12 percent to between 5 and 8 percent per year.


Homeland Security Act: This legislation is designed to strengthen Rhode Island’s homeland security statutes by sanctioning the possession, manufacture, use, or threatened use of chemical, biological, nuclear, or radiological weapons, as well as the intentional use or threatened use of industrial or commercial chemicals as weapons.


Cesspool Elimination Act: This legislation would protect Rhode Island’s clean water resources by phasing out the use of high-risk cesspools. Approximately sixty thousand cesspools existed within the state as of 2004. Cesspools are an inadequate means of sewage treatment and disposal, which contribute directly to groundwater and surface water contamination, and have been identified as a significant source of pollution in portions of Narragansett Bay. This legislation would phase out high-risk cesspools by 2020.