While the exhaustive discussion covered dozens of contentious issues and ended at 1:49 a.m., most had been decided by Democratic leadership before the session began shortly after 3 p.m. the day before.

House Finance Committee chairman Steven M. Costantino announced at the outset that he had reversed a previous proposal to eliminate the office of the health insurance commissioner. He also said that charter schools would receive $1.5 million in new funding, a move strongly opposed by organized labor.

"No one likes to lose," said National Education Association Executive Director Robert A. Walsh, acknowledging that labor unions likely failed to convince lawmakers to support each of their budget priorities. "This has been a disappointing budget process to say the least."

In addition to charter schools and pensions, organized labor was the driving force to repeal, or freeze, the alternative flat tax to produce tens of millions of dollars for cities and towns. While a handful of mayors lashed out in recent days against the plan to cut $55 million from the general revenue sharing program, most had silently accepted the cut that was largely expected.

Freshman Rep. Scott J. Guthrie, D-Coventry, led a charge to restore funding for cash-strapped cities and towns. To do so, he suggested freezing the phase-out of the alternative flat tax, a tax break that benefited 2,267 high earners in 2007, according to the state Division of Taxation.

House lawmakers ultimately voted to keep the high-profile tax break that allows high income earners to forgo deductions, exemptions and credits in favor of a single flat-tax rate. But before the vote came what some described as the toughest debate of the night.

In tax year 2009, the flat-tax rate is scheduled to drop from 7 to 6.5 percent. If frozen at the current rate, the state could hold onto $12.2 million in tax revenue it would otherwise lose, according to the state budget office.

"I don't want to soak the rich...," Guthrie told fellow lawmakers. "I am asking them to sacrifice a little bit, like we have to sacrifice.''

"Politics is local. Don't forget." Guthrie continued. "I can go back to Coventry and say I fought for you... I hope you can go back to your communities and say you fought for them too.''

But Costantino said Rhode Island needs flat tax option to be competitive with its neighbors.

He called the flat-tax vote a "litmus test on where we want this state to go.''
"If we freeze it, it will never be unfrozen,'' chimed Rep. Michael Marcelo, D-Scituate, adding, "We can't run a state when more than half [the] state taxpayers make $30,000 or less. That is unsustainable.''

But Rep. Raymond Sullivan, D-Coventry, said: "Representative Guthrie has identified a revenue source for our cities and towns that are staring at the end of a loaded gun. For what...1,200 people that make over $250,000? With all due respect...This is about your community. This is about your backyards. This is about the services that the people, the taxpayers in your district have come to rely on."

PENSIONS:

Despite threats of lawsuits by the school teacher unions, the House endorsed a slate of pension cuts aimed at shaving a total of $55 million off the soaring taxpayer cost of providing pensions to more than 26,000 public school teachers and state employees, including new judges.

The final vote for the package was 50-to-24.

For reasons that remain largely unexplained, Costantino introduced - and won support - for a last-minute amendment exempting District Court judges from the new curbs the budget seeks to place on the pensions available to judges hired after July 1. When asked the reason, Costantino said: "They are in a different statute.''

At present, Governor Carcieri is evaluating five nominees for chief judge of the District Court, a list that includes four current judges, including Jeanne E. LaFazia, the wife of the chief of staff to the Senate majority leader, and Carcieri's own chief of staff, Brian Stern.

The package does not go as far or save as much money as plans proposed by either Governor Carcieri or a House study commission.

And none of the changes would apply to anyone already eligible to retire on Sept. 30.
But for others, the new rules governing age for retirement, benefit accrual rates and annual cost-of-living increases would take effect Oct. 1.

Under the new rules, the state would adopt age 62 as the new "target" age for retirement. It is a hugely complicated formula, but simply put: the farther away from retirement the employee is, the higher the age requirement.

For example, a state employee who started work at age 25 who could retire today at age 53 would have to wait until age 53 and three months.

The new plan would also key pension calculations - now based on a three-year salary average - to a worker's highest five-year salary average.

For new judges, hired after July 1, there would be a cutback in benefits from a maximum of 100 percent of pay for the longest serving judges to either 65 percent or 80 percent of their five-year average, depending on their age and years of work. Correctional officers and a cadre of state nurses who can retire at age 50 now, would have to work at least five years longer.

The House went along with Carcieri's plan to reduce the disability benefits paid workers who are not "permanently and totaled disabled'' from the current two-thirds of pay to 50 percent, on the assumption they can line up "other jobs.''

In one vote after another, the House rebuffed attempts to stretch the retirement age to 65, or avert any of the pension cutbacks by re-amortizing the state's pension debt, to avoid having to make any cuts now by stretching out the payments.

House leaders objected strenuously to both, with House Majority Leader Fox delivering an impassioned speech in which he said: "Now is the time for your to be profiles in courage, not to placate who is going to be supporting me with a campaign check in the next election, not worried about you may offend somebody."

HEALTH INSURANCE COMMISSIONER:

The House Finance Committee last week supported a plan to eliminate the job for the man currently overseeing health insurers' requests for double-digit rate increases.

Taxpayers could have saved $700,000 by eliminating the Office of the Health Insurance Commissioner, Chris Koller, folding his oversight duties into other state departments.

But House leaders changed their minds in recent days following a flurry of opposition.

"Upon reflection I think the House Finance Committee recognized there was a significant amount of public support on the issue," Koller said. In restoring his office, the Legislature called for a greater degree of accountability, a move Koller said he supports.

Deborah Ruggiero, D-Jamestown, introduced a successful budget amendment to formally save Koller's office.

"It is really the only scrutiny we have for small businesses and consumers like you and me," she said. "Prior to this office, the only way we learned about a health care increase is when we opened our bills."

EDUCATION:

Lawmakers voted, with very little debate, a plan to give Rhode Island's school districts roughly the same amount of state funding through a complicated formula involving heavy reliance on stimulus funds and future pension changes.

The biggest loss for schools is the elimination of $6.3 million in professional development money -- the state's entire contribution for that purpose -- used to help teachers and educators improve their skills.

Meanwhile, one of the biggest late-night debates came, as expected, over the last-minute inclusion of $1.5 million in funding for two new charter schools.

Critics questioned the intelligence of siphoning money from Rhode Island's already limping public school system to funnel to schools that will serve only a few hundred students.

"This chamber's obligation is to educate all students," said East Providence Republican John Savage.

But Fox, in an impassioned speech, urged his colleagues to give a new idea a chance, in the hopes it will create a model that can one day extend to other schools across this state.

"Is it going to help all the kids? No. And is that a little bit of a damn shame? Yes. But ultimately if you're get anywhere in a journey you have to take some first steps. And maybe this is the first step," Fox said.

TAXES AND FEES:

Legislators voted to raise the state's gasoline tax by 2 cents per gallon, after beating back attempts by lawmakers to divert big chunks of the new money to the cities and towns for things like pothole repairs, instead of giving it to the much-maligned Rhode Island Public Transit Authority.

The tax currently stands at 30 cents a gallon, though consumers already pay an additional one-cent environmental-protection fee at the pump.

Rep. Brian Kennedy, D-Hopkinton, labeled the budget proposal "somewhat offensive'' to people being asked to pay an extra 2 cents a gallon for public transit that is not available to them. He suggested that half of the $8.8 million in new revenue be directed to a municipal pothole fund instead.

Costantino said he "know(s) there are many concerns about the way RIPTA operates,'' with an oversight committee still looking at its pension plan and the number of administrators on its payroll. But without the new gasoline tax money, he said RIPTA, facing a potential $10-million deficit "will go right to service cuts.''

Kennedy's proposal went down 56-16 Wednesday night.

Rep. Lisa Baldelli-Hunt, D-Woonsocket, also sought to divert a portion of the money to cities and towns struggling to make do in the face of a $55-million revenue-sharing cut.

She said, "RIPTA's house is a mess. All we are doing is feeding a junkie.'' By contrast, "every dollar counts to every community in this state,'' she said.

Costantino said the revenue-sharing cut should not have come as a surprise to any community, after months of warnings. But Baldelli-Hunt said the money could do a lot more good at the local level, than at RIPTA, allowing her community, for example, to drop a fee on trash pickup.

But her proposal also met defeat, on a 54-20 vote, after House Majority Leader Fox said he did not disagree with her arguments, but that public transit is critical. "It's about people's mobility...It is about keeping the state moving,'' he said.

The budget also eliminates preferential treatment for taxpayers who profit from the sale of stocks, bonds and other such investments, generating an estimated $23.6 million for the state by treating all capital gains as ordinary income, according to House fiscal office projections.

In a small victory for the governor, the House increased the exemption for estates subject to Rhode Island's estate tax to $850,000, a number that would be adjusted in accordance with the consumer price index each year.

But the budget ignored Carcieri's push to cut the state's corporate income tax. While embraced by local businesses, the proposal would have cost the state $14.5 million in lost tax revenue next year.

Lawmakers also endorsed something dubbed the "Amazon tax," which would require residents to pay taxes on some Internet purchases, if the purchaser is referred by a local Web site. Following legal challenges in New York, it's unclear if the proposal will survive a legal challenge in the U.S. Supreme Court.

Regarding fees, lawmakers rejected a plan to increase fees on the criminal background checks needed for some job applicants, but imposed a $100 processing charge for criminals seeking to expunge their records, a hike that would generate $1.2 million in new revenues.

Another change would double the price of recreational vehicle beach permits to $100 for residents and $200 for nonresidents, and triple the cost of dock permits for oceanfront property owners to $1,500.

HUMAN SERVICES:

Lawmakers refused to go along with a number of cuts the governor proposed. They include preserving funding for Rhode Island's Pharmaceutical Assistance to the Elderly program, which currently offers reduced prices for prescriptions drugs to about 18,600 disabled and elderly residents.

It also maintains funding for dental services for 38,000 low-income parents enrolled in the RIte Care program and continues to pay subsidized health insurance for 28 moderate-income pregnant women slated to lose coverage. And an estimated 1,400 families scheduled to be cut from the state's cash assistance program next month will be extended for a year.

OTHER ITEMS:

*An across-the-board cut among all state departments of $58 million in unspecified state-only funds.
*A restoration of $1.5 million for the administration of school breakfast programs across the state.
*Lawmakers rejected the governor's plan to allow the police to pull over motorists exclusively for failing to wear restraints. The proposal would have made Rhode Island eligible for nearly $4 million in federal money.

NEXT STEP:

The Senate is set to vote on the budget plan Thursday afternoon, does not traditionally change the budget bill. It could be on the governor's desk by Thursday evening.

House Minority Leader Robert A. Watson challenged Governor Carcieri, a fellow Republican, to veto the bill.

"I will vote against this budget and I implore the governor to veto it," Watson said. "To sign this budget would be a political mistake. To let this budget become law without his signature would represent a failure of political leadership and an abdication of the philosophies and principles that got you elected.''

The governor, who watched the televised debate from his office until about 10:30 p.m., was not immediately available for comment.