Governor Carcieri says the state’s “extraordinary circumstances” require that difficult decisions be made.

The Journal / Connie Grosch

PROVIDENCE — Amid harsh criticism over the midyear budget-repair plan he unveiled on live TV this month, Governor Carcieri last week sat down with The Providence Journal to defend that proposal and offer his thoughts about the year ahead.

In a broad-ranging interview, the governor stood firm on his plan to cut local aid and sell state buildings as he tries to close a $357-million budget deficit.

“These are very extraordinary circumstances,” he said. “We’re just trying to see if we can get through. If this [economic crisis] is protracted, God knows what we will do as a nation.”

Hard times, he said, demand unpopular decisions.

Despite dire proclamations, Carcieri also raised the possibility that he might try to use some of the forthcoming Obama administration stimulus package money to cut taxes once the budget is balanced.

Should Rhode Island’s revenues fall further between now and the end of the fiscal year in June, the governor concedes that the state would need to use any federal cash to close that hole.

Obama has not yet rolled out the terms of that package, though reports indicate that Rhode Island could receive at least $125 million in direct assistance this year with more than $150 coming next year.

Carcieri has previously been on record saying the state should save that money to guard itself against a continuously sinking economy and loss of more state revenue. Now the governor says he’d also like that money go to changes in the tax structure.

“I hope we don’t need the stimulus money to plug the budget and if not, I’d like to see if there is some way –– that is if our revenues don’t fall off the table further — that we could use some of that money to actually phase in tax cuts,” he said.

Among the changes he’d like to see if Rhode Island can afford it: Reductions in the state’s corporate and estate tax rates and in the sales tax rate, which he’d like to drop from the current 7 percent to 5 percent, without broadening the tax base to include services and goods such as haircuts, movies and auto repairs as lawmakers have suggested.

He knows that’s a big if. By reducing the rate without extending the base, Rhode Island could stand to lose $200 million in revenue each year.

Carcieri says he will not make any changes to the tax structure until he receives a report from a panel he appointed that is analyzing the current system. That report is expected by the end of the month.

But those are long-term changes. Right now Rhode Island is so strapped for cash, Carcieri has proposed a midyear wipeout of $55 million in direct aid to cities and towns –– the entire allotment they were expecting –– as well as some $50 million in aid to local schools.

In the interview last week, the governor confirmed he won’t use the stimulus money to restore those cuts, notwithstanding the cries of mayors and municipal leaders who say the move would devastate their budgets, leaving them no choice but to scale back services and possibly raise taxes.

“I don’t buy for a minute that there’s nothing else that can be done at the local level to offset reductions,” Carcieri said.

What would he do if he were in their shoes? “I’d call in the [labor] unions [who represent teachers, police, fire and municipal employees] and sit with them and say we’re going to close city government one day a month, or something like that,” he said. “[Cities and towns] have options just like we’ve got options ... they have to sit with their unions and do the same thing we went through [at the state level] which is to say, ‘Look, either you help us or the only option is that we reduce the work force.”

Local leaders aren’t the only ones taking the Republican governor to task over his ideas for erasing the deficit. Responding to accusations from state lawmakers who say his budget relies on “one-time fixes and gimmicks,” Carcieri acknowledged he can’t champion crafting a spending plan he doesn’t necessarily favor.

“Yes, we’ve taken some one-offs that I don’t like to do, but these are very extraordinary circumstances,” he said.

Among the most heavily criticized of his plans is the one to sell three state-owned parcels in Providence and Cranston –– then lease them back –– to generate $16 million in short-term revenue. Lawmakers have blasted that proposal, saying it merely pushes the $16 million in debt into future years, a strategy the governor himself has long criticized.

A somber-looking Carcieri did not defend the choice. “Would I prefer not to do it? Yes I would prefer not to do it. But what’s the alternative right now? It’s either shut down state government [temporarily in the form of so-called furlough days], or more draconian personnel cuts or tax increases. I don’t think tax increases is the solution for any of us. I think that just gets us deeper in the hole,” he said.

Carcieri has long said Rhode Island’s biggest obstacle to fiscal health is its lack of economic development –– the right kind of economic development.

He reiterated his steadfast opposition to building a container port at Quonset, despite House Speaker William J. Murphy’s pledge last week to take “a comprehensive look at our underutilized assets to bolster job creation and grow our economy.”

“I’ve never been convinced that this would be a positive economic development for Rhode Island,” Carcieri said. The port, he said, would serve primarily as a storage area and a transportation hub that would do little to boost the economy.

“If they want to study it, fine. Be my guest,” he said. “I just know I’ve talked to all the major companies here and asked, ‘Will a container port benefit your business?’ They said no. Then you say, ‘OK, what does a container port do for the state or jobs?’ There’s very few jobs at a port today because they’re all automated. It’s truck drivers and trucks leaving the state because the stuff isn’t coming to Rhode Island, it’s coming through us.”

With his current-year budget repair plan now in the hands of the General Assembly, Carcieri will shift his focus this week to next year’s budget, which he has promised to unveil by Feb. 10, the day he will deliver his seventh State of the State address.

He’s not giving any hints about what to expect in that tax-and-spending package, but he concedes that it will be a preliminary plan that’s subject to change depending on the mood of the economy in the coming months.

“We are in extraordinary times,” he said again. “That was one of the reasons I went on TV because I don’t think people really understand how extraordinary the circumstances are that we are in.”

cneedham@projo.com