House Finance Chairman Steven M. Costantino (right, with Rep. Arthur Corvese, left) says of Governor Carcieri’s plan to cut 1,000 state jobs: “It’s not that I am skeptical. I just want to make sure the numbers are real.”

The Providence Journal / Ruben W. Perez

PROVIDENCE — Most years, the governor doesn’t consider cutting health care for 10,000 children, the Democratic leaders of the General Assembly do not hail “pension reform” as a top priority, or talk openly about turning the state’s slot parlors into full-fledged casinos.

But 2008 will not be like most years.

Legislators return to the State House Tuesday, facing a potential $151-million deficit in the current budget year and an unprecedented $450-million the next. Digging out of this mess will dominate the session. Already state leaders at the highest levels have suggested slashing health-care programs, transforming the state’s pension system for new employees, freeing nonviolent inmates from the state prison, and freezing local education aid.

The legislature and the governor promise no tax increases. Legislative leaders repeat: “Everything [else] is on the table.” Interest groups fear the coming session will be “the worst in decades.”

Lawmakers are even considering leasing the Newport and Mount Hope bridges and selling the state lottery — ideas that might sound outlandish were other cash-strapped states not also considering them. Rhode Island hasn’t had a fiscal dilemma of this magnitude since the credit union collapse of the early 1990s.

“It is the issue,” Governor Carcieri said in an interview last week. “I vetoed most of the budgets because I said this day was coming. It’s here.”

The General Assembly’s members, $13,508-a-year part-time politicians who work as lawyers, teachers, police officers, insurance salesmen and restaurateurs, are required by law to report to the State House on the first Tuesday in January, which this year falls on New Year’s Day. With only five Republicans in the 38-member Senate, and 13 in the 75-member House, Democrats still hold hugely lopsided numbers in both chambers. The Assembly opens at 4 p.m. Don’t expect a slow start this year.

In the first week alone, House Speaker William J. Murphy has promised to launch studies on public employee pensions and the possible development of the Quonset-Davisville seaport, a proposal cited by the AFL-CIO as its top priority this year.

The House Finance Committee plans a hearing Thursday on the status of Republican Carcieri’s efforts to eliminate 1,000 state jobs by July 1, to lay the groundwork for saving $100 million next year.

“It’s not that I am skeptical. I just want to make sure the numbers are real,” said House Finance Chairman Steven M. Costantino.

And with six vacant judgeships in the state courts — including three in District Court and one each in the Superior Court, Family Court and Workers’ Compensation Courts — the Senate, which has responsibility for confirming judges, will have its hands full. The governor has promised nominations “early in the next legislative session.”

Meanwhile, the governor and lawmakers are already warning municipalities not to expect additional school aid.

“I’m worried that they might actually cut state aid…. I don’t know whose ox is going to be gored,” said Marcia Reback, president of the Rhode Island Federation of Teachers and Health Professionals.

But lawmakers are also willing to spend money. Murphy, for example, will push for a long-sought legislative dream: a movie studio in Rhode Island to boost Hollywood’s presence in the nation’s smallest state. Even in a rough budget year, he says, the studio may be worth the investment.

Carcieri is concerned about illegal immigration, and wants a law to require schools and hospitals to ask for proof of citizenship — part of an effort, he says, to collect data on whether Rhode Island is a “magnet” for illegal immigrants.

And once again, a legislative session is beginning under the pall of the sprawling State House influence-peddling probe, known as Operation Dollar Bill, which has already snared two former legislative leaders. Earlier this month, U.S. Attorney Robert Clark Corrente said the probe continues “actively and on a number of fronts.”

“People are just sick of this culture in which legislators take money from entities,” Corrente said.

Among those known to have attracted federal interest are: former Senate President William V. Irons, current Senate President Joseph Montalbano and Senate Finance Chairman Stephen Alves, Sen. Daniel DaPonte and former state senator and Blue Cross lobbyist Thomas Lynch. Investigators have also asked questions regarding the relationship of two state representatives, John DeSimone and Robert Flaherty, to the Beacon Mutual Insurance Co.

“I know that every senator that I’m aware of that has been asked questions has cooperated with the investigation,” Montalbano said.

HERE IS a preview of some of the key issues up for debate:

GAMBLING:

Legislators took a one-year break from the perennial debate over casino gambling after the decisive 63-percent to 37-percent defeat by voters in November 2006 of a proposal to change the state Constitution to specifically allow a Harrah’s-financed Narragansett Indian casino in House Speaker Murphy’s hometown of West Warwick.

But now, with Massachusetts Governor Patrick proposing three casinos in his state, some Rhode Island lawmakers are pressing for round-the-clock gambling. Murphy has gone a step further.

He has opened the door to the possible placement on the 2008 ballot of a proposal to allow table games at the state’s two slot parlors: Newport Grand and Twin River in Lincoln, which also has a greyhound track.

In putting together this year’s budget, lawmakers counted on $339.7 million from the state Lottery, including a projected $222.2 million from Twin River and $48.9 million from Newport Grand. The remaining $68.6 million comes from other Lottery games, such as Keno and scratch tickets.

Murphy says: “I am worried…. I think we should be in front of Massachusetts by maybe going back to the voters” and letting them decide “whether or not our two facilities here should become full-fledged casinos. Nobody has approached me yet on that, but again, I don’t want to have to follow Massachusetts and then say we told you so.”

And Carcieri — who vehemently opposed the proposed West Warwick casino — does not “have a problem” with round-the-clock gambling at Twin River, and does not object to asking voters if they are willing to allow full-scale gambling at Twin River and Newport Grand, which already have the state’s blessing to install up to 6,853 electronic slot and blackjack machines.

“Personally, I’m not a fan of gambling,” Carcieri said. But, “the voters can decide what they want to do. I may have my own personal feeling, but it’s up to the voters at the end of the day.”

Montalbano, D-North Providence, isn’t keen on the idea and doesn’t see Massachusetts as an immediate threat. “Unlike Speaker Murphy, I’m not at all convinced that this will be the year that something should be on the ballot,” he said. “We’re coming off a referendum where the people clearly said statewide that they weren’t interested in having a casino in West Warwick. My guess is a lot of the reasons that that ballot question went down would still apply today.”

And Montalbano noted that Twin River’s owners — who include some of the same executives bankrolling the Mashpee Wampanoag’s casino drive in Massachusetts — are not pushing for a full casino here. “I have in the last year been in their company several times,” he said, “and they have never advocated that to me personally up to this point.”

But he left the door open. “I would not block it. I wouldn’t vote against it.”

IMMIGRATION:

Illegal immigration has already sparked dueling pre-session news conferences from those seeking to close the doors to public benefits and private employment for “illegal aliens,” and those on the opposite end of the spectrum who do not believe the police should have the right to question a driver’s immigration status.

Carcieri plans to push legislation blocking illegal immigrants from collecting workers’ compensation (“You’re not even supposed to be here working,” he says) and requiring hospitals and schools to collect information on the immigration status of those they serve because “there’s a big hidden cost in the health-care system. There’s a big hidden cost in the schools.” Steven Brown, executive director of the Rhode Island affiliate of the American Civil Liberties Union, expects a barrage of “anti-immigrant” bills, but says there are legal barriers to asking students and hospital patients to prove their immigration status.

“Any attempt to collect information on a child’s immigration status can only be seen as an effort to intimidate families from exercising this right [to public education],” Brown said. “It’s the same with hospitals.… Its only purpose, or certainly its only effect, would be to discourage individuals who need emergency treatment from seeking it.”

Carcieri also wants the legislature to make English the official state language, to get immigrants “speaking English as soon as possible.”

EDUCATION:

Cities and towns are being told: school aid may be cut or, at best, frozen at this year’s levels.

“The likelihood of any increase is pretty low,” Carcieri said.

“We don’t want to be too dire in our predictions, but we’re saying [to school districts]: ‘Be prepared. There may be a decrease in funding,’ ” said Tim Duffy, executive director of the Rhode Island Association of School Committees.

Equally frustrating to educators — and some lawmakers — is that the state is unlikely to make any progress this year toward adopting a school-aid formula, which they have long said would bring both order and parity to the way school systems are financed.

A report issued last spring by a General Assembly-appointed advisory group predicted that a new formula could cost taxpayers as much as $600 million over several years. A second report from an ad hoc group of educators predicted it would cost about a third of that.

“We need a better system, there’s no question,” Carcieri said. “But right now all the discussion of the funding formula says we need to come up with more money. That’s a moot issue right now.”

Absent any new money, the House GOP’s top priority this year is relief for the cities and towns from General Assembly-imposed mandates on how they spend their school money. “Perhaps,” said House Minority Leader Robert Watson, R-East Greenwich, “it’s time we waive mandates we at the state level are not prepared to fund.”

TAXES:

To avert the projected $450-million budget deficit in 2008-2009, lawmakers can raise taxes, cut spending or both.

But, “At this point, I am not in favor of increasing any taxes,” says Murphy. The governor and Montalbano agree.

State leaders will not rule out raising the $2 toll on the Newport Bridge and taking steps similar to those other states are exploring, such as selling or leasing state bridges, the Lottery and the Convention Center to private investors. Last week, the state treasurer’s office confirmed that it had been approached by representatives from three major investment houses — Goldman Sachs, the Carlyle Group and UBS Paine Webber — with proposals to do all three.

“For me the devil is in the details on any of those items,” said Costantino, who is reluctant to support “any deal that ultimately is a one-time revenue source.” He also worries about “protection of those assets.”A hike in bridge tolls is a better bet: “I know the residents of Aquidneck Island won’t be pleased, but again that’s something that we have to look at,” Murphy said.

Advocates for the poor have suggested the state raise its recently reduced capital gains tax and reverse the tax break provided the state’s highest wage earners through the adoption of a new flat tax, which will cost the state more than $30 million in tax revenue next year.

The first idea hasn’t gotten much traction among legislative leaders. “At this point I am not open to it, unless somebody convinces me otherwise,” says Murphy. But with respect to tinkering with the capital gains tax rate, Costantino said: “It’s the one area where we are better than Massachusetts… so I’d rather not comment on that at this time.”

Once again this year, the lawmakers are promising to take a closer look at millions of dollars in tax credits the General Assembly has bestowed on select businesses and industries and, in particular, the historic tax-credit program.

That tax-credit program, launched in 2002, will cost more this year than it ever has: the state expects to distribute credits worth an estimated $95.4 million in tax revenue to encourage property owners and developers to spruce up and revitalize dilapidated buildings across Rhode Island.

House Majority Leader Gordon Fox was a driving force behind the credit: “It’s always been like how much of a tax credit can you offer and still have the type of investments that we have seen.…”

Until now, Fox said the lawmakers felt there were other ways to balance the budget “without digging deeply into the tax-credit program,” but “I don’t think we’re going to be able to get there again.”

By mid-January, state leaders also hope to see the results of a study they commissioned of how much more the state’s 7-percent sales tax might yield if it were expanded into exempt areas such as financial services, high-priced clothing and entertainment. Their long-stated goal: to raise enough new money to reduce the rate.

PROGRAM CUTS:

Carcieri has pledged to eliminate 1,000 state jobs by July 1, which includes hundreds of temporary contract workers and vacancies.

While he has sent out only about 150 layoff notices so far, he says the plan will save $100 million. That leaves much more to cut to close a $450-million deficit.

Carcieri won’t unveil his specific budget for the coming year until late January, but his department heads have proposed changing eligibility standards to cut nearly 18,000 Rhode Islanders — including 10,000 children — from RIte Care, the state’s health-care system for low-income people.

The plan would require General Assembly approval. And there is already considerable opposition.

“I cannot think of any economic justification, be it state budgetary or our actual economy which is so dependent on our hospitals, or as a matter of public policy that we should take that step,” said Senate Majority Leader M. Teresa Paiva Weed. “It’s short-term savings with long-term costs.”

Other cost-cutting proposals would impose new co-pays for low-income families; reduce reimbursement rates for hospitals, nursing homes and childcare providers; cut state money for Head Start programs and eliminate welfare benefits for an estimated 1,600 people.

“Is that the kind of state we want where we have an even greater divide between the haves and have-nots?” said Karen Malcolm, executive director of the advocacy group Ocean State Action.

PRISONS:

The surge in the prison population has once again spurred talk of “prison reform,” which last year translated into proposals for letting prisoners out early and reducing the number of people jailed for nonpayment of fines. Prison officials have revived “good behavior” proposals to reduce the prison population by about 350 inmates.

“We are growing at an alarming rate,” Costantino said. The prison population peaked at 4,000 this fall, and is expected to average almost 4,150 next year, according to the Department of Corrections. “We have a prison that on any given day has a lot of people sitting in prison because they owe costs and fines. I think that has to be revisited,” Fox said. “Hard-core people deserve to be incarcerated; but there’s got to be some way to deal with lesser offenses.”

“You always get in trouble when you do this because it looks like you are going to free prisoners on the street…, but I think we’re long past the days that we’re just going to build another prison to warehouse people,” Fox said.

MOVIE STUDIO:

While most of the debate over the next six months will center on cost cuts, Murphy is willing to spend money to create a movie studio in Rhode Island “at the Armory or anywhere else.”

The General Assembly’s courtship of Hollywood began with the passage of movie and film tax credits that last year cost the state $24.9 million. Murphy says Rhode Island needs “to get ahead of the curve again” now that Massachusetts has expanded its own tax credit law to make the Bay State more competitive.

Responding to legislative inquiries, Marco Schiappa, the state’s director of facilities management, recently put together a fact sheet on the 175,600-square-foot Armory, used mostly for storage, though the state fire marshal occupies 18,720 square feet.

In all, Schiappa estimated it would cost $25.2 million if the unoccupied space were renovated into “Class A office space” and another $9.65 million to make needed exterior repairs. “If this is a way for us to keep this industry here in Rhode Island, it is something I want to look at,” Murphy said.

ECONOMIC DEVELOPMENT:

Murphy wants to study the potential for turning the Quonset-Davisville port into a container cargo port, an idea Carcieri opposes.

The idea has been studied many times before. “We’re not fixed on the idea,” but “many people have told us that Quonset would be a great full-scale container port so we’re going to see if that’s something feasible and if it is, and we can increase jobs in the state of Rhode Island, we will. If it’s not, we won’t,” Murphy said.

AFL-CIO Secretary-Treasurer George Nee hails the study as one of his labor organization’s top priorities. “We have an asset; we’re just not taking advantage of it.”

Sometime this spring, Murphy said he and Senate President Montalbano intend to tour ports in Alabama, South Carolina and Georgia to see how they work.

Costantino said the state must take advantage of the few opportunities it has.

“Just think about this. I say this all the time ... here we have this 30-by-40 state, which is really 15-by-20 because we’ve got so much open space that we can’t develop, we have an airport that no one wants to expand, we have a port that no one wants to develop, and yet we want to grow jobs….”

PENSIONS:

One area where there is already agreement between Carcieri and key lawmakers is on the need for “pension reform.”

Both Carcieri and Murphy support a switch from a defined benefit pension plan, in which retirees are assured specific payments after retirement, to a defined contribution plan, such as a 401(k), for new employees.

Murphy plans to convene a study group to weigh the options, with an eye toward passing legislation.

Despite efforts to rein in spiraling pension costs two years ago, the state’s share of the pension bill for teachers alone is expected to soar from $80.2 million this year to a projected $94.8 million next year, and for state employees, from $135.6 to $148.2 million, according to the state budget office.

Murphy said his primary goal is to bring down the so-called “unfunded liability” (currently estimated at $4.9 billion) for the pension commitments the state made to teacher and state workers in rosier times.

It’s unclear how the state would pay for the transition to a “defined contribution” pension system that models the private sector. An actuarial report released in the fall found that the shift could cost an additional $151.5 million next year and more than $520 million over the next seven years before the state saw any savings.

In past years, lawmakers rejected proposals that would use pension-obligation bonds to pay soaring retirement costs at the state or local level. Costantino’s reaction hasn’t changed: “Very dangerous.”

GAY MARRIAGE:

Some issues are perennial, such as the drive for same-sex marriage.

But a recent Supreme Court decision has led some high profile advocates, such as Fox, to limit their goals. Even if gay couples can’t marry in Rhode Island, Fox wants to remove the legal roadblocks so a couple married in Massachusetts, the only state where same-sex marriage is legal, could divorce in Rhode Island. The Rhode Island Supreme Court recently ruled against same-sex divorce.

Said Fox in a recent interview: “If they lived here for one year before they filed their divorce, the court has the jurisdiction to hear the divorce. That’s the way the State of Rhode Island should be. The last I heard, Massachusetts was a state within the United States, and we should give them full faith and credit.”

cneedham@projo.com