PROVIDENCE — Rhode Island had the highest percentage tax increase of any state last year, according to a report from the National Conference of State Legislatures.

But officials here say that statistic is misleading because it includes a hospital licensing fee that is not a broad-based tax increase. “This is a matter of methodology,” House Finance Committee Chairman Steven M. Costantino said Friday. “This really shouldn’t be considered a new tax.”

Because NCSL specifically asks each year whether states reinstated any taxes that were set to be phased out — and because Rhode Island considers the hospital licensing fee anew each year, rather than extending it indefinitely — it counts against Rhode Island each and every year, said Costantino, D-Providence. That fee brought in $72 million last year, and is budgeted for $78 million this year, but officials here said NCSL counts the entire fee amount as an increase.

The report lists Rhode Island as the only state in which tax collections grew more than 5 percent from fiscal 2006 to fiscal 2007, which ended June 30. (The report is missing data from five states that had not reported yet. NCSL plans to issue a final report early next year.)

Even setting aside the licensing fee, officials here said it would be reasonable to expect Rhode Island to fare worse than other states in the report. Of the 45 states that have already reported, 23 ended fiscal 2007 with surpluses equaling 10 percent or more of state general-revenue spending, due in many cases to higher-than-expected revenue receipts. Many states were able to increase their reserve funds — Tennessee, for example, by more than $200 million.

In Rhode Island last year, on the other hand, the budget process brought one piece of bad news after another. In November, flagging gambling revenues forced state fiscal analysts to trim $37 million from the amount video lottery terminals at Newport Grand and Twin River (the former Lincoln Park) were expected to bring in. In May, as officials were scrambling to finalize this year’s budget, they learned $80 million expected from a settlement with the insurer American International Group would not materialize.

The General Assembly plugged the hole in part through the sale of future rights to payments the state expects to receive from the 1998 settlement between states and tobacco companies. Originally proposed by the governor, the sale was budgeted to produce $64 million for last year’s budget and about $130 million for this year’s, out of a total annual budget of $7 billion.

It doesn’t appear the next budget cycle will be any easier. Right out of the box, fiscal analysts project a $300-million deficit if state spending continues at current levels and the state does not raise taxes or raise extra revenue by other means.

For other states, the boom times appear to be coming to an end. The NCSL report fingers fiscal 2006 as “the peak for state fiscal health this decade.” On average, the report says, the growth in state surpluses and higher-than-budgeted tax collections are slowing down.

The reason other states have been flush with cash, but Rhode Island hasn’t, has to do with how Rhode Island handled the lean times earlier this decade, says Gary S. Sasse, executive director of the business-backed Rhode Island Public Expenditure Council.

“When other states experienced fiscal downturns, they made the hard choices. They cut back on programs. They did things to keep their budgets structurally in balance,” says Sasse. “We did not make those tough choices here. We cut taxes, but we didn’t reduce spending. As a result, we became more dependent on non-recurring revenues,” such as those from the tobacco settlement and the insurance settlement.

Sasse points out that spending growth in Rhode Island is right on track with other states — 5.5-percent growth in state general revenue spending here from last year to this year, compared with a national average of 5.4 percent. But how Rhode Island spends its money is different, Sasse says. “Other states are investing more in education and infrastructure,” he says. “We spend more on entitlements,” programs where suggested cuts are inevitably divisive.

Everyone agrees that the governor and lawmakers will face difficult choices during the next budget cycle. “Have we solved the structural deficit problem? Not at all,” says Costantino. “We still have a long way to go.”

Rhode Island may see some good news in next year’s report, since the flat tax for the state’s top wage earners kicks in this year, and will show up as a reduction in income tax.

Some say it is a mistake for Rhode Island to be concerned about its rank in such reports.

Tax cuts and tax breaks such as the flat tax and Rhode Island’s historic tax credit can turn out to be “increasingly and unexpectedly costly,” and may necessitate cutting public services to the bone, says Ellen Frank, chief economist for the Poverty Institute at Rhode Island College.

Frank urges the governor and lawmakers to comb through the state’s tax code and examine all tax credits, exemptions and deductions with a critical eye. Those items “are a big source of lost revenue in the state,” she says.

But gubernatorial spokesman Jeff Neal says state officials should pay attention to how Rhode Island fares in national reports because the state’s ranking can drive business decisions that impact the state economy.

Misleading or not, Neal says, the report is “another reminder of how Rhode Island’s high-tax structure is bad for business and bad for growing jobs.”

egudrais@projo.com