House Finance Committee Chairman Steven Costantino, center, talks with fiscal adviser Michael O’Keefe, left, as committee member Rep. Peter Lewiss listens in. The Providence Journal / Connie Grosch

PROVIDENCE — The General Assembly unveiled a $6.89-billion spending package yesterday that largely avoids tax increases, relying instead on tens of millions of dollars in state employee savings, Medicaid cuts and the removal of thousands of people from state health and welfare rolls to plug the worst budget deficit since the credit union crisis of the early 1990s.

The legislative budget proposal would also cap the state’s movie production tax credits, hike the fines for driving violations by $10 across the board and raise a premiums tax paid by the state’s major health insurers — including Blue Cross & Blue Shield of Rhode Island, UnitedHealthcare and Delta Dental — with no guarantee they won’t pass the $5.6-million hit along to their subscribers.

“Considering what they could have done,” David R. Carlin III, chief lobbyist for the Rhode Island Chamber of Commerce Coalition, said, “this budget represents a victory of the taxpayer … who at the beginning of this legislative session were facing the possibility of tax increases and new taxes across the board.”

The budget, which was approved by the House Finance Committee yesterday, mirrored most of the Republican governor’s plans to close a massive deficit, now estimated at $425 million for the budget year that begins July 1. While not yet fully clear, the deficit-reducing plan relies heavily on $90 million in personnel savings and $67 million in reduced Medicaid spending for low-income, elderly and disabled Rhode Islanders that are still being negotiated.

There was some welcome news in the 254-page budget bill. The legislature reversed plans to close the West Warwick Registry and added $13.6 million in education aid to cities and towns.

But there was plenty of unwelcome news as well.

The committee froze non-school money at recently reduced levels, cut $17 million from the state’s three public universities and $2.6 million from the agency that gives need-based college scholarships.

“The only silver lining in the dark clouds of this budget is the fact that further cuts weren’t made,” said Daniel Beardsley, executive director of the Rhode Island League of Cities and Towns.

On the human-services side, the cuts could have been deeper.

The House plan cuts subsidized health-care benefits for around 1,000 low-income adults, and eliminates the early childhood education program Head Start for around 300 poor children. But the governor had proposed cutting 400 Head Start slots and health care for more than 7,400 adults.

“Clearly the committee had done some significant work to attempt to avoid the train wreck on moderate- and low-income families in Rhode Island, but it is a half-hearted attempt at truly sharing the pain,” said Karen Malcolm, executive director of the labor-backed advocacy group Ocean State Action, which lobbied hard to block tax breaks that favor high earners. The House did not change the taxes.

Further, Malcolm called into question some of the savings in the budget plan.

Both House Finance Committee Chairman Steven M. Costantino and administration officials have previously questioned whether the state can save $67 million in the coming year by applying sweeping changes to Medicaid programs that require federal approval. Many changes, including whether to pursue a “global Medicaid waiver,” have yet to be ironed out.

“There’s a lot of smoke and mirrors,” Malcolm said. “They’re booking some savings that it is difficult to believe will be achieved. … It’s really pushing off the real hard decisions until they reconvene [next year] and have to deal with it.”

But the governor was generally pleased.

“The House Finance Committee vote is a very good start,” Carcieri said. “For the first time in recent history, Rhode Island is on track to spend less next year than was originally approved for this year. We are reducing spending in order to balance the budget, while holding the line on broad-based tax increases and implementing important policy reforms.”

Indeed, at $6.892 billion, the proposed budget is $3.4 million higher than Carcieri proposed earlier this year, but smaller nonetheless than the $6.977 billion spending plan lawmakers approved at this time last year.

The full House is expected to vote on the plan next week. It would then require Senate approval. Some lawmakers believe they may adjourn for the summer as soon as next Friday.

Some of the highlights include:

School, local aid

Cities and towns had long ago resigned themselves to seeing their state aid level funded at this year’s reduced amounts after a $10-million midyear cut. With little discussion, the committee voted to do just that.

But there was good news for local communities, which would receive up to $13.6 million in new revenues from overnight gambling at Twin River.

Each district will get extra money in the same proportion as it receives education aid each year. Providence will garner the greatest share of new cash — up to $3.5 million next year — while smaller towns like Little Compton could receive a few thousand dollars.

The committee also voted to restore $300,000 — about half the proposed cuts — to the program that administers free breakfast programs in schools across the state.

Hoping to further ease financial stress at the local level, lawmakers also voted to prohibit municipal health-care contracts from specifying a health-insurance provider.

“It’s a big win,” said Tim Duffy, executive director of the Rhode Island Association of School Committees, adding that the change will give communities latitude to cut costs by negotiating more fiscally-responsible contracts.

Union officials objected, however, saying it limits the scope of collective bargaining and takes the decision making off the negotiation table.

In what proved to be the most controversial proposal of the night, with 5 of its 16 members objecting, the committee voted to create, but not fund, Cumberland Mayor Daniel J. McKee’s “mayoral academy,” an alternative education incubator program not unlike a charter school.

Human services

The House plan cuts an estimated 1,000 parents from the state’s subsidized health-care program, RIte Care, far less than Carcieri’s plan would have eliminated.

The cut reflects a change in eligibility from the current standard of 185 percent of the federal poverty level (or $32,560 for a family of three) to 175 percent ($30,800 for a family of three).

To pay for the restoration, state officials plan to institute rules requiring all RIte Care recipients to take generic medications, instead of brand names, whenever possible. The change would generate $11 million, according to Costantino.

Hospital and health centers saw changes as well.

The House increased uncompensated care payments to hospitals by $9.6 million. The plan sends another $1.2 million to community health centers.The House plan also cuts the lifetime benefit for cash assistance, generally known as welfare, from 60 consecutive months to 24 consecutive months over every 60-month time period.

Taxes

House leaders did not include any broad-based tax increases — income, sales or business — in the budget. They did, however, include a proposal to raise $5.6 million by increasing the tax on medical and dental premiums from 1.1 to 1.4 percent.

The increase would be borne by the major insurers, Blue Cross, United and Delta Dental, which can decide whether to pass the cost on to consumers. That’s exactly what happened last year when the tax was expanded to its current level, according to Health Insurance Commissioner Christopher F. Koller.

Meanwhile, in a blow to the state’s budding movie industry, lawmakers plan to cap the state’s film tax-credit program, distributing no more than $15 million in credits each year. Industry insiders have said any cap would effectively end Rhode Island’s movie business. Without full-fledged credits, Rhode Island will see productions migrate to Massachusetts which now has an identical 25-percent credit program, and to Connecticut which offers an even more attractive 30-percent credit and no caps, they say.

On top of that, the plan would likely kill a proposal to build a state-of-the-art $75-million movie studio in Hopkinton — a facility that movie makers say won’t attract enough business without a limitless credits program.

When asked, for example, what impact the new $15-million cap on film tax credits might have on Rhode Island’s ability to attract TV and movie producers here, film office Director Steven Feinberg said: “Obviously these are challenging economic times in Rhode Island and we will have to do the best we can with the scenario we’ve been given.”

Other tax changes include eliminating the foreign tax credit and repealing the affordable energy credit.

Personnel

On the state employee front, the budget assumes $91 million in largely unspecified personnel savings. A third of that amount hinges on an exodus of at least 400 state workers by Oct. 1 to avert newly adopted increases in retiree health costs, and the rest on the outcome of high-level negotiations with the state unions.

Michael Downey, president of the largest state employees union, said he was still waiting for the Carcieri administration to reduce its latest proposal to writing.

But as a member of the union negotiating team, Robert A. Walsh, executive director of the National Education Association, said, “it’s a tough year and there’s going to be a lot of things that folks are not pleased with so no sense getting them upset needlessly.” While there will be no further bites out of employee retirement benefits, he said: “Anyone who is expecting a salary increase in the coming year will be disappointed.”

He said other administration proposals, such as unpaid “furlough days” for state workers, may hinge on how many retire by Oct. 1. Asked how the governor expects to save $60 million, Carcieri spokesman Jeff Neal said: “The governor’s office is still engaged in intense negotiations with the leaders of the state employee unions. We are hopeful that these discussions will result in significant savings.”

Meanwhile, while lawmakers added almost as much to the judiciary budget ($2.4 million) as they cut from the state’s college scholarship fund, they reduced the pensions that will be paid judges hired after Jan. 1, 2009.

A 65-year-old judge who, under current rules, could retire after 20 years with a pension equal to 100 percent of his or her pay, would get 90 percent instead. The judge who stepped down after 10 years with a pension equal to 75 percent of pay would get 70 percent instead, and judges would have to elect a reduced benefit in their lifetime to ensure their surviving spouse gets a portion of their pension after their death. For judges, there is currently no such reduction.Key elements

•Provides up to $13.6 million in additional school aid

•Reduces Medicaid spending by $67 million

•Cuts $17 million from the state’s three public universities

•Cuts subsidized health-care benefits for around 1,000 low-income adults

•Eliminates Head Start for around 300 poor children

•Caps the state’s film tax-credit program at $15 million a year

•Assumes $91 million in largely unspecified personnel savings

cneedham@projo.com