PROVIDENCE -- Calling it a time for “sacrifices,” Governor Carcieri this afternoon unveiled a $7 billion state budget that would shut most of state government down periodically to save money, lay off several hundred state workers and knock thousands off the state subsidized child care and health insurance rolls.

While there are no major increases in taxes, SUV owners and the scores of others who do business at the Registry of Motor Vehicles would pay higher fees.

Carcieri relies on several accounting tricks, one-time sources of revenue and other gimmicks to balance his tax and spending plan.

They include raiding the state’s rainy-day fund for the first time in memory, selling the state’s future payments from a settlement with major cigarette manufacturers and selling state-owned land from Providence to Charlestown to Woonsocket.

Carcieri also ignores a projected $7.3 million deficit at the Rhode Island Public Transit Authority in his budget, essentially saying he will leave it up to RIPTA to figure out how to keep the buses running.

Overall, the proposed budget for the fiscal year starting July 1 raises spending by 5.3 percent and includes $3.2 billion in state revenues.

On the tax front, Carcieri’s budget contained both good news and bad news.

Carcieri is proposing to reinstate a tax credit that reimbursed a small-business owner for certain loan fees.

The tax credit, established in 1994 to help small-business owners recoup the 2 percent loan guarantee fee they have to pay to borrow money from the Small Business Administration, was eliminated by the General Assembly in 2005. That change was followed by a sharp decline in loans made to small businesses. Reinstatement of the credit has been high on the business community’s agenda.

But Carcieri’s budget proposal also contains $171 million in plans for selling real estate, hitting the Wall Street bond market and raising new money from motor vehicle owners, health insurance companies and a litany of professionals who require state licensing, including building contractors, mortgage originators and slot parlor employees.

The bad news: despite earlier promises to use money from the huge video-slot expansion lawmakers authorized at Lincoln Park and Newport Grand to lower local car taxes, Carcieri is proposing to freeze the exemption at $6,000.

His budget also relies on a smorgasbord of new and higher fees.

He wants, for example, to tack a $1.50 surcharge on all transactions at the Registry of Motor Vehicles to raise enough money to pay the principal and interest on a $13 million new computer system at the registry. He also wants to charge a new $25 administrative fee to those good drivers -- 27,987 last year -- who qualified to have traffic violations dismissed by the state Traffic Court because they had good driving records up until that point. Such a fee would have raised $699,675 last year.

The governor also wants to charge owners of big cars higher registration fees than owners of smaller, lighter cars.

Instead of the current $30 annual fee for all passenger cars – regardless of their weight – the governor is proposing a new tiered structure with higher annual fees ranging from $40 to $140 for owners of vehicles that weigh more than 4,000 pounds. Heavier cars generally create more wear and tear on roads and release more pollutants into the environment.

HUMAN SERVICES

The governor is once again targeting one of the state’s fastest growing programs: state-subsidized child care. He hopes to reduce the program’s rolls by one-third by lowering the income-eligibility ceiling.

While aimed initially at helping families make the move from welfare to work, the state-paid tab for the child care program – which has increased from $52 million in 2000 to a projected $78.4 million next year – has outpaced the state’s savings in more traditional, direct cash-assistance programs.

Currently, the program is open to families making up to 225 percent of the federal poverty level: $38,633 for a family of three. Carcieri wants to change the cutoff to 150 percent of poverty, or $25,755 for that same family. There are about 11,950 children in the program now. Carcieri would kick out 3,800.

Carcieri also proposes to delay scheduled pay hikes to the child care providers and payment increases for nursing homes.

He is also counting heavily on the state’s ability to remove 5,750 people from state and federally subsidized medical coverage to save another $19.9 million, by conducting the more rigorous reviews of citizenship papers that federal law requires. While the effort will not be limited to recent immigrants, little information was available on how the state came up with its estimate of how many would lose benefits.

EDUCATION

The governor, once again, pits the urban and suburban school districts against each other by proposing an across-the-board 3 percent increase in local school aid. Last year, he made a similar proposal only to have lawmakers shift the funding back toward the urban areas. Several towns -- including Barrington, East Greenwich, Westerly, Little Compton and Portsmouth -- saw less aid than they were expecting from Carcieri.

“We can’t make any promises as to educational funding for our cities and towns,” said House Speaker William J. Murphy, D-West Warwick. “ The communities have to realize that they can’t bank their budgets on what the governor says.”

Providence Mayor David N. Cicilline is likely to be at the State House lobbying for more aid for his city.

“When you make a commitment to urban education, you must recognize that the cost of providing education to urban areas is higher than it is [in rural areas],” Cicilline said. “ The General Assembly has always recognized the special challenges of the urban areas and demonstrated their commitment, and we’ll continue to work with the legislative leadership to ensure that happens.”

The Central Falls district, which is entirely paid for by the state, would see a 6.4 percent increase in state aid. However, Carcieri is once again asking local taxpayers there to kick in some money, this year $1 million. Lawmakers have previously rejected forcing the city to pay for its school expenses.

In the area of higher education, Carcieri is proposing no increases in funding. The bulk of the colleges’ budgets come from tuition and fees, which are scheduled to rise by 6 percent at each school in the fall.

LOCAL AID

The budget does not bring good news for the state’s 39 cities and towns.

Carcieri proposes no increase in local aid outside of education. He budgeted no increases in revenue sharing, payments in lieu of taxes, library aid and a special pot of money for the state’s financially “distressed communities” -- Providence, Woonsocket, Central Falls, Pawtucket and West Warwick. If the distressed communities’ money was not frozen, Cranston and Coventry would now qualify for a share of the cash.

Lawmakers have traditionally increased money to their hometowns, but might not be able to this year. If they cannot, municipal services could be scaled back significantly. Last year, the General Assembly imposed new limits on how much a community could raise its tax levy. Without more aid or significant tax hikes, cities and towns might be faced with making some major cuts.

PRISONERS

Among the most dramatic proposals is Carcieri’s assumption he will be able to release – or head off the imprisonment of – 500 prisoners to cut costs.

It is also one of few items on his budget-cutting checklist that has already struck a receptive cord with top legislative leaders, all of whom are lawyers.

The Adult Correctional Institutions is at 95 percent capacity and growing. The governor wants to save money by putting more criminals on probation or home confinement — saving about $4 million. About $985,000 would be reinvested into community corrections by hiring new officers for probation and home confinement.

ACI Director A.T. Wall said Rhode Island had established a “bail fund” in 1989 by federal court order in reaction to overcrowding. That state fund paid for the bail of inmates. However, he said, it’s unclear whether the state has the authority to establish one on its own.

Prison officials cite a series of trends for the unprecedented surge in inmate numbers from 3,394 as recently as July 2005 to 3,760 in December 2006. Among the contributing factors cited by prison officials: a decline in the use by judges of home confinement, with increased use of a no-bail option for domestic violence cases.

While there is no specific plan for reducing the prison population, the governor called for a cooperative effort by the executive, legislative and judicial branches to come up with a plan for “decreased dependence on incarceration for non-violent offenders and an increased utilization of appropriate community-based treatment and sanctions.’’ He also suggested “the establishment of a system to release awaiting-trial inmates whose only reason for incarceration is lack of funds for bail.’’

HISTORIC TAX CREDITS

The governor hopes to reduce the expense of providing historic tax credits. The program has jump-started a building boom and has led to the restoration of mills, old department stores and the never-completed Masonic Temple downtown. But it has cost the state millions. This year, the program is costing $64.4 million. Next year, it will cost an estimated $80.9 million. A developer can get a credit of up to 30 percent of qualifying work.

Carcieri proposes to cap the number of projects in a year that can claim the credit and hopes to restructure the way the credits are taken to save the state money. He has not yet worked out all the details and has not said how many projects would be allowed in a given year.

The credits are given to developers who often don’t have large tax liabilities. So instead, the developers sell their credits at a discount, typically to wealthy individuals who use the credits to reduce their Rhode Island personal income taxes.

A $100,000 credit might be sold to a taxpayer for $90,000. The taxpayer gets a $10,000 tax break and the developer gets cash for a credit they might not have otherwise been able to use.

But the transaction is not quite that simple. In reality, there are a series of brokers, accountants and lawyers involved with selling the credits. The developer might sell the $100,000 credit to them for $72,000. The broker, in turn, sells the credit to the taxpayer for $90,000.

Carcieri proposes to cut out the middlemen. He wants the state to start purchasing back some of these credits at a discount. So instead of a broker buying the credit for $72,000, the state might pay $84,000. The individual taxpayer would never cash in the $100,000 credit, saving the state $16,000 in the end.

The governor wants to run an action where the state, partnered with the Economic Development Corporation, would buy back $60 million worth of credits from developers. Carcieri estimates the buyback would cost $50 million and ultimately save the state $10 million.

While the details still need to be worked out, legislative leaders have already expressed some concerns about the program as it currently stands.

“It’s a very, very generous program,” Murphy said in a December interview. “It’s worked wonders in the state of Rhode Island thus far. It’s something that may be too generous, and we will probably take a look at it.”

TOBACCO BONDS

Carcieri has also found a creative, but risky, mechanism to fund millions of dollars of capital projects.

The governor hopes to sell tobacco payments now that aren’t due to the state for nearly 20 years. The payments stem from a 1998 settlement Rhode Island and 45 other states reached with the country’s major cigarette manufacturers.

Rhode Island already sold the rights to its future payments in 2002. But the way that deal was structured, the bondholders will be paid back before the cigarette manufacturers stop their payments. So now, Carcieri proposes selling the later payments to a new group of bondholders. He hopes to bring in $150 million to $180 million, using $20 million in this current budget year and $72.5 million next year. The rest would be held for future use on highway and bridge projects.

Such bonds are not a sure thing, though. Last year, the governor proposed a similar use of the tobacco money only to find out that the market disappeared after the tobacco companies had a favorable arbitration ruling.

This year, Carcieri says the market is back. New Jersey last week sold $3.9 billion of such bonds and California next month is looking to sell up to $4.5 billion of tobacco bonds.

“Current market conditions for the issuance of such securities are favorable, despite the fact that significant litigations risk and unpredictable consumption risk are still present and could negatively impact the revenue flow that supports the bonds,” Carcieri wrote in his budget.