09:01 AM EDT on Tuesday, June 28, 2005

BY LIZ ANDERSON, KATHERINE GREGG and SCOTT MAYEROWITZ
Journal State House Bureau

PROVIDENCE -- By an overwhelming majority, the House last night passed a new $6.35-billion state budget which cuts pension benefits, lowers the car tax and drastically increases the fee developers pay to receive historic tax credits.

Journal photo / Connie Grosch

Rep. Paul Crowley, D-Newport, right, looks over a budget amendment last night as House legal counsel William Guglietta, seated, confers with House Majority Leader Gordon D. Fox, D-Providence, and Majority Whip Peter Kilmartin, D-Pawtucket.

In stark contrast to last year, the debate in the House was generally orderly and civil, leading to a 71-to-2 vote in support of a new budget for the year starting Friday.

With Republican Governor Carcieri backing the budget for the first time in his three years in office -- and calling it a "great win for our citizens" -- all 15 House Republicans voted yea.

"Obviously I think it was a good night," Carcieri said shortly after the 8:22 p.m. vote. "I mean, everybody came together."

While he said the 6.5-percent increase in spending "is still too high," Carcieri applauded the pension changes, tax-relief efforts and aid package for cities and towns.

House Speaker William J. Murphy, D-West Warwick, said "all parties involved realized that we were working for the best interests of the people of Rhode Island," even those who didn't support him as speaker and tried to kill last year's budget.

"That showdown at the OK Corral," he said, "turned out to be a dud firecracker in somebody's backyard at a Fourth of July picnic."

The Senate Finance Committee expects to consider, and approve, the budget at a 3 p.m. hearing today, with the goal of a floor vote by the full Senate tomorrow. Murphy says he hopes to finish this session by Thursday.

After close to two hours of debate, the House approved a "pension reform" package aimed at shaving $44 million off the spiralling cost of public employee pensions. The final vote was 60 to 12.

For those hired after July 1 and those not yet vested, the new pension rules will establish a minimum retirement age for the first time since 1984; place new curbs on the 3-percent, compounded cost-of-living increases state retirees get now; and reduce the pension-dollar value of each year of work in such a way that the maximum benefit goes from 80 percent after 35 years, to 75 percent after 38.

While today's state employees and public school teachers can retire at any age, and begin collecting a pension immediately, after 28 years of work, new and non-vested workers will have to wait until age 59 to get a pension, after at least 29 years of work, or age 65 after 10 years of work.

Angry union leaders papered the State House earlier in the day with fliers decrying the moves and questioning both their legality and fairness.

Rhode Island Federation of Teachers President Marcia Reback went another step to try to dispel the notion that she and other unions leaders did not attempt to negotiate or offer a counterproposal until it was too late.

Reback said union leaders thought they were still in negotiations -- up until the final hours -- of how to eke out enough savings elsewhere in the budget to blunt the blow of the proposed changes. She said they came up with $3 million and asked if that would do -- but never got a response.

"The leadership let us down," she said.

But Senate Finance Committee Chairman Stephen Alves, D-West Warwick, said at an afternoon budget briefing for colleagues that House and Senate leaders had wanted to extend the COLA changes to all employees, regardless of service.

But, Alves said, "the unions rejected that proposal," and union leaders said they would have gone to court.

Union leaders watched, from the House gallery, as the lawmakers beat back one effort after another by Representatives Peter Wasylyk, D-Providence, and Arthur Handy, D-Cranston, to loosen the new age-and-work requirements, leave the retiree COLAs untouched, reduce employee contributions and insulate pension benefits from future tinkering by making them a "contractual right."

Opponents of the pension cuts said they would unfairly penalize today's workers for "sins of the past," and make them pay first-class employee-contribution rates for second-class benefits.

But Rep. Joseph Trillo, R-Warwick, argued: "This is still the greatest deal. . . . You and I should have such a deal, but we don't."

After the final vote, the union leaders said they would try again next year. "It's unfair, inequitable," said Larry Purtill, president of the NEA-RI. "Seven thousandteachers and 4,000 state employees are going to be paying for past sins."

House Finance Committee Chairman Steven M. Costantino, D-Providence, said the pension changes "signal that there isn't a disconnect between government and what citizens are calling for."

The budget also makes major changes to a popular historic tax-credit program with lawmakers voting to charge developers significantly higher fees.

Currently developers pay up to $2,000 as an application fee. Last week, House budget writers backed a new fee of 1.25 percent of a project's cost. The change would have affected any restoration not yet completed, including dozens that are currently under way.

But last night, lawmakers changed the effective date to July 31, sparing about $125 million in nearly completed projects. At the same time, they raised the fee to 2.25 percent in order to fill a $3.6-million spot in the budget.

The project that will be hardest hit is the $76-million transformation of the long-abandoned Masonic Temple in Providence into a hotel by Sage Hospitality Resources. Sage is expected to get $22.8 million in tax credits when it completes construction next year. Instead of paying just $2,000 in application fees, Sage will now have to pay the state $1.7 million.

But two projects that should benefit from yesterday's change are the $33-million Ashton Mill in Cumberland and a $41-million project at The Foundry, Brown & Sharpe's former complex on Providence's Promenade Street.

The Peerless Building on Westminster Street in downtown Providence was also spared a new $184,000 fee. Its developer, Arnold "Buff" Chace Jr., said that the building received a temporary occupancy permit last week and he hopes to complete the $14.8-million project soon.

But Chace said the new fee might thwart completion of other projects already under way. It also "raises a whole question about the reliability of entering into public-private partnerships," he said.

The argument was echoed on the House floor by Rep. Laurence Ehrhardt, R-North Kingstown, who said it was unfair to hit developers with a sharply higher fee than expected in the midst of the work.

Costantino, however, said the tax credit is still "the most lucrative" of its kind in the country.

The House approved what some lawmakers -- including the president of the Providence teachers' union, Rep. Steven Smith -- decried as an inadequate $19.3-million increase in school aid.

Smith, D-Providence, demanded to know why school districts were being forced to lay off staff while the state Department of Education was getting more money for new jobs for "political friends and relatives." Whatever message House budget writers meant to send about "fiscal responsibility," he said, the message he heard was: "We don't care about the conditions in your building[s]."

Republicans also objected to a change in the formula of what cities and towns qualify as a "distressed community." Under the new formula, North Providence will again become eligible for aid in the coming year.

Rep. Nicholas Gorham, R-Coventry, said he hadn't heard "one scintilla of data" as to why the qualifying line should be moved.

But the budget provides some direct tax relief, by increasing the amount of car-value exempt from local excise taxes from $4,500 to $5,000.

An additional $4 million was provided to low-income residents through a property-tax relief program that will provide direct tax rebates of $200 to $225.

Republicans protested some tax and fee increases, including raising the fee for a certifying examination for nursing assistants from $65 to $95, and increasing the tax on tobacco products such as cigars and chewing tobacco, from 30 percent of the wholesale cost to 40 percent of the cost.

"At some point in time we're going to reach the level of absurdity" with such tax increases, said House Minority Leader Robert Watson, R-East Greenwich.

Gorham also protested the diversion of additional gas-tax revenues to help bail out a deficit at the Rhode Island Public Transit Authority, calling it "an agency in complete disarray."

"One thing that's been proved in this building is that throwing money at a problem is not going to solve it," he said.

But the changes all passed.

Speeding tickets were increased $10, with a portion of the money going to a brain-injury fund. Lawmakers also removed a tax exemption from the Beacon Mutual Insurance Co., the state's dominant workers' compensation insurer.

The budget also makes several changes intended to help collect tens of millions of dollars in outstanding court fines. Among other things, the court will gain the power to publish the names of debtors on its Web site, and will be required to make more of an effort to collect Social Security numbers on defendants, in order to compare them against other state records, including people owed tax refunds.

Other issues drew no debate, including a taxpayer buyout of the Dunkin' Donuts Center in Providence, at a cost of $90.5 million. Members did vote separately on that piece of the capital budget, but approved it 52 to 13.

Also approved quickly: a budget article that makes several changes to the state's subsidized childcare program, including delaying a scheduled rate increase by six months, and requiring home-based providers to meet a higher bar before qualifying for state-provided health insurance.