The perennial concerns -- casinos, tax cuts and budget -- have been joined by a new one: energy-cost relief.

01:19 PM EST on Sunday, January 1, 2006

BY KATHERINE GREGG and SCOTT MAYEROWITZ
Journal State House Bureau

PROVIDENCE -- State lawmakers return to the State House on Tuesday for an election-year session that has already sparked talk of sales- and income-tax cuts, despite the threat of the largest deficit in years.

Back to work after a six-month recess, the House and Senate are expected to pick up where they left off last summer.

Listen again for the now familiar catchwords: Gambling. Budget. Casino. Taxes.

Add the refrain: Energy-cost relief.

And then watch for a few surprises, including the study House Speaker William J. Murphy, D-West Warwick, promises to launch into the pros and cons of replacing Rhode Island's $12,646.72-a-year, part-time lawmakers with a full-time General Assembly.

His thinking: "With the political climate out there, it seems that every time you do something, somebody's screaming 'conflict.' Maybe the best way to handle this would be to have a full-time General Assembly."

This much is certain: with every major state office up for grabs this year -- Republican Governor Carcieri facing a challenge from Democrat Charles J. Fogarty, the state's term-limited lieutenant governor; and Murphy himself facing brickbats from opponents within his own party -- it should get lively.

The proposed Harrah's-Narragansett Indian casino in Murphy's hometown of West Warwick will again occupy hours of legislative time, with attention focused on the promoters' latest strategy.

They hope to persuade lawmakers first -- and then voters -- to remove from the state Constitution words that have twice been interpreted by the state Supreme Court to ban the opening of any new privately operated gambling establishment in Rhode Island.

The kicker: the governor has no power to veto proposed constitutional amendments.

Calling the proposal "the dumbest thing I've ever heard," Carcieri, who hopes to pull more Republicans into the State House on his coattails, says: "I'm going to be very interested to see how many people line up . . . to make a constitutional change to allow Harrah's a sweetheart deal -- because that's all this is."

But Murphy says: "The big issue is that we are losing dollars on a daily basis to Connecticut."

THEIR FIRST day back, House members are expected to revisit an issue they left hanging last year: their vetoed effort to decriminalize the medical use of marijuana. The Senate voted to override the veto before recessing last summer.

But House leaders, unsure they could muster the votes to override Carcieri's veto of other bills -- including one requiring the state to bargain wages and benefits with home-based childcare workers -- -- did not call their own members back for a summer override session.

As seasoned State House watchers know, very little else usually clears both the House and Senate -- and winds its way to the governor to be signed or vetoed -- until the closing weeks of the session, which begins in January and traditionally ends in late June or early July.

But with heating and electricity prices soaring, Republican Carcieri and the Democratic leaders of the General Assembly have all raised the possibility of early action on energy cost-relief measures.

"It's clear," says Senate President Joseph A. Montalbano, "that it's not just the less fortunate in society that are now going to struggle with energy costs."

With an eye on November's elections, Carcieri and Murphy also seem to be jockeying for first-up with a proposal to cut taxes or, at least, set a major round of tax cuts in motion.

"I'm not worried who gets the better headline if we can cut our personal income-tax rate. That's good," said Carcieri, wishing aloud that he could also reduce Rhode Island's 7-percent sales tax, ending the disparity with Massachusetts' 5-percent level that drives some shoppers over the border.

But the revenue for every percentage point on the sales tax is a projected $132.8 million. Knocking two points off the rate to match Massachusetts could cost the state upward of $260 million.

So while he would "absolutely" love to cut the sales tax, Carcieri said, he would be reluctant unless he were convinced that closing one or more of the 57 exemptions to the tax would make the rate cut "revenue neutral."

For example, all clothing purchases are exempt in Rhode Island. In Massachusetts, only the first $175 is exempt.

"I'm saying to myself: this year, we have to do something with taxes," said Speaker Murphy.

And Murphy is talking not only about "sales-tax relief for middle-income Rhode Island."

In a rare appearance on Channel 36's (PBS) Lively Experiment and again in a recent interview, he also talked about the need to tweak Rhode Island's graduated income tax to stop "the decision makers, the high-end people" from leaving Rhode Island.

Having opposed the last drive for what he viewed as "a tax cut for the rich," Murphy said, he had a change of heart after "meeting in the off-session with business people and financial people about the number of high-income people who are leaving the state of Rhode Island to become residents of other states because of the tax consequences of living here."

Murphy said he now believes: "The wrong analogy is when you call it a tax break for the rich. Actually, it's a tax break to make us as competitive as Florida is."

But House and Senate leaders have not conferred with each other, let alone come to any agreement with the governor on a tax-cutting plan.

Senate President Montalbano, D-North Providence, had this to say when asked recently about Carcieri's own oft-stated, tax-cutting goals: "Whatever proposals he pops better also take into account the economic impact on our less fortunate citizens."

Echoed his second in command, Senate Majority Leader M. Teresa Paiva Weed, D-Newport: "At what cost would any proposed tax cuts -- and particularly a tax cut that focuses on the wealthy -- come?

"And we anticipate a difficult budget year with difficult decisions," she said.

ALL OF WHICH begs the question: with a major deficit looming, how can the state's political leaders think about a major tax cut?

None of the state's major revenue sources -- including income taxes, sales taxes and gambling receipts -- have been meeting projections.

The shortfall this year is an anticipated $77 million.

The legislature's own financial advisers have warned of a potential $183-million-to-$236-million gap between revenues and spending during the new state budget year, beginning July 1, which will be the focus of much of this year's State House debate.

With his own advisers telling him the potential deficit is "over $200 million," Carcieri says: "It's actually the worst situation that I've seen in the three years I've been here."

Lawmakers quietly point to the size of the state work force which, at 15,109, reflects 174 more "full-time equivalents" than the state had at this time a year ago.

Carcieri places the blame on unsustainable increases in Medicaid: the state and federally financed health insurance program for the poor. "If you've got 40 percent of the budget growing at 8.5 or 9 percent, it can't work. It's sucking all of the money out of all of the other areas."

With state government administrators already under orders to cut spending, Carcieri said: "We're in the thick of it right now."

Carcieri is not ready to talk in detail about his cost-cutting plans, but cites one again and again.

He said he will take aim at the ballooning cost, to the state treasury, of a historic-preservation investment tax credit.

When former Gov. Lincoln Almond signed the credits into law in 2001, state officials predicted it would cost the state $16 million in income taxes over five years. Since then, the credit has supported the revitalization of blighted buildings across the state, including old mills in Pawtucket, West Warwick and Cumberland.

This year alone, however, the credit is expected to cost the state $43.9 million in lost tax revenue; next year, $64.1 million.

Said Carcieri, who resisted lawmakers' earlier "short-sighted" efforts to rein in the tax credit: "It's time for us to look at maybe pulling this back and targeting it a little bit better."

With several more weeks before his budget proposal is due, Carcieri is reluctant to talk about other potential budget-cutting moves.

But low-income advocates are already deeply worried about where the budget ax may fall -- and it would appear, with good reason.

Like every other politician in the state, House Minority Leader Robert A. Watson said that "tax relief" should be a major goal this year. One way to pay for the tax cuts is through spending reductions and one place that Watson said he would consider is RIte Care, the state-subsidized health plan for the poor.

"I think we need to curb and cap some of the programs that, while meritorious, are getting almost prohibitively expensive, and I think of RIte Care as one of the areas that we need to look at," Watson said. "It's an expense that just keeps growing and ballooning as we move down the road."

But it won't happen without a fight. And in this election year, House Majority Leader Gordon D. Fox, D-Providence, says: "You can't just go after social programs. You have to look at how state government is running itself."

Marti Rosenberg, executive director of Ocean State Action, vowed last week: "We are going to be working as hard as necessary to ensure that these programs stay vibrant, that they continue to allow children and families and pregnant women to have the tremendous access to preventive care that they have now that saves lives and saves money."

"It looks huge in the budget," Rosenberg acknowledged.

"But so much of it is federal money that comes in here, expands Rhode Island's economy and pays for our medical infrastructure."

THAT LEADS TO another issue that Carcieri and the lawmakers say is high on their agenda: affordable health care.

Fox, D-Providence, says the solution lies outside Rhode Island.

"Maybe the way you solve health care is get on an Acela train and go down to Washington, D.C., and tell them to get their act together," he said of the Republican-led Congress.

In Rhode Island, a joint R.I. House and Senate oversight-committee has been looking, during the recess, at what some other states have done.

Carcieri said he expects to have one or more proposals to "moderate" the rising cost of health insurance. One is aimed at "people who are paying nothing."

"Everybody has to have some kind of health insurance, something . . . sort of like mandatory liability insurance for automobiles." Neither Carcieri nor his aides would elaborate.

But spokesman Jeff Neal said Carcieri is focused on providing "incentives," not the do-it-or-else approach that bubbled up recently in the Massachusetts legislature. The proposal there would require every business with 10 or more employees to provide health insurance or pay a new 5-percent payroll tax.

OTHER anticipated issues include:

DRUNKEN DRIVING: In past years, the House has been the burial ground for legislation to close the so-called "loophole" that rewards impaired drivers who refuse to take a breath test with relatively light penalties.

House Democratic leaders have already pledged action on some version of a bill, sponsored by freshman Rep. J. Patrick O'Neill, D-Pawtucket, to raise the penalties for refusing a blood-alcohol test.

TAX SALES: State lawmakers often react to events that put a human face on obscure and seemingly intractable issues -- such as tax sales, the long controversial practice that allows speculators to buy, for a song, the properties of people behind in paying local tax and sewer bills.

The plight of the 81-year-old woman who nearly lost her home for failure to pay a sewer bill has led to House promises of a legislative probe.

"Are there less invasive, less cruel ways to get the benefit of having adequate collections of taxes and sewer bills . . . without taking someone's property away from them. That's the first question we need to ask," said Fox.

VOTER INITIATIVE: Last fall, the state's Republican elite lined up behind Democratic Sen. Marc Cote's years-long effort to give the public the power to get proposals on the ballot without having to go through the General Assembly.

Blunt about the GOP's intentions, Carcieri said every candidate should be asked: "Do you support voter initiative or don't you? Are you with us or are you against us?"

But House Majority Leader Fox ascribes the effort to a "frustrated few," and says that legislators, who have to face the electorate, are "pretty good barometers of what those folks want."

"It's going to be tied to the casino," quipped Murphy, when asked about the bill's chances.

EMINENT DOMAIN: A recent big-dollar settlement with a local landowner and a June 2005 U.S. Supreme Court decision about the use of eminent domain are expected to spark more interest this year than last in Rep. Charlene Lima's legislation to prohibit the state's taking of property for private uses.

ALL THIS WILL play out in an election year.

An optimistic Montalbano expects fewer "long, drawn-out debates" than last year.

But Murphy, who once again faces opposition within his own chamber from an alliance of Republicans and Democratic dissidents, predicts "people will be posturing from the starting bell on forward."

Asked recently whether he intended to work behind the scenes with the anti-Murphy faction, as he did last year, Carcieri said: "I will work with people who are of a like mind who want to get some things done."

"That's what this is about," he said. "You've got to have the votes to get things done."

"I think the days of the Democrat leadership making decisions in a bubble are over," Minority Leader Watson said. "When it comes to getting the necessary votes to get business accomplished, there is going to be a need to be more inclusive, probably more indulgent of the minority."

kgregg@projo.com / 401-277-7078

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