01:00 AM EST on Saturday, March 19, 2005

IN RECENT WEEKS, as the scale of Rhode Island's municipal-budget problems has become clear, local politicians have loudly called for more state aid for education. Assuming no increase in contract demands by teachers and other municipal employees (a big if), more state aid would arguably lead to lower property taxes. How might the General Assembly fund such an increase in aid?

First, it could raise taxes. However, Rhode Island's tax burden is already the fifth highest, and the worst in the nation for the affluent. State and local sales, income and property taxes take 11.363 percent of every $1,000 of personal income in Rhode Island, compared with only 9.587 percent in Massachusetts. Raising sales- and income-tax rates still higher could easily shrink the tax base, and lead to lower, not higher, revenues.

What about corporate-income taxes? Only 10 other states have a top marginal rate on corporate income as high as or higher than Rhode Island's. Moreover, the tax base to which this applies is quite small. Corporate-income taxes amount to less than 3 percent of our general revenue, so the potential for using higher rates to raise more money is very limited.

Rather than increasing taxes, the General Assembly could cut spending. It is easy to identify the logical targets. While proposed spending on education amounts to just over $1 billion dollars (33.7 percent of the budget), human-services spending amounts to $1.2 billion. Our programs for the needy are among the most generous in the nation, and produce worse results than those in other states.

Alternatively, we could cut state-personnel costs, which total $773 million in the fiscal-2006 budget. This could be accomplished through departmental consolidation, increased employee contributions to health insurance, and reductions in benefits offered by our generous public-sector pension plans.

As you can see, when it comes to finding ways to pay for increased education aid and lower property taxes, there are no easy answers. Whether the General Assembly will choose any of them depends on the goals being pursued by House Speaker William Murphy and Senate President Joseph Montalbano.

Today, Rhode Islanders pay some of the highest taxes in the nation, yet receive some of its poorest services in areas as diverse as education, repair of roads and bridges, and performance of our social safety net.

Most taxpayers assume that the Democratic leaders of the General Assembly want to improve this situation. It is therefore hard to understand why they stand idly by while members of their party (and, indeed, their leadership teams) introduce bills that seem at odds with this goal.

For example, H-5826 would further raise taxes on affluent taxpayers, H-6129 would raise gasoline taxes, and H-6025 would make the sales tax applicable to all personal-service transactions except health care and (surprise) legal fees.

Elsewhere, H-5720, H-5721 and H-5427 would dramatically strengthen the unions' chokehold on the public sector, while H-6099 would allow the providers of subsidized day-care services to negotiate as a group with the state over pay, benefits, and working conditions.

Meanwhile, H-5797 would have RIte Care pay for abortions, while H-5521 would make it even cheaper. H-5365 would further expand our subsidized day-care-entitlement program (the only one in the nation), and H-5290 would raise Rhode Island's already generous earned-income tax credit.

Other bills would increase Rhode Island's health-insurance costs, which are already among the highest in the nation. H-5288 would eliminate all restrictions in insurance contracts on treatment of mental illness and substance abuse, while H-5417 would mandate coverage for abortions.

Finally, changes in the House rules, forced through by Speaker Murphy, will make it much easier to pass all of these bills.

Many Rhode Island taxpayers look at this legislation and ask why the leaders of the General Assembly "just don't get it." Most of us want to believe that Speaker Murphy and President Montalbano share our goal of more cost-effective government, and a more vigorous private-sector economy. And so we try to show how their proposed legislation would make things worse, not better. But could we be barking up the wrong tree?

A recent paper by Harvard Professors Edward Glaeser and Andrei Shleifer ("The Curley Effect") suggests that this may be the case.

The authors note that "in his six mayoral races, between 1913 and 1951, James Curley represented the poorest and most ethnically distinct of Boston's Irish. The city's Brahmins always despised him because of his policies, his corruption, and his rhetoric, and always worked to block his victory. The probability that Curley would win in Boston was[enhanced by] increasing in the share of poor Irish Bostonians, and decreasing in the share of rich Bostonians of English descent."

"Unsurprisingly, he tried to turn Boston into a city that would elect him. We call this strategy -- increasing the relative size of one's political base through distortionary, wealth-reducing policies -- the Curley effect. But it is hardly unique to Curley. Other American mayors but also politicians around the world (including Mayor Coleman Young of Detroit, and President Robert Mugabe of Zimbabwe) pursued policies that encouraged emigration of their political enemies, raising poverty but gaining political advantage. . . .

"Seen in this light, many of the most harmful policies of local and national governments result neither from a disinterested folly nor from a garden-variety desire for redistribution. Instead, these policies are motivated by a desire to alter the political landscape."

Depressingly, a lot of the legislation being introduced by Democratic members of the Rhode Island General Assembly seems much more consistent with the Curley effect than with any broader view of the state's long-term best interest.

The closer you look at what is happening on Smith Hill, the more you (reluctantly) conclude that the Democratic leaders of the General Assembly have laid down a clear challenge to all those who oppose them: Either seize their power or leave Rhode Island.

The choice is up to us.

Tom Coyne, of North Kingstown, is a co-founder of www.ripolicyanalysis.org