PROVIDENCE — Having spent the previous 48 hours arduously attempting to pilot its passage, East Providence’s Helio Melo, the Rhode Island House of Representatives Finance Committee chairman, reflected upon the Fiscal Year 2014 state budget he helped craft during a conversation Friday afternoon, June 28, in his office on the third floor of the State House.
Chairman Melo (D-Dist. 64) spoke about the more controversial issues he and his fellow House members faced this session. He talked about some of the difficult choices his committee and the representatives as a group had to make, including the authorization to insert the first payment of a moral bond obligation incurred due to the 38 Studios debacle. He is also discussed the changes to the Rhode Island Economic Development Corporation, known more familiarly as the EDC, as well as the proposed tolls on the Sakonnet River Bridge among other items.
The House voted 52-20 Wednesday, June 26, to approve the $8.2 billion budget bill that includes no tax or fee increases, contains numerous economic development initiatives, fully funds the implementation of the school funding formula, adds funding to higher education and provides additional funding for cities and towns. The Rhode Island Senate, likewise, rendered its approval to the document the following day. The reconciled budget heads to the desk of Governor Lincoln Chafee to sign or to simply allow for it to take effect without his signature.
On the budget itself, Chairman Melo said, “The budget is tough every year. We came up with a shortfall in Fiscal Year 14 of $51 million. When you plan on certain things, expect them to go a certain way and then you come up with a shortfall in May, there’s a lot to change around. I think this is the best budget we could have possibly come up with considering what we had to work with.”
The FY14 budget taking effect on July 1, the state already faces an impending near $170 million deficit in FY15. That staggering number, as one might expect, concerns the chairman greatly.
“I think overall the one disappointing thing about this is how we approach the out years,” he said, referring to ensuing budgets. “We always attempt to focus on the out years, but we always seem to have a problem getting there. We need to look at our expenses and control them better. We just got done with this budget, but come July 1 we start right away facing a $170 million deficit. And that’s the thing I’ve been trying to work on the last couple of years as chairman of Finance. I’ve been trying work on it so we don’t face a deficit right out of the gate.
“Obviously we have programs operating here in this state that are exceeding our revenues. We need to take a hard look and there are some tough decisions that need to be made to control expenditures.”
The budget includes no personal income tax increases. It also includes a component accelerating depreciation on the value of new equipment purchased by businesses and manufacturers and taxed by the state. In addition, the sales tax on spirits and wine will be ended over a 16-month pilot program to see whether it yields gains. The bill eliminates the mandatory 6 percent-over-wholesale markup during the trial period, giving retailers more freedom to set their own prices during that time.
Despite knowing of the large looming deficit, Chairman Melo expressed a reluctance to bolster revenues.
“I’ve always tried to stay away from raising personal income tax rates. I’ve always left that as a drop dead option,” he said.
The most contentious part of the FY14 Budget was the inclusion of the first $2.5 million payment on the bond issued for the now-bankrupt 38 Studios, an amount that was also included in Governor Chafee’s initial budget proposal. Also included is $50,000 for a market analysis of the potential consequences for the state should it fail to pay back the bonds.
“The reason why it is in the budget is because there’s a payment due in May of 2014, so it falls in this current fiscal year budget,” Chairman Melo said. “At the beginning of next session or maybe even sooner we’ll take another look at it. We’re looking for the best possible option. We still have some wiggle room to determine how we’re going to approach this, but we needed to do the fiscally responsible thing and at least have it in there.”
The chairman, House Majority Leader Nicholas Mattiello and Speaker of the House Gordon Fox championed significant changes to the structure of the EDC. Much of what the leadership group sought initially wound up in the final incarnation of the legislation.
“Obviously what we have right now isn’t working. I think the General Assembly was led down the wrong path with the whole 38 Studios issue. We were trying to make a major investment in job development and creativity, and the EDC took the money and ran with it. There was some pretty poor decision making on their part, and unfortunately we as the residents of the State of Rhode Island are going to be held accountable for the EDC’s mistakes,” Chairman Melo said.
He continued, “I think what this bill does is bring more professionalism into the EDC. We’re going to set up a long term plan, a long term vision. Everything that comes out of this building, everything that comes out of this legislature should be focused in that way. Our neighboring states all have plans in place, and they seem to be going well. We need to do some of those same things, put a plan in place and stick with it.”
After nearly as much rancor as the 38 Studios payment, the House amended the budget bill to restore a $12.9 million transfer to the pension fund, which sent the Chairman and the Finance Committee staff scurrying to make the corresponding cuts. Due to the vote $3 million originally planned for a new roads and bridge revolving loan fund, $6 million in personnel and operating expenses from all three branches of state government, $850,000 from the mortgage fraud settlement and $3 million from other one-time sources were removed and transferred to the pension fund.
“I want to make this perfectly clear. In no way, shape or form did the General Assembly of Rhode Island not fully fund its ARC payment. In this budget there was a full ARC payment,” Chairman Melo explained. “This particular $12.9 million is revenue above and beyond what was projected. The governor asked us to remove it, to not put it into the retirement system and put it into the general fund to maintain some of programs.
“As the Finance Committee, we listened to his concerns and did as he asked. But the membership of the General Assembly spoke very loud and clear on this issue and voted to put it into the retirement system. I have no problem with that. It created a $12.9 million shortfall, so we had to go back to the drawing board pretty quickly, within a 24 hour period and come up with changes. We had to make the necessary cuts.
Just prior to passage, the House voted to delay the implementation of tolls on the Sakonnet River Bridge until a study is completed on the issue. The tolls were scheduled to begin in July, but will be delayed until at least Feb. 1, 2014, while legislators work to identify other ways to fund bridge maintenance in the state.
“It’s in the budget with a delay, but we’ll take another look at it,” Chairman Melo said. “There might be some implications with the federal government if we hold back at this time. There’s a stipulation about needing to put the tolls in place upon 30 days of the bridge’s completion or we could lose the right to do so in perpetuity. It might cause some issues with the bonds. But right now we’re working with the U.S. Department of Transportation trying sort things out.”
The FY14 Budget also includes elements aimed at improving healthcare and education in the state, assistance to the homeless, job development and the return of Historic Tax Credits for developers.
“This is a responsible budget that answers to the citizens and the small businesses in our state,” Chairmen Melo added. “We recognize that they can’t afford more taxes, and we’ve identified ways to close the deficit without raising them. We’ve included a number of programs to encourage businesses to create jobs and help people get those jobs and keep them so they can support themselves and their families.”