Chafee Push: Taxes, Distressed Cities, Pensions

Rhode Island Gov. Lincoln Chafee's $8.2 billion budget for fiscal 2014 would cut the corporate tax rate to 7% from 9% over three years and add $20 million to cities and towns, with an emphasis on distressed communities and improving local pension plans.

Chafee, addressing the General Assembly in Providence in a combined budget and state of the state speech on Wednesday night, proposed an additional $20 million next year in local aid, with $10 million for distressed communities and a further $10 million, distributed based on population, to encourage municipalities to improve their pension plans.

The overall budget represents a 1.2% increase.

"I may sound like a broken record at this point, but in the years before I took office, cities and towns bore the brunt of the downturn in state revenues. Those most severely affected were the distressed communities that could least afford it," said Chafee, a former Warwick mayor and U.S. Senator starting his third year as governor.

Financial challenges for localities have commanded Chafee's attention since he took office. Moody's Investors Service downgraded eight Rhode Island municipalities in 2011.

Central Falls filed for bankruptcy in August 2011 and exited Chapter 9 last September. East Providence and Woonsocket are under budget review committees, each one step short of receivership under a state intervention system.

Many Rhode Island communities have underfunded pension plans. The state overhauled its pension and other post-employment benefit plans in 2011, although five unions are challenging the law in Rhode Island Superior Court.

Moody's rates the state's general obligation bonds Aa2, while Standard & Poor's and Fitch Ratings each assign AA ratings.

Chafee's budget also calls for an additional $30 million in school aid, including $6 million for higher education. Infrastructure initiatives include a $10 million shift in gas-tax supported debt service to general revenue to free up transportation funding, advancing $11 million to fast-track Rhode Island Capital Plan Fund projects and allocating $10 million of RICAP to local roads.

"Rhode Island is the second-most densely populated state and one of the most heavily traveled, all in a coastal salt-air environment — and our infrastructure takes a beating. Maintenance of our roads and bridges is critical," said Chafee.

Chafee hopes dropping the corporate tax rate will make Rhode Island's business climate more competitive. The state's 10.8% unemployment rate in July was second only to Nevada's, according to federal Bureau of Labor statistics, which also cited a 37% drop in manufacturing jobs in the Ocean State from 2001 to 2011, the biggest decline among states.

"He was laser-focused on the things he cared about, such as investing in infrastructure, investing in education and making sure we're competitive on the taxes," Office of Management and Budget Director Peter Marino said after the speech.

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