Small Business Jobs Growth Initiative and Government Restructuring Included in Budget Proposal

Governor Donald L. Carcieri today released his FY 2011 budget, which includes a Small Business Jobs Growth Initiative to provide relief to the state’s small businesses and to encourage job growth. The FY 2011 general revenue budget is $2.85 billion, a decrease of $151.3 million, or 5 percent, as compared to the FY 2010 general revenues budget, and $502 million less than the high of FY 2008, when general revenues were $3.4 billion.

The FY 2011 all funds budget is $7.5 billion, of which $2.7 billion are federal funds - including $455.7 million from stimulus funds - $1.76 million from restricted receipts, and $1.8 billion from other sources. This is $403 million less than in federal and other funds than the FY 2010 budget, due to the decrease in stimulus funds.

“My budget reflects four core principles and policy priorities,” said Governor Donald L. Carcieri. First, this budget controls spending and is balanced without raising taxes. Second, I have put in place incentives to grow jobs and improve our tax competitiveness. Third, we continue to protect and strengthen our safety net for our most vulnerable citizens. Lastly, my budget avoids disrupting our progress towards education improvement by maintaining funding while cutting back in other areas.”

The FY 2011 budget includes the Governor’s commitment to provide sustainable government services in an efficient and responsible manner, and includes tax relief and tax credits for small businesses, consolidates state government departments, realigns other functions, and makes better use of state-owned facilities and resources. The Governor’s budget proposal eliminates a projected $427 million deficit without any increases in broad based taxes.

Small Business Jobs Growth Initiative

“While the State must restrain spending, we must also initiate policies that will get our economy running again. The only responsible way to increase revenues is to get more people back to work, spending money,” continued Governor Carcieri. “Small businesses are the bedrock of our economic foundation. Small businesses also are the state’s largest employer base. Given the severity of the recession, many of Rhode Island’s small businesses are struggling. They have had to lay off employees, cut back on inventory and forgo improvements. I am proposing tax relief and tax credits for small businesses, as well as a vehicle for increased access to capital.”

The Governor’s FY 2011 Budget proposes reducing the State’s corporate minimum tax from $500 to $250. This will impact an estimated 46,000 businesses in Rhode Island.

Second, to encourage businesses to start hiring employees, the Governor proposes the creation of the Small Business Jobs Growth Tax Credit. This would allow employers with between 5 and 100 employees in Rhode Island a $2,000 tax credit for each new hire, provided the employee hired is a resident of Rhode Island, has received unemployment benefits or TANF or has graduated from an accredited higher education institution at any time in the last 24 month.

In addition, the employee must earn 250 percent of the state’s minimum wage, work at least 30 hours per week and be offered health insurance by the employer. , and the employer must employ the new hire for 18 consecutive months.

This tax credit, combined with the credit proposed by Federal government, would give eligible small businesses a combined $7,000 in tax credits to encourage hiring. The Small Business Jobs Growth Tax Credit program runs from July 1, 2010 through December 31, 2011 and is estimated to create 3,625 jobs.

“These two initiatives will have a direct and indirect impact on our small businesses and our economy, by putting people back to work and putting money back into people’s pockets. The indirect impact of the tax credit program includes increased revenues from personal income taxes, increased revenues in sales taxes, and a decrease in the amount of money drawn from the unemployment fund,” continued Carcieri.

A third component of Governor’s Carcieri Small Business Jobs Growth initiative is restoring the Industrial Recreational Building Authority (IRBA) ceiling from the current $20 million ceiling to $80 million. The Governor expects to introduce this as an amendment to the FY 2010 Supplemental Budget.

The IRBA guarantee program provides a credit enhancement to entice banks and other bond purchasers to provide financing at attractive rates to credit worthy companies allowing them the necessary financing to expand and hire new employees. Funds can be used for new building acquisitions, additions and rehabilitation of existing buildings and for new or used machinery and equipment. This program offers borrowers debt insurance on tax-free bonds, taxable bonds and conventional mortgages.

The IRBA guarantee program historically has played a vital role in RI’s economy. A review of the history of the IRBA program reveals demand for the program is cyclical. In strong economic times, demand for the program wanes whereas in tough and slower economic times it increases as access to capital tends to tighten and credit enhancements like IRBA are the lynchpin to getting RI companies the capital needed to grow.

Managing Costs of Municipal Government

While one-third of general state revenue is passed on to municipalities, municipal spending represents nearly two-thirds of total government spending in our State. This spending is not sustainable into the future nor does the state have the money to continue passing along over $1 billion to municipalities without seeking significant savings. The proposed FY 2011 budget does not restore local aid that was eliminated in previous budgets. As importantly, though, the Governor’s proposed budget contains tools for municipalities that would save towns and cities tens of millions of dollars. The Governor has proposed municipal savings tools for the last two years but, unfortunately, they have not been acted upon by the General Assembly.

“If these tools had been approved by the General Assembly last year or the year before, the financial situation of the towns and cities would be much better today,” the Governor noted. “I urge the General Assembly to act immediately on these proposed reforms. In addition to the savings possible through these tools, municipal officials can gain up to $40 million worth of savings if all municipal employees, including teachers, would participate in a pay reduction plan in the current fiscal year and in FY 2011 just as state workers have done. Additional cost savings can be gained by restrained spending and consolidation of services.”

The Governor continued, “If we are to manage through this recession, we must reset our spending at the state and local levels. No one is immune from the effects of a poor economy and no one is immune from making the difficult decisions to control spending. While many will immediately say that property taxes will have to be increased, I disagree. If the General Assembly gives municipalities the tools they need and if the towns and cities take the difficult measures the state has, property tax increases can be avoided.”

Among the savings tools the Governor has proposed are:

• Suspending the Caruolo Act and authorizing city/town councils to approve all school contracts and budgets. Those that have the authority to levy taxes must also have the authority over how those taxes are spent.
• Removing minimum manning for police and fire from collective bargaining.
• Creating a School Realignment Commission, similar to the federal BRAC base closing commission. This 14 panel commission will make recommendations to the General Assembly, who shall adopt of reject the recommendations to be put on the ballot in November 2012.
• Requiring the Federal standard for Municipal Health Insurance Cost Sharing.
• In addition, eliminating the COLAs from pensions will save cities and towns an additional $19.3 million in FY 2011.

Re-Structuring State Government

The Governor’s budget for FY 2011 also includes transferring dispatch functions from the Department of Environmental Management to the Department of Public Safety (DPS), moving the sheriffs to DPS, developing plans to integrate the Higher Education Assistance Authority and the Rhode Island Telecommunications Authority – Channel 36 – under the Board of Governors, and requiring the Department of Transportation to develop a plan to consolidate RIPTA into the agency, bringing greater coordination of all of Rhode Island transportation functions.

Continued pension reform and changes to retiree health care plans.

In his FY 2010 Supplemental Budget, the Governor proposed eliminating the practice of pension COLAs, saving the state, and municipalities, $41.7 million in the current fiscal year and $45 million in FY 2011.

To bring greater stability and transparency to the true cost of retiree health benefits, the Governor is proposing that the state move to an actuarial basis for determining the current cost impact of retiree health benefits and amortize the unfunded liability over a thirty year period. This enables the state to see clearly the year to year cost for benefits that are promised and also brings greater stability to costs in the future.

“By making these structural changes now, we are ensuring a stronger Rhode Island for the future,” said Carcieri. “With changes to our pension system, encouraging local government efficiencies, and reducing our tax burden, we are putting the building blocks in place for a stronger, more competitive Rhode Island when the state, and the nation, recovers from this economic recession.”

Education

“In my FY 2011 budget, we level fund both elementary and secondary education, as well as higher education,” continued Carcieri.

On the elementary and secondary education piece, the budget proposes a net increase of $17.9 million in education aid, compared with the 2010 revised budget. This increase includes an additional $13.4 million for school construction, $2.9 million for teacher retirement, and a $7.7 million net increase for charter schools, and it is offset by an across-the-board cut in aid to all districts of $6.1 million.

In addition, the Governor’s budget adds $15.2 million in aid to districts to offset the loss of federal stabilization funds.

“The increase in aid will allow us to open new high-quality charter schools and it will allow four of our current charter schools to add grades. Charter schools are an essential element in transforming education in Rhode Island, and I take these actions in keeping with the recommendations of the Urban Education Task Force and our Race to the Top proposal, which we hope will bring $125 million in federal aid to Rhode Island,” continued Carcieri.

Non-Critical Spending and Departmental Savings

Over the past several years, the Administration has made great strides in restricting discretionary spending and containing operational costs. Compared to current service levels, the budget proposes $72 million in cost savings across state agencies, including savings from pension reform, employee concessions, restrained spending, efficient use of state-owned space, lower FTE counts, and significant savings in social service agencies.

Governor Carcieri highlighted a number of cost saving proposals, specific to health and human service agencies

“To build upon the success of the Global Medicaid Waiver, our Health and Human Service agencies continue to focus on the development of a redesigned system of care that is consumer focused. These budget savings assume no eligibility reductions for all populations,” continued Carcieri. “The Global Waiver has proposed to further the development of coordinated care management for children and families, long-term care system and mental health. The lion share of the savings involves the major components of the Medicaid waiver, smart purchasing, rebalancing the system and care management and coordination.”

Five initiatives highlight this:

• Reprocurement of the State’s Managed Care Contracts to highlight greater care coordination.

• Developmental Disabilities Reform, develop one or more networks of providers to foster a more responsive, accountable, and sustainable system of care for individuals with developmental disabilities, and, within the confines of current financing, to finance the system improvements by increased efficiency, more seamless and timely consumer access to services, and an increased focus on accountability and the best use of all resources.

• Behavioral Health Reform and Care Coordination through the development of a new coordinated payment system using a set of performance and financial incentives. This will provide provider agencies with greater budget predictability, promote and incentivize the recovery model of treatment, and reduce the variability in the cost of treatment across the system. The State and the provider community will benefit from a payment system that is both more consistent and predictable
• DCYF’s System of Care Redesign to coordinate providers and care services. DCYF will contract with one or more operational and fiscal partners that will be responsible for building a comprehensive network of formal and informal services and supports including residential and home based services that will further strengthen and support the home setting.
• Care Management for Long Term Care – the second phase of rebalancing LTC includes utilizing a contracted entity to manage primary, acute and LTC services for Medicaid only clients and managed long term care benefits for clients with Medicare and Medicaid.

“These proposals stress long-term reform, sustainability for the future and provides for savings without reducing the number of people receiving services and maintaining the basic safety net of services,” concluded Carcieri.

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