State Budget – Page 6

March 19, 2012March 19, 2012

Occupy URI, David Dooley on Tuition Increases

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Protesting years of cuts to public higher education in Rhode Island that have caused rampant tuition increases, Occupy URI mic checked the meeting of the Board of Governors for Higher Education Monday night with a song.

While their tactics were lighthearted, the issue is a serious one. The Board of Governors recently approved a 8 percent tuition increase that will mean this September an in-state student will pay an extra $1000 a year, up from $10,400. Since 2008, said spokesman Mike Trainer, the legislature has cut some $45 million to the three state colleges in Rhode Island. But because the cost of an education is only getting more expensive, students are running up enormous student loan debt to pay for the cost cutting.

There was a brief moment of tension when Professor Scott Molloy, who showed up late, asked to speak even though he didn’t sign up to and Chairman Lorne Adrain asked officers to prevent him from doing so.

Aftewards, I spoke with URI President David Dooley about the issue. He told me that legislators seem to view funding higher education as “discretionary” because when they make cuts, tuition goes up and enrollment doesn’t suffer. He also said the state would be wise to invest more in higher education.

March 19, 2012March 19, 2012

Budgeting for Disaster Part VII: Quasi-appropriate?

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Trick question: Why is Rhode Island’s housing policy not made by the state government? How about economic policy? Why do we have two environmental agencies? Two elections agencies?

The questions sound unrelated, but they have very similar answers, and they’re all related to the state’s bevy of “quasi-public” agencies—whose budgets are in Volume I of the budget.

The Airport Corporation is here, who runs all the state’s airports, including Green. The Economic Development Corporation is also here, along with Rhode Island Housing, RIPTA, the Narragansett Bay Commission (sewers in Providence and Pawtucket), the Resource Recovery Corporation (runs the central landfill), and several others.

Truthfully, it’s more correct to say the outlines of their budgets are in Volume I [B1-331-366]. There isn’t much information there about some very important agencies, and in some cases this was part of the point of keeping them separate from the regular parts of the state government.

Some of the quasi-publics were formed when the state took over existing private corporations. RIPTA, for example, was formed to save the last private bus company. Others have a separate existence for legal reasons. The Turnpike and Bridge Authority, which maintains the Pell and Mt Hope Bridge, was formed to issue bonds against the toll revenue collected at those bridges. But many quasi-publics—along with some other agencies less quasi and more public—were formed out of power struggles between the legislature and the governor.

The Coastal Resources Management Council, for example, our extra environmental agency, was originally formed in the 1970s so that powerful members of the legislature could circumvent new DEM coastal regulations on behalf of their friends who owned waterfront property. Rhode Island Housing (technically the RI Housing and Mortgage Finance Corp.) may have originally formed to access some federal HUD funding, but it was also a creature of the legislature, witness the mortgage scandals of the 1980s. Later, under a stronger Governor, the Economic Development Corporation was created out of the Department of Economic Development to give the Governor Lincoln Almond more control over economic policy (and to pay its executives more like the corporate executives they lunch with).

EDC has another distinction. When it was spun out of the government into a quasi-public, it took over the shell of the RI Port Authority. Why? Because after Bruce Sundlun effectively put the Public Building Authority out of business (it was a campaign promise), the Port Authority was the only agency with unlimited authority to borrow money without voter approval. And boy have they used that authority. EDC now owes debt used for the Fidelity campus in Smithfield, the Shepard’s building in Providence, the Masonic Temple hotel across from the state house, the I-Way boondoggle, the Sakonnet River Bridge, and much more. Subsidiaries owe the debt used to build the airport and renovate Quonset.

Under Ed DiPrete, the PBA’s record of borrowing without voter approval was considered a minor scandal and contributed to his election loss in 1990. But none of these subsequent projects got voter approval. Don Carcieri managed to double the state’s debt, and almost all of it was unapproved borrowing, so it’s difficult to remember why it was such a problem for DiPrete.

There will be more to say about this borrowing when we look at the Capital Budget document. For now, let’s look at one of the quasi-publics that spends a lot of time in the news lately over its budget.

RIPTA

The state’s public transit authority was formed when the private bus company that ran transit in Providence and vicinity went under in the 1960s. It wouldn’t be correct to say it has had an untroubled existence until recently, but it did not always have the persistent deficit it has now.

What’s happened to the agency in recent years is a few things. First, like the rest of the state, it is a victim of our crazy health care system. Ten years ago, employee benefits were $10.5 million for a $28.7 million payroll. (For union employees, pension payments are a fraction of the health care costs, though their growth has tracked the health care costs fairly well.) In 2013, we’re looking at $24.8 million in benefits for a $45.8 million payroll [B1-355]. The cost of health care is going up almost two and a half times faster than payroll costs.

Second, transit for disabled people has taken a tremendous number of resources. Paratransit services between 2001 and 2011 more than quintupled, from a cost of $1.8 million to $9.1 million, and there are other categories of service that provide more or less the same function.

Finally, the gas tax has been a problem of its own. A portion of the gas tax is dedicated to RIPTA. The problem is that the gas tax is constituted as a number of pennies per gallon of gas. When gas prices rise, the gas tax actually falls, as people buy less gas. But when gas prices rise, RIPTA’s cost for fuel also rises. In other words, as gas prices rise, RIPTA’s ridership rises, and so do its costs, at exactly the same time that its gas tax revenue falls. Why does it seem that RIPTA is permanently in trouble? Because its funding system makes no sense, and provides falling revenue when expenses rise.

And for those who wonder what is the value of RIPTA to Rhode Island, take it from me that it’s actually pretty hard to get a seat on several of the lines I use frequently. High gas prices mean lots of riders, and also mean service cutbacks.

Unfortunately, pretty much none of the people who make funding decisions about RIPTA—its board, legislators, the Governor or his staff—actually use the system, so it turns out that RIPTA’s funding problems are thoroughly unaddressed in Governor Chafee’s budget. The documents cheerfully predict a $10 million operating deficit by June 2013 so we’ll be seeing lots of RIPTA headlines in the coming year.

March 16, 2012

Chafee’s Municipal Plan Helps Poorest Towns Most

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It’s hard to be happy about something that will hurt so many working class retirees across Rhode Island, as would Governor Chafee’s proposed bills to help cities and towns. But Chafee designed his suite of legislation to help the most cash-strapped communities the most, which is the right way to handle the state’s municipal fiscal crisis that is disproportionately plaguing the poor.

Rather than giving every community the ability to suspend annual pension increases, Chafee’s proposal would only allow those with pension funds less than 60 percent funded to exercise this tool, reports the Providence Journal. While no retiree deserves to have the deal they struck changed, at least this wasn’t a blanket exemption.

Chafee also made a number of cost-saving tools only available to the “most distressed” communities. As we reported earlier this week, those four communities are Providence, Pawtucket, Woonsocket and West Warwick. Ian Donnis has a good list of the relief measures offered to these cities and towns.

While Ted Nesi notes that former Governor Carcieri offered some of the same mandate exemptions that Chafee proposed yesterday, the big difference is Chafee’s bottom-up approach. Carcieri’s proposal was a blanket exemption to every municipality and Chafee’s is need-based. RI Future has held the former governor’s feet to the fire for cutting so much money from cities and towns that had so little. So did Chafee earlier this week.

Here’s hoping that Chafee’s proposal sparks a big debate in the General Assembly about the disparity between the haves and have-not communities in Rhode Island as this is arguably the biggest affliction affecting the entire state. After all, no one is talking about how rough it is for East Greenwich, Barrington and South Kingstown have it. Rather it’s the plight of Central Falls, Woonsocket, West Warwick, Pawtucket and Providence that is pulling our state down.

March 15, 2012March 15, 2012

Woonsocket, and How Chafee’s Muni Bill Can Help

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Woonsocket High School (photo courtesy of Woonsocket School District)

The Woonsocket School Committee voted last night not to close schools early, which is good news all around. But guess what? Schools were never going to close early. If Woonsocket can’t come up with the money it needs to run them by April 5, which it probably cannot, the state will step in and keep the schools running. The state Constitution says it has to.

Furthermore, under the new state education funding formula, RIDE has all but admitted that it shortchanged the cash-strapped city under the previous funding formula to the tune of $4.6 million, an amount the state will pay to the school district over the next seven years. Woonsocket, along with Pawtucket, is suing the state saying it needs that money right away. Obviously, this isn’t a bluff.

Yes, Woonsocket could have managed its finances better. A lot better. But the state mismanaged how it funds education, too. Couple these blunders with the drastic cuts to cities and towns that occurred over the past several years and you have the recipe for disaster that was cooked for Woonsocket.

Governor Chafee’s municipal aid bill will help. It will not only allow cities and towns to save money by cutting annual pension increases for retirees, but Chafee said on Tuesday it will also allow Woonsocket (and Providence, Pawtucket and West Warwick) to ignore some of the state mandates that drive up expenses.

Providence Journal State House scribe Randal Edgar, who evidently obtained a copy of the legislation, has a little more on what those are: mayors and managers would be given the power to veto line items in school budgets; teacher pay increases will be suspended, bus monitors can be replaced with cameras and allow those communities to stop busing students to private schools.

But at some point, and hopefully sooner rather than later, this state has to come to terms with the fact that top-down policies adopted during the Carcieri era, and a seemingly utter disdain for its poorest communities, has created this problem to a far greater degree than have unfunded pension liabilities.

March 15, 2012March 15, 2012

Budgeting for Disaster VI: DMV Manages for Success

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One part of the Department of Administration that gets a lot of press is the Department of Motor Vehicles, which is actually a unit of the Department of Revenue. DMV, of course, gets press because people don’t like it, and the lines are long, and it’s in an inconvenient place, and so on and on.

Over last spring and summer, the agency saw a turnaround. Spurred on by stories of multiple-hour wait times, Governor Chafee appointed a new director, who made some management changes, shuffled people around, re-engineered the lines, put “greeters” out front to explain things, closed some satellite branches, and generally shook things up. Lo and behold, the wait times plummeted. An inspiring tale of how good management can make all the difference? A story of re-inventing government to do more with less in the 21st century? Well sort of, but not quite.

Watching the ticking clock in line at DMV has been a part of life for all of us in Rhode Island for a long time, but it’s not right to say that it’s been a neglected problem. Lincoln Almond suggested adding $300,000 per year to expand their hours, and Don Carcieri made a point of “fixing” it, too. He even listed new efficiencies and reduced wait times as one of his accomplishments in a 2004 interview.

But time went on and service decayed until it took hours just for routine business to happen. I waited there with my daughter for three excruciating hours one fine day in 2010, along with about three hundred good friends. By the time Lincoln Chafee took office, DMV was a joke, a travesty of government service. Chafee brought in a new interim director, Lisa Holley, to troubleshoot the agency, and — what do you know? — she got results. Wait times shrank dramatically and while it’s still hard to describe a visit to the DMV as a pleasure, the last time I was in one, last August, I was in and out in 25 minutes.

So what happened? What management magic did Holley bring to the agency? What lessons can we learn? Mostly just that it takes people to do the work.

In the dark days of 2004, when Don Carcieri was taking credit for improving wait times, he was adding employees, and adding satellite locations. You can see the progress in the graph to the right, which counts customer service representatives in the department. Service got better with the new workers, and a little worse with the satellite offices. But then around 2006, Carcieri decided it was ok to let the service decay a little bit. He said the state had too many employees, and he started to enforce the statewide hiring freeze on DMV. And then the retirement fiasco of 2009 came, and a bunch of people left, and so in 2010 you had all the satellite locations, and 22% fewer people to stand behind all those desks.

And that’s the crazy thing about management by attrition: you don’t get to plan for the loss of people. Carcieri simply said we’re not hiring any new people and we’re going to encourage people to retire, and that’s that. The only surprise was that people were surprised that service suffered — a lot.

So again, what management magic did Holley bring? She insisted on having more people, that’s what. Chafee asked the Assembly for 25 new workers. They balked, but they did cough up some, and so now there are almost as many people on the customer-facing staff as there were in 2006, at half as many locations. Of course there were some other improvements: line management systems, those greeters, a redivision of labor. But sometimes the big story is the simpler one: we got better service with more people.

There is another story I see lurking here. Governor Chafee saw a problem of poor service and acted to fix it, while Governor Carcieri saw the problem in terms of taxes, and acted to fix that instead, mostly by giving tax cuts to rich people. How did that work out for you?

There is one other feature to the DMV budget that should not go unremarked while we’re here. The RIMS computer system that was supposed to create a whole new class of efficiencies by getting all of DMV’s information about you in a single database is quite a bit behind schedule and over budget. This is pretty much SOP in the database development world, public and private. That is, it’s a shame and a waste of state dollars, but it’s not exactly unprecedented. I bring it up at least in part because you can’t exactly see it in the budget presentation, but you can see it in the Capital Budget, which we’ll get to soon.

NEXT: The Quasi-Publics
Read the previous posts in this series

March 13, 2012March 13, 2012

Chafee: State Aid Cuts Put Poor Towns in Peril

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chafee_bryant — Governor Chafee said state aid cuts to cities and towns is a primary reason Rhode Island's poorest communities are struggling.

Governor Chafee said former Governor Don Carcieri and the General Assembly put struggling communities in peril when they cut some $195 million in state aid to cities and towns.

“It’s no wonder Providence is in trouble, it’s no wonder Pawtucket is having a trouble making payroll, it’s no wonder Central Falls went into bankruptcy,” he said after speaking at a conference on the state’s economy at Bryant University today. “They just couldn’t sustain those kinds of cuts. There is no property tax base to transfer those kinds of cuts onto.”

Chafee said Carcieri and the General Assembly essentially balanced the state’s budget by taking money away from cities and towns – a move that he said the state’s wealthy communities could withstand but the poorer communities could not.

“I thought it was the path of least resistance,” he said. “That way they could go and say we didn’t raise taxes but at the same time they did raise taxes on the property tax payers of those communities. It was a little disingenuous to say we’re not raising taxes when you are passing it down to the property tax payers of the distressed communities.”

He said he would be unveiling a bill “later this week” that will help Rhode Island’s cities and towns. In addition to including enabling legislation that will allow cities and towns to rework annual pension increases as well as addition funding for local school districts. The additional school spending, he hopes, will be paid for by his proposed increase in the meals and beverage tax.

His bill will also include, he said, relief from state mandates for some of the state’s poorest communities, such as Providence, Pawtucket, Woonsocket and West Warwick. Other communities could be included as well, but he indicated it would not provide mandate relief for every community in the state.

He wouldn’t say which mandates would be included.

“It’s the usual suspects,” he said. “They are the ones that many of the town managers and mayors have been talking about for decades.”

March 12, 2012March 12, 2012

Popular Proposal on Smith Hill: Tax Equity Bills

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Add Rep. Scott Guthrie, D – Coventry, to the list of legislators hoping to find additional revenue for the state through an increase in income taxes on Rhode Island’s richest residents.

“By instituting a fourth tax bracket we could solve many of our immediate budget problems, the ones that include deciding if we should cut more services for the needy or force classroom teachers, first responders and other public servants to take pay cuts and layoffs in order to balance budgets,” he said in a pres release issued today.

He’s got four proposals submitted, and while none of them would raise as much revenue as the so-called Cimini-Miller bill, one of them may be more politically practical given that leadership has vowed to fight against any increased taxes on the rich.

From his release:

2012-H 7305 would impose an additional one percent tax increase for all personal income over $500,000. Doing that would bring in an additional $18.4 million in Fiscal Year 2013 and an extra $19.5 million in 2014, according to a State Fiscal Note provided by the Budget Office of the Department of Administration.

2012-H 7379 would impose an additional one percent tax increase for all personal income over $250,000. That would result in an additional $32.4 million in tax revenue in FY 2013 and an extra $34.3 million the following year.

2112-H 7382 provides for an additional two percent tax increase on personal income over $500,000. The added revenue would be $37.3 million for FY 2013 and $39.4 million for FY 2014.

Finally, 2012-H 7381 provides for an additional two percent tax increase on personal income over $250,000. Added revenue is projected by the Budget Office at $65.3 for fiscal year 2013 and $69.2 million for the following fiscal year.

Guthrie added, “We need a shift back to a more fair tax policy. Trickle down doesn’t work. We’ve tried it for years and all the benefits continue to trickle up. As the state budget deficit continues to loom large, for yet another year, one phrase continues to remain popular from elected officials – shared sacrifice. Well, I see municipalities sacrificing, as well as many of the residents of those communities. I see sacrifices from the poorest and neediest in Rhode Island, the results of continued trimming in the social services funding. What I don’t see is sacrifice from the wealthiest members of our society who could most easily afford to give a little more to help their many neighbors and fellow citizens who are suffering.”

Last week, Speaker Gordon Fox told me he doesn’t see any of the tax equity bills going anywhere during this session, noting that this will be the first year in which the new tax rates, which were pushed by former Gov. Don Carcieri, will be factored into the budget.

March 12, 2012March 12, 2012

Budgeting for Disaster Part V: Granting a Problem

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Our tour of the state budget documents continues. We leave the Executive Summary for the time being (we’ll be back for the all-important schedules and for the invaluable predictions of the future), and move into Volume I.

Volume I covers “General Government”, which includes the offices of all the elected officials, and the departments of Revenue, Business Regulation, and Labor and Training. Plus the Department of Administration which holds all the central functions. It’s also got all the quasi-public agencies like the Economic Development Corporation, RIPTA, the Airport Corporation, and Resource Recovery, who runs the state Central Landfill. For each department and agency, there is a summary page, and then a page for each of the major divisions. This is the part of the tour where the guide is supposed to tell funny jokes to fill up the travel time as you cruise from one interesting locale to the next.

The legislature’s budget is in this volume, so let’s look there first. The overall budget for the Assembly is about $41 million this year, and the Governor is proposing to cut it by a little more than $1 million, about half from supplies and expenses and the rest from the grants budget. There’s no change in the number of personnel, and it looks like they’re anticipating a 3% raise for most everyone, and — what’s this? — it’s the rising cost of health care, just like everywhere else. Remember, no matter what you’ve been told, it’s rising health care costs that are pushing up the cost of your government more than anything else.

Legislative grants

Oh, wait, did you want to hear about the infamous grants budget? This is the source of the legislative grants, random bits of money awarded by the leadership to reward this or that legislator for helping out around the place. It mostly goes to non-profits in the legislator’s home district, like say, Dan Doyle’s Institute for International Sport that we’re hearing so much about these days. They apparently got $575,000 in 2007 for a fabulous building on the URI campus that remains unfinished today.

There are also plenty of excellent, well-run non-profits who get support this way. The problem is that the way these grants are awarded has a lot to do with ring-kissing and begging and maybe not so much to do with merit. Lots of ring-kissers have other merits, but when merit isn’t the main criteria, you’ll undoubtedly get some who are better at the kissing than the service. (This makes the occasional screw-up like the Institute into the fault of some specific person, though no one seems to be saying who just yet.)

How much does it cost? On paper, you’ll see a grant budget line item of $2.8 million in the current year, and the Governor is proposing to cut it back to $2.3 million. The way the system works, though, there is much more than that available. The way it works is that lots of the dollars will wind up as line items on the budget of some agency whose mission is vaguely related to the non-profit’s. So a theatre might get a grant and it would come directly from the RISCA budget, not from this line item. This is a problem both because it provides less money for the agency mission, something that you can’t see from the budget documents, and because counting all those grants isn’t possible from the outside.

What else? One can’t help but notice that despite the modest cut Governor Chafee has proposed, the legislature’s budget is up a healthy 42% in ten years, 2003-2012, about 3.5% per year. This is somewhat less than overall state expenses, which are up 48%, but it’s embarrassingly close to the 42% rise over that time in the statewide property tax levy. One thing you’ll hear if you wander around the halls of the State House and talk to legislators is complaints about out-of-control municipal budgets. What those legislators don’t seem to understand is that the town councils and mayors are doing pretty much as good a job as the legislators.

It’s easy to understand legislators not noticing this. What’s less forgivable is the way they keep voting to cut taxes without cutting their own budget. Over that decade 2003-2012, we saw a capital gains tax cut, an income tax cut for rich people, and several high-profile tax credits pass the Assembly. At none of those times did anyone propose a proportional cut in the Assembly’s own budget. Cuts for thee and not for me. If you care about controlling costs in government, this is the kind of behavior that has to be rendered embarrassing (or at least politically dangerous) for elected officials.

Time to move on. Next stop: DMV!
Read the previous posts in this series.

March 8, 2012March 8, 2012

Budgeting for Disaster Part IV: Lack of Education

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After spending time with Appendix C of the Executive Summmary, it only makes sense to dip into Appendix D, doesn’t it? C was about state aid to the parts of municipal budgets that aren’t education. D is about the much bigger contribution the state makes to education. Once again, the really interesting things about the numbers in D are how they’ve changed over the years. (The information is reproduced in the Technical Appendix, page 211, and that table goes back more years.)

You can write an entire book or two about the funding of education in Rhode Island. But this is a tour of the entire budget, so we’re just going to skim some of the important points.

In 2013, the Governor’s budget would provide $674 million to all the cities and towns, to help run their schools, plus another $46 million for charter schools. This is up from $616 million last year, and the difference is revenue from the proposed increase in the tax on restaurants and hotels.

As of 2010, the latest year for which the collected municipal budget data is available, all the cities and towns together spent $1.79 billion on education. To that amount, the state contributed $592 million, plus another $30 million for charter schools.

A couple of points leap out here. The first is that, just since 2010, charter schools have seen a 53% increase in state funding, while everyone else got 15%. You might sniff at that and say 15% isn’t nothing, but in 2008, the traditional schools got $98 million more than they got in 2010, and $16 million more than they’ll get in the proposed budget — the rosiest scenario on the table — in 2013. That is, between 2008 and 2010, they were cut from $690 million to $592 million. The Governor’s proposed increase doesn’t even get back to the 2008 level. Not to belabor the point or anything, but during each of those years, rich taxpayers were granted an increase on the “flat tax” cut.

Oh, and the charter schools? They got no cut at all. Some years they might not have received what they were hoping for, but between 2007 and the present, each year they received more than the previous year. Sauce for the goose is apparently too good for the gander.

Splitting the cost

The other important point you learn from this page is that the state picks up around a third of the cost of education for the cities and towns, or a tiny bit more, depending on whether you’re inclined to count the charter schools or not. Back in the misty dawn of time, under the, um, storied administration of Ed DiPrete, the state’s official goal was eventually to fund 60% of local education costs. At the time, they were at approximately 50%, and there was a plan to get to the goal by sometime in the 1990s.

The plan was undone by the credit union crisis and the fiscal crisis it provoked, but its demise was due at least as much to the weakening influence of municipalities in the state house. Ed DiPrete, for all his faults, had been a Mayor, and seemed to understand the fiscal strains felt at City Hall. Bruce Sundlun, to put it mildly, did not. Nor did his successors, until Governor Chafee. Matty Smith, House speaker during the 1980s, was much more solicitous of the cities and towns than any of his successors have been. There was a lot wrong with the state house of 1988, and I wouldn’t want to go back to that era, but we didn’t have cities and towns threatening bankruptcy, either, did we?

What about cost inflation? Should the state guarantee a proportion of the costs for municipalities who have been unwilling or unable to control the costs of education? This is the point at which people commonly invoke the evil teacher unions. Certainly unions have played a big role in keeping teacher salaries up, but lately they’ve also played a big role in offering concessions to keep costs down. The 2009 edition of RIPEC’s school finance report (the latest one on their web site) tells me that teacher salary inflation in Rhode Island lagged the national average over the previous decade. We spend more per pupil than the national average, but we also live in an expensive part of the country.

The fashion in education reform these days is nattering about how to improve the quality of teachers, but the dominant trend seems to be to find ways to do that without money. I’m not sure what happened to, “you get what you pay for,” but it certainly isn’t the way policymakers think about teachers. So now we have “value-added” ratings and teacher testing mandates and all the rest. The research behind these trends is flawed by some strange assumptions about the teaching profession — it’s a perfect example of sophisticated statistics employed in pointless fashion — but leave that alone for a moment. I can think of only one valid way to judge whether teacher salaries are appropriate: do job ads result in a harvest of excellent resumes? If so, the salaries are appropriate. If not, well, not.

According to the same RIPEC report, Rhode Island has the eighth highest-paid teachers in the country. This is tragic, right? But according to a survey I did a few years ago we also have the seventh highest-paid accountants in the country and the fifth highest-paid veterinarians. Architects, pharmacists, counselors, and other professional jobs, are also paid quite well here. It wasn’t unions who drove those salaries up. The evidence seems that school departments are responding to the vicissitudes of the labor market, just as the employers of those accountants and veterinarians are. People who want me to believe it’s all the unions’ fault have to provide a much more detailed analysis to support their claims than I’ve recently seen.

What else?

There are other important factors beside salaries that push up costs, and some of them are in the personnel column. A recurring theme in budget browsing is the cost of health care, and until the state’s pension payments superseded them recently it was pretty much impossible to talk to a superintendent about costs without hearing about the skyrocketing cost of health benefits. You can’t spend any time with a budget without understanding that bringing down the cost of health care must be a national priority.

What else? How about that federal funding of special education mandates cover substantially less than a fifth of those costs? How about all the mandates of “No Child Left Behind”? The National Governor’s Association voted in 2003 to label both of these “unfunded mandates”, and they have only become more onerous since. How about that despite the calls for consolidation of services, school districts have only become more fragmented in the last decade, as more charter schools come online?

It’s a long list and education funding is a complicated subject — we haven’t covered the new funding formula, the suit from cities who say it’s not fair, the way we fund charter schools, the aid for school construction (“housing aid”), and lots more — but it’s a big budget to cover and it’s time for the tour to move on. Just one last word. Yesterday there was a hearing at the House Finance committee about the proposed hotel and meals tax that would make up a part of the local education funding lost since 2008. Lots of people protested it, but I’m not aware of any who proposed cutting this aid to schools. In fact, I’m not aware of any who were at all specific about what should be cut to avoid this increase. Readers who know otherwise are invited to send along copies of the testimony, and I’ll post them here.

Next: Budget Volume I

March 8, 2012March 8, 2012

Speaker Fox Says Tax Equity Bill DOA

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Despite nearly half of the House signing onto a bill that would raise taxes on the richest Rhode Islanders, Speaker Gordon Fox said he intends to keep his promise not to touch the income tax structure in this budget cycle.

“At this point I’m closing the door on doing anything with income tax until we have a little more historical evidence about what’s going with the reforms we did a few years ago,” he said.

In 2010, the General Assembly passed a budget proposal put forward by then Governor Don Carcieri to lower the tax rate on those who make more than $100,000 from 9.9 to 5.9. Fox said this will be the first budget year that the General Assembly can see how those tax cuts affect the state’s budget (people are now filing taxes for 2011, the first year the restructured rate was in place). He also said a number of tax exemptions were eliminated when the overall rate was reduced.

“When given all the information I think that a significant number members will support my position on this,” Fox said.

But some legislators, speaking on background, said the bill that would roll back the Carcieri tax cuts for those who make more than $250,000 a year, still has life – though it could look much different if it does pass.

Even Fox, who has described himself as a fiscally conservative Democrat, would not rule out taking another look at the tax code in future budget cycles.

“As we get the empirical data going forward what we’ll do,” he said, “I never want to make any predictions about what we would do in the future, but we’ll see.”

March 7, 2012March 7, 2012

Flight of the Earls Mythology Debunked

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flight of earls — A sculpture in Ireland depicts the original "Flight of the Earls" during which some affluent Irish in the early 1600's left for mainland Europe to recruit sympathizers against the British crown.

You can bet that as the General Assembly debates raises taxes on Rhode Island’s richest residents, we’re sure to hear much about the “Flight of the Earls.”

In fact, almost any time you talk taxes with a local conservative you are bound to hear a story about someone moving out of state because of the high costs of living here. This false narrative, known as the Flight of the Earls, is meant to scare the state out of taxing the rich with the threat that they will simply move to Fall River or Florida if we do.

My question: Who are these foolish rich people who would so disrupt their lives and spend thousands of dollars to relocate in order to save a few hundred bucks in taxes, and why do we care if they leave? After all people who would employ such flawed economic logic can’t really be expected to create many jobs, let alone figure out how to pay their tax bill…

Of course, no one moves to save money on taxes – that would be like buying a new car to avoid oil changes – and a new report from the Economic Progress Institute proves as much.

The Flight of the Earls theory, the reports states, “ignores the fact that moving – selling a home, hiring movers, buying a new home – is very costly, even for wealthy households. And leaving a place filled with family, friends, business associates and other connections, in addition to changing schools, imposes substantial burdens.”

Authored by Jeffrey Thompson, a research professor at the Political Economy Research Institute, the report goes on to suggest that the very reason the right says the rich will leave is actually a reason they are likely to stay.

“The wealthy drive better cars,” writes Thompson, “but they drive them on public streets. Even if affluent families send children to private schools, the businesses they own hire workers who graduate from local schools. And upper-income families value the services of fire and police as much as any other family.”

His research found that so few people actually move, less than 2 percent of households between 2008 and 2009, that migration has almost no effect on tax revenue collected. “Income has only a very weak impact on the chance of moving to a different state, with the likelihood actually dropping for the highest income households,” he wrote.

Thompson cites a New Jersey study that found the wealthy were no more prone to move out of state after a tax increase than they were before.

Of course, what really happens is people decide to move for lifestyle or career considerations and if they were the type to complain about Rhode Island in the first place, they will suggest that their complaints are actually the reason for their exodus.

But even when the rich do move away, they typically sell their homes to people in a similar tax bracket. It’s the cheap homes, not the expensive ones, that are sitting idle on the market. And for the few rich folks who are fleeing Rhode Island because of taxes, we can take heart that they will likely be replaced by people who wouldn’t make such an illogical life choices.

March 6, 2012March 6, 2012

Rhode Islanders Rally for Tax Equity Bill

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rite rally — Sen. Josh Miller and Rep. Maria Cimini, sponsors of a bill that would raise taxes on the richest 2 percent of Rhode Islanders.

Rhode Islanders for Tax Equity held court in the rotunda of the State House this afternoon, explaining why it’s good for the state’s economy – as well as a moral imperative in tough economic times – to raise taxes on the rich.

The bill would raise the income tax rate for those making more than $250,000 – the richest 2 percent of the state – from 5.99 percent to 9.99 percent, with the caveat that for every one percentage point the unemployment rate drops so too would the tax increase, and the group estimates it could bring in $118 million in new revenue for the ailing state coffers.

March 6, 2012March 6, 2012

Rhode Islanders for Tax Equity Meets Today

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There’s a broad-based coalition building around a bill that would raise income taxes on the wealthiest Rhode Islanders. The coalition includes legislators, labor leaders, small business owners, parents, college students and a at least one mayor.

Pawtucket Mayor Don Grebian will join the other members of this coalition, called Rhode Islanders for Tax Equity, today at 3:30 at the State House for a press conference to answer questions about the new tax proposal that would raise income taxes on those who make more than $250,000 a year.

“RITE is advocating for a tax policy that will take the burden off of the middle class and ensure the most privileged Rhode Islanders are paying their fair share,” said the group in a press release.

The group estimates the bill could yield $118 million in revenue for the state budget.

Rep. Maria Cimini, a Providence Democrat who sponsored the bill in the House, previously told RI Future: “We’ve really called on low and middle income Rhode Islanders to feel the pain of this recession. I don’t feel that we’ve called on upper income Rhode Islanders to feel that pain or share that sacrifice.”

Cimini will be at the event today, as will the bill’s sponsor in the Senate, Josh Miller, D- Cranston.

Cimini said the bill is different from other tax the rich proposals because the increase would drop commiserate with the state’s unemployment rate. In that way, it will serve as an incentive for the job creator class to actually create jobs.

March 5, 2012March 8, 2012

Budgeting for Disaster – Part III

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We continue our tour of state budget documents. The Executive Summary has a lot of useful information, but the parts that I find myself referring to most often are not the text descriptions of the Governor’s program for the various departments, but the numbers in the back: the summary tables, the planning values the Budget Office used to predict the future, the wonderfully informative appendix C, which shows how much state aid each Rhode Island city or town gets, and appendix D, which does the same for education aid.

In a state with one bankrupt city and several more threatening to dive into bankruptcy, these are the focus of a lot of my attention. What deserves at least as much attention are the same sections from previous years. Let’s start with Appendix C.

The first thing you’ll notice if you flip, click, scroll, or slide to Appendix C is that local aid comes in lots of different forms. There is “appropriated aid”, which comes out of the general state taxes (called “general revenue” in the budget), and “shared” (or “pass-through”) aid, which is money the state collects on behalf of a city or town. For example, “payment in lieu of taxes” (PILOT) money is paid to a town instead of taxes on state property, and is appropriated in the budget, while the meals and beverage tax is a portion of the sales tax, collected on behalf of a city or town and passed on to them.

The meals and beverage tax collected in Providence restaurants goes to Providence and the tax collected in Newport restaurants goes to Newport, and so on. The numbers in the appropriated aid represent actual decisions made by legislators and the governor. The shared aid numbers are just estimates of how much those taxes will bring in.

There are a couple of things worth noticing about these numbers. One is that the state is planning to give the cities and towns $61 million in appropriated aid in 2013, which is exactly the same amount budgeted for 2012. Level funding sounds like a cold shower, but compared to recent history, it’s a warm bath. In 2008, appropriated state aid amounted to about $250 million. Or well, it would have, except the legislature cut $10 million halfway through that fiscal year. Providence got a $2.4 million cut, Pawtucket lost $850,000, and Woonsocket lost $600,000. Central Falls was hit for $250,000.

These are cuts in the neighborhood of 1%, which doesn’t seem that big a deal, although they came halfway through the fiscal year, so the cities and towns had to cut around 2% of their expenses to make up for the lost time. For cities under financial stress, this hurt.

For 2009, the Governor proposed a slight increase in aid, back up to $244 million. But once again, this was cut halfway through the fiscal year, to $215 million. Providence was cut $5.7 million, Pawtucket $2 million, Woonsocket $1.4 million, and Central Falls $600,000. Again, the cuts came along well into the fiscal year, making them at least twice as hard to deal with. For Central Falls, this worked out to cutting more than 7% of the annual municipal budget in a few months.

The pretense of maintaining the level of aid was burst by this point, so the Governor proposed cutting municipal aid by 14% for fiscal year 2010, to $184 million. Are you keeping track? To recap: In September 2007, Central Falls was on track to get $3.6 million from the state, or a bit less than a fifth of their budget. By May of 2009, the Governor was suggesting they get by with half that amount, a 10% cut in their budget.

But even that cut wasn’t enough, and with only months to go in the 2010 fiscal year, the state slashed total aid yet again, from $184 million to $118 million. Providence saw a $12 million cut, Pawtucket $5.1 million, Woonsocket $2.8 million, and Central Falls $750,000. This time, quite a bit of the cut came in the last quarter of the year, leaving virtually no time to make up the cuts. And for the 2011 budget Carcieri proposed to cut total municipal aid all the way down to $49 million. That year, insurgents in the Assembly pressured the leadership to put a little aid back in the budget, but it still only got up to $60 million, down 76% from just three years before.

I’m sure it was a coincidence that Central Falls went into receivership in May of 2010. At least the way everyone talks about Central Falls, their bankruptcy was all the fault of their unions and retirees, and the state played no part besides offering them a receiver to work out their issues. Their annual budget was $18.9 million in 2008, of which $3.6 million was state aid. In 2010, they were promised only $1.8 million, but got only $1.1 million. And in 2011 they didn’t even get half of that.

In 2008, Providence expected to get $65 million from the state, to help with its $302 million municipal (non-education) budget. In 2009, it went down to $57 million, and in 2010, the city still expected to see $49 million, but got $29 million instead. Over two short years, the state cut 10% of the Providence budget, and each time it happened well after the fiscal year was underway. But it’s fashionable to blame David Cicilline for Providence’s fiscal crisis, so apparently there’s no point in asking Governor Carcieri or any of the Assembly leadership what made them think the municipal budgets could withstand this kind of abuse without cracking.

Here’s the part that makes it all a bit worse. A lot of the aid cut technically did not go to the city or town itself, but to you. In the fall of 2009, towns expected $133 million of state aid to reduce the property tax on your car in fiscal 2010. The state was paying a portion of your taxes for you. The towns only got half of that, and almost all the rest was cut for fiscal 2011. Essentialy, the state was telling the cities and towns to make up the difference from property taxes on cars—now! Some did send out new car tax bills, but many just sucked it up and made cuts.

You see a lot of people wringing their hands about Rhode Island’s municipal fiscal crisis—How will we pay for all those retirees? What were those Mayors thinking? Can you believe those unions?—but how often do you see the story of the state budget included in the saga?

When I describe this sequence of events to people, they will point out that state revenues plunged in 2009, so the state had no choice. But this is an absurd position to take. After all, during each year of these huge municipal aid cuts, Rhode Island was increasing the amount of a generous tax cut granted to the richest taxpayers in the state. That is, taxes were cut further each year at the same time aid was slashed to all the cities and towns. Governor Carcieri and Assembly leaders felt that lower taxes on rich people were important enough to slash aid to cities and towns—a position they still hold.

Next: Education (really)

March 2, 2012May 22, 2016

Care providers feel sting of state cuts to disabled

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Seven Hills Orchestra with High School Students — A Seven Hills facility in Mass. (photo courtesy of UMass. Medical School)

Employees of the Seven Hills developmentally disabled care facilities in Rhode Island are striking today to call attention to what their union representative says is an unfair attempt by management to cut their pay. The proposed pay cuts, he said, are a direct result of losing $26 million in state funding in the current year budget.

“While we think what the employer is doing is wrong,” Jack Callici said, “The governor has completely turned his back on the developmentally disabled by not restoring one penny that was cut last year.”

He said the 250 union members he represents at the 17 Seven Hills facilities in Rhode Island and southeast Mass. have been asked to accept a 5 percent pay cut as well as a 10 percent increase health insurance costs.

“These are $10 an hour workers,” Callici said. “They can’t afford this. They will either reduce their coverage down, or drop it altogether.”

He said the budget cuts would be more easily absorbed by Seven Hills employees who have much higher pay grades. Noting that the union pay cuts would save about $100,000 and CEO David Jordan earned more than $500,000 in 2009, Callici said, “if that poor guy brought in just $400,000, it would pay for all the cuts.”

Seven Hills isn’t the only facility for the developmentally disabled in Rhode Island reeling from state budget cuts. Many facilities, according to Callici, have cut service to people with developmental disabilities from eight hours a day to six.

“Eight hours is important so people can go to work,” he said.

Rhode Island Federation of Teachers and Health Care Workers union rep Jim Parisi said the Trudeau Center in Warwick has also cut service from eight to six hours. He said employees he represents there could have their hours reduced to part-time, which would “will cost them thousands if they have medical insurance.”

March 1, 2012March 5, 2012

Budgeting for Disaster – Part II

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Growth of the state budget over the past 20 years. Looks scary, no?

Look at it grow

So what’s in the state budget? Funny you should ask. In the accompanying chart, you can see the breakout in a graph prepared by the House Fiscal staff. They publish a digest of the budget every year that is pretty helpful in figuring out what’s going on. What you can also see from the graph is how the budget has grown in 20 years.

What you see looks like huge growth, and if you compare it to the inflation rate over those 20 years, it seems to confirm what everyone says, that government spending is out of control and so on. You know how that song goes.

In fact, there are some serious problems in government spending, but they’re pretty specific and we’ll get to them. But first, let’s talk about inflation. The inflation rate is calculated based on a household’s expenses, and it looks at the rise in prices of the things that people buy: groceries, gasoline, auto insurance, medical services, TVs, washing machines, and so on. Your state government does not actually buy a lot of groceries, and I’m betting that you do not buy a lot of services from corrections officers or park rangers. That is, there’s no reason to think that the inflation rate tells you anything useful about how much government spending should grow.

What’s really at issue in questions like this is whether the taxes the state levies are weighing down the state’s economy. If taxes are soaking up a bigger proportion of the state’s economy than 20 years ago, that’s not good news unless we’re getting a lot more services. So what’s the story?

In 1992, the state collected $1.74 billion in taxes, and the state’s economy (measured by personal income reported by the BEA) was about $21.1 billion. So the state collected taxes equal to 8.25% of the overall economy. Using the 2011 BEA income number and the economic predictions in the budget [on budget page ES-13] we expect personal income in 2013 to be about $49.7 billion, out of which the Governor’s budget will pull $3.27 billion in taxes, or 6.6%, or nearly one-fifth less than in 1992.

Ok, you say, but property taxes have taken up the slack, right? In 1992, RI cities and towns collected $990 million in property taxes, meaning that state and local taxes together were around 12.9% of the state’s economy. I don’t know what property taxes will be in 2013, but they added up to $2.11 billion in 2011. In order for them to get up to the 1992 proportion of the overall economy, property taxes will have to jump by 48% from their 2011 levels. They went up a lot last year, but no city or town’s taxes went up nearly that much.

In other words, no matter how you slice it, state and local taxes are taking up a smaller share of the state’s economy today than 20 years ago. Maybe it’s hard to believe, but it’s true: the biggest reason we’re getting less government these days is because we’re paying less for it relative to the size of the economy. If state and local taxes added up to the same proportion of our economy in 2013 as in 1992, the state and cities and towns would have an additional $900 million dollars in revenue each year, far more than the deficits of the state and all the cities and towns put together. I’m not saying that this is the right measure, but it’s not possible to argue successfully that the gross level of state and local taxes we have now is slowing the state’s economy.

Again, I know this is hard to believe, but in reality there is a specific reason why it’s hard to believe, and there are ways in which our taxes are slowing our economy. You just can’t see it in the broad averages. We’ll get to that down the road, when we get to a detailed picture of taxes. For now, I’m going to stay on spending, and focus on the makeup of the bars in the graph next.

Assistance, Grants, and Benefits (really)

The legend is a little hard to read, but the yellow at the bottom of each column is personnel expenses (which includes benefits), and moving up, you have good old “Other”, followed by aid to local governments, “Assistance, Grants and Benefits”, capital expenses, debt service, and operating transfers. Let’s look at the big ones here.

Starting again from the bottom you have personnel expenses. This includes the infamous pension payments, which have gone up a lot since 1992, but have been pretty well matched by the rise in health benefit costs. For 2013, the pension payments will be about $167 million, and health benefits $183 million [ES-32]. The 1992 payroll included a bit more than 16,000 state employees (on paper). As of now, there are 13,700 employees, almost 1,000 fewer than are officially in the budget.

What about salaries? This is a little harder. You see, until recently, the budgets were silent about how many positions were actually filled. You’d see that 16,000 employees (full-time equivalents) were approved for the budget, and that’s all it would say. But some positions hadn’t been filled for years, and lots of unfilled positions had no money appropriated for them. If you take a strict apples-to-apples comparison, you get that the average annual wage of a state employee in 1992 was about $37,000, and in 2012, it was $61,300. It turns out that this is pretty much exactly the rate of inflation for those years. On paper, at least, salaries have risen slower than the budget as a whole. It’s not possible from the public documents to say how many positions were filled in 1992 (though maybe a reader will have that number for me). But you can say that wage growth is absolutely not driving the budget’s growth.

Moving up to the purple band, you have the aid to local governments. The bulk of this is education aid, scheduled to be $674 million in 2013 [ES Appendix D]. This is a big number, and quite big enough to mask the devastating cuts to aid to the non-education parts of local government in 2008-2011. In 2008, the state appropriated $244 million for aid to municipal governments. In 2011, that number was $60 million [ES Appendix C]. Education aid was cut during those years, too, but not nearly as much. Are you still wondering why municipal governments are struggling to stay above water? You can sort of see this decrease in the 2008-2011 columns, but the presentation doesn’t make it very clear.

The blue band above the purple is the one that excites the most attention. This is “Assistance, Grants, and Benefits.” It sounds like it means welfare, but it’s just an accounting category, and covers everything from Medicaid to the money the state library gives to the Historical Society to maintain the collection of battle flags in the state house atrium, the silver tea service from the USS Rhode Island, and the other artifacts they keep for us. It also includes student aid at URI, unemployment insurance, TDI payments, and more.

The big bulk of this chunk is Medicaid, at $1.66 billion [B2-12 and B2-118 for previous years]. It is probably the fastest growing chunk of this category, too, but it’s not easy to be sure from the documents. Less than half of it is actually health care to poor people. Most of the rest is care for the disabled and elderly. The state pays approximately 48% of the cost, and federal dollars cover the other 52%.

Here’s the point I can’t help see in this graph: The biggest cost driver in the three biggest parts of the budget is health care. It’s more than 10% of personnel costs, it’s part of what cities and towns use state aid to pay for, and it’s far and away the biggest part of the Grants and Benefits layer. If you really want to find the reasons why the state is spending as much as it is and seems like it’s getting less than in 1992, the cost of health care is impossible to ignore.

And yes, you could solve the budget problem by cutting health care out of the budget—slash employee benefits, and all benefits to poor people, wheel the old people and disabled out of their group homes and down to the curb. That might keep health care costs from bankrupting the state, but it won’t keep it from bankrupting all the rest of us. If there ever was a case for government malpractice, it can be found in the utter silence of Lincoln Almond and Don Carcieri when it came to addressing this problem.

Next: Municipal Budgets
Full Series: Budgeting for Disaster

February 27, 2012February 27, 2012

Proposal to tax the richest Rhode Islanders

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cimini_maria — Rep. Maria Cimini, D-Providence. (photo courtesy of Rhode Island College)

As Rhode Island struggles to pull itself out of the recession many have been asked to sacrifice. Cities and towns have seen drastic cuts in state aid, schools have had their budgets cut, the poor have endured program cuts and public sector employees have had their benefits slashed.

Now it’s time to ask Rhode Island’s wealthiest residents to help out, too.

There are a number of bills before the General Assembly this year that would do this by creating new tax brackets for the state’s wealthiest residents with the most interesting one being a bill sponsored by Maria Cimini, D- Providence.

“We’ve really called on low and middle income Rhode Islanders to feel the pain of this recession,” Cimini said. “I don’t feel that we’ve called on upper income Rhode Islanders to feel that pain or share that sacrifice.”

Her bill, H7729, would increase the amount of income taxes people pay who make more than $250,000 a year from 5.99 percent to 9.99%.

“What this bill does is calls upon people who are better off to chip in during this time of economic crisis,” she said.

A similar bill proposed by Rep. Larry Valencia in the previous legislation was estimated to bring in about $130 million to the state coffers. That’s about a third as much as the landmark pension reform bill passed in the fall saved the state.

The bill would actual restore the tax rate to the exact level that former Governor Donald Carcieri cut it from (at the time, Carcieri said doing so would spur economic development in the state), except instead of being applied to everyone making more than $125,000 – or the richest 20 percent of Rhode Island – it would only apply to those who make more than $250,000 – or the richest 4 percent of the state.

Cimini’s bill also offers an economic incentive for the so-called job creators to actually creating jobs in the state. According to Cimini, the tax rate increase proposed in her bill would drop by one percentage point with every percentage point that the state unemployment rate drops. So if the unemployment rate drops from 10 percent to 9 percent, the tax rate increase would drop from 4 percent to 3 percent. The potential decrease would be capped at the same amount as the proposed increase.

“What this bill does if you do hire people and you do help to lower unemployment in Rhode Island,” she said, “we will recognize those efforts.”

Cimini said there are 37 co-sponsors of the bill – that’s almost half of the 75-member House of Representatives. On the Senate side, Josh Miller, D- Cranston, is expected to introduce similar legislation.

Similarly, Sen. Harold Metts, D-Prov, has introduced a bill that would increase income taxes on people making more than $500,000 by 3 percent. Even Gary Sasse, who helped orchestrate the Carcieri tax cuts, has said that he thinks taxes should be raised on Rhode Island’s wealthiest. But he suggested only raising taxes by less than 1 percent on those who earn more than $400,000 annually, which would only mean an additional $10 million in state revenue.

February 27, 2012March 1, 2012

Budgeting for Disaster – Part I

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One of the problems of political journalism is trying to parse the difference between what’s really going on and what is said about it. Press releases are misleading as often as they are informative, and interviews seldom get at any matters beyond the superficial.

That’s the secret pleasure behind budget analysis. A budget document is the policy choices of the government made manifest. You don’t have to ask someone what the policy is, it’s there in the sums. There are, of course, ways to obscure policy within a budget, and not all budgets are presented well, but these problems pale before trying to decipher what some people mean when they talk about policy issues. What does it mean to “cut” a program? What does “level funding” mean? Is some program really “new?”

The problem with open government is that sometimes there is altogether too much information available. You can go to the RI Open Government site now and learn how much any department spent on postage last month. That’s fine, but once you know that, what do you really know? The state budget is something similar. The budget documents for the state of Rhode Island are a large and ungainly set of documents. They are seven volumes, and even the Executive Summary has a hundred pages, plus five appendices. It’s hard to know where to begin.

Here, then, is the beginning of an entirely desultory tour through the state budget—and the state budget documents. For the next several weeks, I’ll post an article every few days (and every Monday) about different parts of the budget, and eventually we should be able to get within shouting distance of most of it. Obviously some subjects will get short shrift, but there will be room to cover plenty of the controversies. I’ll monitor the comments for suggestions, directions, and corrections, and will happily accept them via email as well.

Through the same period, the House Finance Committee will be conducting hearings about the various pieces of the budget proposal, but they are unlikely to do anything about any of it until after the beginning of May, when the estimates come in for tax receipts and social service expenses.

Volumes

The budget documents have been rearranged slightly this year, and they consist of the following volumes (and my abbreviations). All these are available at the link above:

Executive Summary (ES) contains text descriptions of the budget and its changes. It also has a description of the economic outlook, summary schedules, tables of municipal aid and education aid, and the planning values used.
Budget, volume I (B1) contains the budget for the General Goverment departments, like Administration and the Legislature, and the quasi-public agencies like RIPTA and the Airport.
Budget, volume II (B2) has all the Human Services agencies (Health, DCYF, and Behavioral Healthcare, Developmental Disabilities and Hospitals, and so on)
Budget, volume III (B3) covers all the Education departments, both Elementary and Secondary, and the state higher education institutions.
Budget, volume IV (B4) is for Public Safety, Transportation, and Natural Resources.
Capital Budget (C) has all kinds of exciting tables about how much is borrowed and what for.
The Technical Appendix (TA) is where dollar figures for detailed accounts are published, and includes the accounting codes, which helps when you want to get specific answers later.
There’s usually a small Budget as Enacted document that toddles along a month or so after the budget is passed. It’s not much more than a restatement of the schedules in the various department budgets; its numbers become part of the next year’s presentation.

In addition to these, the word “Budget” can also refer to the Appropriations Act itself. This is the law that actually gets passed by the legislature and signed by the Governor, and this year it’s been introduced to the House as bill 2012-H7323. All the numbers presented in the seven volumes are in Article 1, and the other articles contain the necessary legal changes to make the numbers work. Of course, the budget is a must-pass piece of legislation, so by the time the budget hits the floor of the House for debate, the articles will often include some hidden delights, too.

So let’s begin.

Austerity

To begin with, let it be clear from the outset that this is an austerity budget. Governor Chafee is getting lots of flack from the usual sources about his high spending and his tax increases, blah blah blah. What these people don’t want you to know is that this is a budget with many savage cuts in it. Chafee claims $45 million in program cuts in his transmission letter (beginning of ES), and the overall budget is down by 2.8%, to $7.943 billion from $8.173 billion in FY12. Federal funds are to be cut $271 million, largely due to the expiration of the stimulus funds.

For a little perspective, the state’s economy is expected to be a hair less than $50 billion in 2012, so the state budget is about 16% of everything. Municipal expenses add another $2 billion or so, so together we’re talking about a fifth of the state economy under very tight constraint. Recovery from our downturn can happen under these circumstances, but the austerity we’re seeing in government is roughly the opposite of stimulus, so it’s not as if the state is helping dig the economy out of its hole.

Why is the Governor’s budget so stingy? Because the Legislature told him that’s what they wanted. Last year, Governor Chafee proposed some changes in the sales tax to give his budget a modestly expansionary flavor. The state has to balance its budget, so we can’t do wholesale stimulus; the idea was only to keep from slashing everything, and to prevent a situation where government was laying people off during a recession. Any tax at all, of course, was anathema to the business “community” and the legislature duly shot it down, in peremptory fashion. House Speaker Gordon Fox essentially foreclosed the tax change before the budget even got to the behind-closed-door phase. So most towns enacted a property tax increase, and this year we have more austerity and cities going bankrupt. It’s really a pretty simple connection, even though lots of people want you to think it’s complex.

You have likely already heard lots of righteous-sounding arguments about how we ought to balance the government’s checkbook just like we balance a household’s. The analogy hides that fact that the austerity we feel is self-imposed, with much of it due to ill-advised tax cuts in the recent past. Second, and more important, it would have us imagine that paving roads, jailing criminals, and providing universal public education is somehow comparable to buying groceries and paying rent. Yes, the accounting can be made to look similar, but does the analogy stretch any further than that? The benefit of my groceries goes to me. The benefit of public education and roads doesn’t accrue to the state government in any but the most indirect sense. There is a difference between public goods and private ones that the accounting cannot reach and that many fiscal “conservatives” apparently cannot see. But more about all of this further down the road.

Next: “Assistance, Grants, and Benefits” — 44.6% of the budget?

February 23, 2012February 23, 2012

Cutting low income dental care costs as much as it saves

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linda katz — LInda Katz, the executive director of the Economic Progress Institute, at a recent conference.

Making budget cuts to low income dental care may sound like a good way to save money but it will actually cost the state slightly more than it will save, says Linda Katz, the executive director of the newly named Economic Progress Institute.

That’s because, she said, for every dollar the state spends on low income medical assistance the federal government provides matching funds.

So while the state would save $2.6 million by cutting low income dental care for the tens of thousands of Rhode Islanders who make use of this program, the Department of Human Services would actually lose more than $5.2 million in funding. More than $5.2 million because the feds actually match $.52 on the dollar, Katz said.

“It’s easy to talk about raw numbers,” she said. “But you have to understand what is behind those numbers.”

At a presentation last week, Katz said for the last few budget cycles those on the right have talked about making cuts health and human services spending because it has gone up 72 percent over the past decade while the overall state budget has only increase by about 40 percent.

While that’s true, much of that increase to health and human services comes in the form of federal dollars.

Consider food stamps, for example. Yes, the state distributes some $298 million worth of food stamps, but 99 percent of those dollars comes from the federal government, Katz said.

Given that food stamp spending has gone up some 368.5 percent over the past ten years, according to her presentation, it accounts for a significant increase in the health and human services spending in Rhode Island, but almost all of it comes from the federal government, rather than directly from Rhode Island taxes.

Of course, the vast majority of the increases to health service spending has been in providing medical benefits. But this increase has mirrored the increases in the private sector, Katz said. Citing a Kaiser study, she said family medical coverage has increased 11 percent over the past ten years.

“The same factors that are driving up costs in the private sector are driving up costs in the public sector as well,” she said.

These increased costs should be something that Rhode Island is willing to absorb.

“Certainly everybody should have access to high quality affordable health care,” she said.

February 11, 2012February 11, 2012

Wyatt’s Wall Streeters to RI: “Buy My Prison, PLEASE!”

Recent talk continues about the state buying a troubled asset, the Wyatt Detention Facility in Central Falls. The thinking is that the state could purchase the outlandishly overvalued prison, refinance it, and operate a modest profit margin while saving the bondholders on Wall Street. Naturally, such a deal would take decades, if ever, to pay off. As is, a scheduled increase in finance payments should bankrupt the prison within a few years. Like many such large projects, the income is made on the construction and the taxpayer dollars being redirected into the inside investors- a prison is not a “business” that sells a profitable service to customers.

The Wyatt prison operates at about half the cost of the ACI. They also get hundreds of thousands of dollars in free city services. Their subsidized, tax-free, “privatized” efficiency is done primarily by paying their labor on par with WalMart, rather than negotiating with the RI Brotherhood of Correctional Officers. If the state were to buy the Wyatt, there would likely be a considerable push to pay similar salaries and benefits, and the Brotherhood will likely demand those be union jobs. Furthermore, the payouts by Wyatt to prisoners’ widows (such as Jason Ng) would come out of the state coffers. The Wyatt will be guided by 14th Amendment protections under state ownership, which can grow costly, as (surprise) prisoners happen to be human beings and there are limitations on what forms of punishment and neglect can be inflicted upon them. Ultimately, and thoughts on turning a profit should be forgotten.

The desires to own a prison suggest little has been learned by the Bailouts and Foreclosure Crisis. Many people in government appear determined to override market forces and subsidize poor business models. It is much easier for a government official to do than an individual investor because, after all, it is not their money. And all you need to do to keep the Wyatt in business: increase sentences, arrest more people, create new crimes, and put more police on the street. For every dollar that the Wyatt makes, a dollar is spent by the taxpayers. Wyatt’s Wall Street owners need you to keep their pockets lined.

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