The Lowdown on the Governor’s Budget

Being in the middle of starting my own private practice office here in Cranston, I have not had much time lately to devote to blogging. Therefore, I am honored to have a guest blog post on Governor Carcieri’s budget from Carville, a frequent commenter here on Kmareka and a thoughtful analyst of Rhode Island social and economic issues. From Carville:

I would like to thank Kmareka for allowing me to post on this issue. On January 7, the Governor took the unprecedented (for him) step of addressing Rhode Islander’s regarding the economic crisis the state faces and his proposals to resolve, or at least mitigate, that crisis.

Below are links to the Governor’s Supplemental Budget legislation and video of his speech (in case you didn’t see it).

Governor Supplemental Budget

Video of the Governor’s Speech

Here’s my take. Call it my dirty dozen.

First, in the abstract, a statewide health plan for public school employees might be a good idea. At the very least, it takes the health issue off negotiating tables and may stabilize costs. However, this plan isn’t in the abstract. According to the Governor’s bill, health care is no longer a subject of collective bargaining. Instead, a Healthcare Advisory Council  will determine provider, coverage and rates, with the employee’s co-share set at a minimum of 25% of premium. Under the provisions contained in this bill, savings won’t come from a superior negotiating position. Rather, savings will come from gutting the coverage and unilaterally increasing co-shares.

Second, the creation of the “Rhode Island School Realignment Commission” could be (stress could be) meritorious. However, this is not a plan thought out on its merits, but out of financial “necessity”. The driver’s all wrong and the timing couldn’t be worse. It’s not the most prudent approach to raise the specter of sweeping educational changes without laying a proper foundation. This new five-member Commission will be charged with developing plans and legislation for a mandatory vote by the General Assembly. As always, the devil is in the details.

I hope someone in the Governor’s administration was paying attention in the late ’60s when regionalization was first proposed. If the “realignment” is broken down by county as he indicated in his speech, there could be a problem. That was the prescription of the old Thibeault Report (Education in Rhode Island: A Plan for the Future – June 1968), which went nowhere. Why? Politics and money. The local politics was and remains that no municipality wants to lose local power over schools. It’s a New England thing I guess. The money issue is who pays, where does locally raised tax money go, and what kid goes to which school? Added to that, in the combination of services (from Administration through clerical and purchasing) who wins and who loses? This is a zero sum game no matter how it’s cut. Finally, the member of the Cranston delegation who would support a regionalization plan combining Cranston with Providence on a county regionalization basis is already on political life-support.

In short, these collaborative/regionalization proposals sound good and are proposed to please the masses. However, in the end, it’s all smoke and mirrors with no chance of success without real leadership from the Executive branch. And when was the last time you saw that?

Third, the Governor proposes to balance the budget partially on the backs of the Station survivors and families. I can’t decide if this is more tragic than obscene or vice-versa. Oh yeah. This is a one-time deferral — until the next time, which will probably be next year.

Fourth, the Governor’s supplemental already contains a $ 27 million deficit on the anticipated Medicaid payments from the Fed. The Congress has to vote on that and then the allocation needs to be made. Any bets on how correct that projection is? Remember, $ 67 million of the current deficit is related to not realizing the “savings” accrued from the Medicaid Global Waiver/Death Star because his administration dithered with the application.

Fifth, based on prior reporting, the state executive offices, including the Governor’s office, are bleeding money. Surprised there was no mention of that or a recognition that everyone is to blame — including the Governor and his crack management staff.

A Kmareka Pop Quiz: Who was the only state officer who not only didn’t have his budget cut in the Supplemental, but gained additional money?

Sixth, while touting the fact of no “broad-based” tax increase, he conveniently didn’t mention, or if he did he ran by it quickly, the increase in registry fees that many of us will pay. This will have a greater impact on lower-income people than those who live in the Governor’s neighborhood. Fees tend to be regressive like that.

Seventh, I don’t smoke, so the extra buck a pack doesn’t bother me. But, again this tax falls more heavily on the poor than others. But, hey, we’re still cheaper than Massachusetts. I know that it’s a “personal choice” to smoke and people who do (just like those unwed teen mothers the Governor spoke about a couple of months ago) make “bad choices.” So, is any of this money going to smoking cessation programs? No. Why not? Because it’s now public tax policy to keep people smoking so that we can collect an extra buck a pack.

Also, if you are a small business owner selling cigarettes, your inventory tax is going to increase as well.

Eighth, the reduction of aid to cities/towns. Again, a bomb in the middle of their budgets and not a thought-out plan for reform. In effect, he did what the Daily News headlined when Ford was President — Ford to NYC: Drop Dead. Do the contracts need reform? Sure. But it must be done in an orderly process as part of a longer-term reform effort, not like some Laffey-like gunslinger shooting up the towns (and cities).

As an aside, since this impacts education, I recall the Governor stating that his Supplemental reduced aid to cities and towns by 6%. In fact, it’s 9% in aid to education. This from someone who once wanted to be known as the “Education Governor.”

Ninth, related to eighth, the whole pension argument is sheer sophistry. The shift away from a defined benefit to a defined contribution pension plan is horrible. Don’t think so? Look at your 401(k) and see what you’ve lost. And linking his proposals as equal to the best in the private sector is ridiculous. The private sector just isn’t that good anymore – period. That’s even assuming that there’s any pension plans left as many corporations took the money previously dedicated to those plans and plowed them into stock dividends and CEO bonuses/golden parachutes. In short, like Bush, the Governor’s trying to privatize what used to be a public good.

Tenth, he set up a “straw man” toward the end by claiming that some want tax increases. Then he heroically opposed any mention of “broad-based tax increases” or an increase in the sales tax and corporation taxes. With this sleight-of-hand, he removes from the discussion the tax breaks for high-income earners passed in 2006 along with reductions in capital gains taxes. These breaks have cost the state millions and have no doubt contributed to the current mess we’re in. I’m not a “soak the rich” person, but we should all share the burden and we’re not. Not only does his position make no sense economically (in that there’s no return on these tax expenditures) but it is fundamentally unfair to have some people, many of whom are already struggling, carry the burden for those who could more easily contribute to the solution. This policy of cutting taxes indiscriminately to grow the economy is just like A Field of Dreams – it’s fiction. Targeted tax cuts based on an economic model forecasting returns on that investment are appropriate and even desirable. But this shotgun approach to lower taxes is economic and ideological blather. It hasn’t worked on the federal level and it’s not going to work at the state-level no matter how much the Governor beats that drum.

Eleventh, he could have done something with corporate taxes that wouldn’t have any impact on the small “mom and pop” corporations that pay the minimum tax each year. For example, if he even considered fundamental fairness at all, he could have proposed legislation for “combined reporting”, which would require multi-state corporations to determine their tax liability in the state. As of 2007, 20 of our sister states (including New York) have a combined reporting requirement. And in 2007, even that paragon of virtue to our north, Massachusetts, was considering such a plan. There’s no reason why we should let The Gap make a ton of money in Rhode Island and get away scot-free or tax free. Burdens should be shared equally.

Twelfth, Rhode Island’s vaunted “safety net.” In his speech, the Governor omitted Article 30 of the Supplemental. This Article would omit any family or child from medical assistance if the combined value of child’s and/or family’s liquid resources exceeds $ 10,000. Indiscriminately and unilaterally, we’re kicking those folk off because they have (gasp!) a bank account So, let’s see if I’ve got this new theory of a “safety net” down. You get laid-off from your job (not an unusual occurrence given figures released by the state), have little to no money coming in, can’t make the mortgage payments so you’re likely over time to be foreclosed on (thus rendered homeless) and now you lose health insurance because you have modest “liquid” assets? Too bad, you lose! Would that the working citizens of Rhode Island had the same “safety net” as corporations and those high-income citizens that are protected by this administration.

Finally, again regarding the “safety net” that the Governor so vigilantly guards, I give you the new Medicaid Global Waiver. Like so many proposals coming from the Governor, this waiver is driven by the bottom line and not by a desire to deliver better services to people in need. While he may argue that he won’t deny anyone in need of assistance, the Governor and his staff should go back and read the plan’s application. The application for the Global Waiver specifically states that all but those most critically in need (defined as those who, under the new plan, will require nursing home placement) will receive assistance and services if funds are available. That’s not exactly the iron-clad guarantee of services that the Governor made in his speech.

In the end, the Governor’s speech was vintage stuff. Bash public employees, use tax policy as a wedge issue between taxpayers and public servants, raise broad-based “fees”, weaken the safety net, and protect the rich and powerful on some quaint notion of tax policy and free market capitalism that would probably make Adam Smith puke (sorry for the J.D. Salinger allusion).

Instead of a plan, the Governor offered an anti-government screed. This week, when real leadership was needed, the Governor came up pretty small.

Thank you, Carville, for bringing up all of these important issues about the Governor’s budget. The months ahead give us the opportunity to address the problems with this budget and hopefully work out some successful solutions.

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One thought on “The Lowdown on the Governor’s Budget

  1. Thank you Carville, for that analysis. I am a simple nurse, and economics is not my area. But I have lived in Rhode Island all my life. This Medicaid global waiver sounds like a proposal to take all the money that funds the safety net for Rhode Islanders young and old, wad it up into a big ball, and give it to state oversight. And we’ll save a lot of money. Without cutting services. Trust us.
    The elderly advocates are interested in changing the ratio of nursing home funds to home care funds, currently 90/10. I’m all for home care, it’s my paycheck for one thing, but I am concerned about the children who depend on Rite Care, and their parents. And young people with disabilities.
    Please keep writing, this is just what we need.

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