Geoff Schoos on the State’s Budget Crisis

Policy Making Through the Looking Glass

It’s no secret that I have occasionally been a critic of the Governor’s policies. A recent example of criticism appears in this week’s Cranston Herald.

Although under my column “brand”, it was inadvertently credited to my column-mate, Bruce Saccoccio. Sorry, Bruce. I hope the misattribution didn’t cause you any distress.

However, this time, I have to credit the Governor for having a good idea. Actually, two of them. The first is the proposal to “borrow” $ 25 million for use in supplementing the guarantee SBA makes on qualified small business loans. Currently, SBA covers 75% of the total amount of a qualified small business loan in the event of a default. The Governor’s proposal would dedicate money toward that guarantee, raising the coverage to 90% of the value of the loan. The theory is that if the banks feel more secure they will be more likely to loan money to small businesses, keeping them viable and active.

As was reported on Thursday, January 22, the House Finance Committee was “cool” to this proposal.

Indeed, House Finance Chairman Steven Costantino implied that this was a “bailout”.

We have our own debt issues that we’re concerned about, and quite frankly, there’s a lot of sensitivity about bailouts right now, Finance Committee Chairman Steven M. Costantino said.  Without tremendous safeguards and performance standards of increased jobs, state taxpayers should not be on the hook.”

Such SBA loans already have safeguards inherent in the loan process. The SBA doesn’t qualify loans on whim or flimsy evidence. The SBA has stringent safeguards on its loan program. Moreover, this is not a “bailout” in any sense of the word.

The second proposal is to permit a tax credit for the fee associated with the SBA guaranteed loan. Currently, the SBA charges a fee, amounting to 2 -3.75% of the loan amount, for guaranteeing the loan. Until 2004 when it was repealed by the General Assembly, small businesses were allowed to take the fee as a credit on their state tax returns. In his Supplemental, submitted on January 7, the Governor proposed to bring it back in an effort to help small businesses in this most trying of times.

Once again, it was reported that the House Finance Committee was cool to the proposal.

Link to Projo article

Chairman Costantino was quoted as telling advocates for this credit to contact the SBA and get them to forego the fee.

State Rep. Steven M. Costantino, D-Providence, chairman of the House Finance Committee, suggested that small businesses might be better off if the SBA simply did not levy the fee. Costantino also advised those who back the proposal to write to President Obama and others who are crafting a federal economic stimulus plan, to have the fee scrapped or reduced. “I just find that it’s interesting that the state is sacrificing revenue for a federal program,” Costantino said.

With respect to the Chairman, suggesting that people write to President Obama and/or the SBA about the fee is glib. People are looking for a little help. According to Sandra Powell, director of the Department of Labor and Training, small businesses account for nearly 90% of all employers who hire over 60% of all employees. Keeping small businesses viable is not a bailout, it’s good economic policy. With unemployment at 10%, we need a good economic policy.

Would that the Chairman and the committee applied the same rigor to the Medicaid Global Waiver instead of taking a pass on it. In his comments on the proposed tax credit, Mr. Costantino claimed to be unable to “see the science.” I wonder what “science” he saw when he decided to stand by and allow the Medicaid waiver to go into effect without a vote?

But not to worry. The state is focused on new and exciting ways to respond to the worst economic crisis in most of our lifetimes. Hesitant to commit $ 25 million to aid in the attainment of small business loans, or to permit a tax credit that would cost the state an estimated $ 275,000, some Solons are thinking big.

As many may know, our non-casino casino in Lincoln is in a bit of financial trouble. That trouble could cost the state millions if Twin River goes under. Since gambling revenue accounts for the third largest revenue source to the state budget, these Solons seem to be open, if not ready, to double-down on their bet. The Speaker of the House suggested last week that it might be necessary for the state to purchase Twin River. Now comes one senator’s suggestion that we move to full-time gambling!

Link to Projo article on the purchase of Twin River.

So, let’s see if I’ve got this right. Over the last couple of weeks, the Governor has proposed drastic cuts that will fall on our cities and towns, and the most vulnerable of our neighbors; the legislature stood idly by and accepted a $ 12 billion dollar pig-in-a-poke; and the legislature apparently is willing to commit hundreds of millions of dollars to purchase a non-casino casino while suggesting the expansion of activities at both the Lincoln and Newport facilities.

Meanwhile, proposals to help people save their businesses and that could stem the rising unemployment rate are nearly dismissed out-of-hand.

This is really “through the looking glass” stuff. Where’s the White Rabbit and the Mad Hatter when you need them?

Thanks, Geoff! This will make for good discussion material on Wednesday as I attend the Progressive Democratic Alliance’s statewide meeting on the Governor’s budget.