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RI gov. weighs tax proposal as 2012 session nears

By David Klepper
Associated Press / December 30, 2011
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PROVIDENCE, R.I.—As he prepares for his second year in office, Rhode Island Gov. Lincoln Chafee is looking for ways to spur the state's frail economy, rescue its struggling cities and eliminate another year's budget deficit -- possibly through additional taxes.

Chafee, an independent, said that if he and lawmakers are successful, the state could soon reverse years of financial distress in the nation's smallest state, where the population has declined and unemployment remains stubbornly high at 10.5 percent.

"We're on the threshold," Chafee told The Associated Press in a recent interview in his office. "My goal is for this to be a hip, happening place. It's got so much potential."

But the first-term governor and former Republican U.S. senator acknowledges that persuading the Legislature to embrace proposals he says will achieve that goal is difficult. During his first year in office Chafee fought -- and lost -- a battle with lawmakers over his proposal to broaden the state's sales tax. He had more success in the fall, when lawmakers adopted a pension overhaul proposal crafted by Chafee and Treasurer Gina Raimondo, a Democrat.

When it comes to the state's challenges, 2012 will look like a sequel to 2011, highlighted by economic worries, government deficits, cash-strapped cities and rising pension costs.

Chafee estimates that the state will face a $120 million deficit in next year's budget. While that's an improvement over the $300 million deficit lawmakers eliminated in the current year's budget, Chafee says the red ink will be difficult to erase through cuts alone. He wouldn't offer specifics but said he's weighing the possibility of recommending some form of tax increase.

"'Considering' is the word I would use," he said.

Chafee said he wants to build on this fall's revamp of the state pension system by helping cities and towns reduce their own mounting pension costs. The state's municipalities face a $2 billion unfunded pension liability. Chronic deficits caused in part by pensions prompted the state to take over the finances of two cities -- Central Falls and East Providence. The state-appointed receiver overseeing Central Falls is seeking bankruptcy protection for the city.

Nothing would help the state's problems like an improving economy, Chafee said. He said he wants to continue efforts to transform downtown Providence into a hub for the life sciences while working to improve work force training programs and higher education to make Rhode Islanders more employable in high-growth fields.

While the issues facing Chafee and lawmakers may be largely the same as last year, the stakes are getting higher, according to Leonard Lardaro, a University of Rhode Island economics professor. If nothing is done to improve the state's business climate, the state is likely to remain mired in a stagnant economy while other states begin to recover, he said.

"Economic leadership has got to be the priority right now," Lardaro said. "If nothing happens we're going to roll over into irrelevancy. In a worst-case scenario, we could test whether a state can go bankrupt."

Legislative leaders are more optimistic, saying they're united in a desire to take on the state's anemic economy and fiscal challenges. House Speaker Gordon Fox said Chafee remains a valued partner in the process, though Fox doesn't support calls to raise taxes now. Fox said Chafee is right to focus on the plight facing the state's cities and towns and predicts that lawmakers will carefully consider Chafee's recommendations in 2012.

"Obviously there's a learning curve. He's only been governor for one year," said Fox, D-Providence. "I think we all recognize that the problems that we face are real, and that we're ready to work together."

Senate Minority Leader Dennis Algiere, R-Westerly, agreed with Fox that higher taxes aren't the right way to solve the state's financial woes. He said greater government efficiency -- combined with regulatory and tax changes to spur economic development -- are a better answer.

"We can't pass legislation that puts further burdens on our businesses," he said. "We have to look at our spending. Where can we cut our spending and streamline government?"

Last year, lawmakers rejected the cornerstone of Chafee's budget proposal when they balked at his ambitious plan to lower the sales tax from 7 to 6 percent but impose it on a long list of new items, including haircuts, landscaping and business equipment.

Look for his 2012 budget proposal -- and any accompanying tax hike -- to be less ambitious. Political pragmatism is part of the reason, he said.

"Last year was the year to be bold," he said. "Election years are not good years to be bold."

Chafee also faced criticism in 2011 over plans to give in-state tuition to illegal immigrants and a decision to call the Statehouse Christmas tree a "holiday" tree. He angered medical marijuana advocates by blocking a law authorizing medical pot dispensaries after federal authorities threatened criminal prosecutions.

But Chafee insists the number of accomplishments outweighs his defeats in his first year in office. He noted that his administration oversaw efforts to help cash-strapped cities, and reduced average wait times at the chronically inefficient Division of Motor Vehicles from more than an hour to 22 minutes.

"We tackled the deficit," he said. "We tackled pensions. We tackled the broke city of Central Falls. We tackled the DMV. We're making progress."

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