By JIM BARON

PROVIDENCE — With changes in the pension system for state employees and teachers, reductions in human service programs, hikes in taxes on capital gains and gasoline, some perhaps temporary patches with the fiscal equivalent of Band-aids and chewing gum, and an infusion of nearly a quarter billion dollars of federal stimulus money, the House Finance Committee passed a 2010 budget Wednesday that closes a deficit of nearly $590 million.

With few good choices at their disposal, there was only a small amount of debate and dissent among committee members during the more than four and a half hours of stop and start discussion — there were several long pauses for budget articles to be brought in from the copy room — before the budget passed on a 16-1 vote to send the budget to the House floor, where there will likely be an extended debate next Wednesday.
As expected, there is little in the proposed budget for local cities and towns and school districts. General revenue sharing would be eliminated completely. School aid is reduced by $34 million in state funds, but that is supplanted by $34.1million in federal stimulus money. Most other municipal aid is similarly level funded.
While the abrupt elimination of general revenue sharing funds near the end of the budget year in the 2009 supplemental budget passed in April shocked local communities, most all are prepared for the cuts likely to come their way now and few municipalities have been expecting any additional funds and were just hoping to avoid any more cuts.
One immediate casualty of the budget-cutting may be the mayoral academy Cumberland Mayor Daniel McKee hoped to open in Valley Falls for students in Cumberland, Lincoln, Central Falls and Pawtucket and the Segue Charter School that was poised to open in Central Falls. Both have approval from the Board of Regents for Elementary and Secondary Education and had hoped to admit
students in September, but the committee eliminated $1.5 million in funding that was contained in Gov. Donald Carcieri's budget proposal.
Contacted after the vote, McKee said he is not giving up hope on opening Democracy Prep Blackstone Valley in September. “I need to talk to the House leadership and confirm with them that they are supportive of the mayoral academy as they were last year and all through this session,” McKee said. “We still have to be looking forward to the mayoral academy opening and see if there is still any likelihood that there is any hope there. The budget hasn't passed yet. I have to have that conversation before I can tell you what the next step is.”
Asked if the school could still open up in September without the roughly $650,000 to $700,000 it was hoping to get from the state, McKee said, “it is a little premature to answer that.” But the mayor said he would keep preparing for an opening this fall until it is apparent that it wouldn't be able to happen.
“Never give up,” McKee said.
If you were dying to get a tax break, you may have to. The only substantial reduction in taxes proposed in the budget plan is an increase in the exemption that can be deducted from the value of an estate that is taxed upon the owner's death. Currently, the first $675,000 of a person's estate is exempt from taxes. Carcieri proposed increasing that to $1 million, but the finance panel compromised at $850,000. That amount would now increase each year by the rate of inflation. Budgeters estimated that change, slated to take effect January 1, would cost the state about $800,000 in revenue it would have otherwise collected in during this budget year. In the 2011 budget, the reduction could be twice that because the change will be in effect for the full year.
The biggest tax hike would come from capital gains.
Currently taxed at 1.67 percent for assets held five years or more, capital gains will now be taxed as regular income, in whichever tax bracket the owner happens to fall. That is expected to bring in about $53 million a year, but this year the state will see only half that increase because the change will kick in at the start of the tax year on January 1.
Finance Committee Chairman Steven Costantino called the hike in the capital gains tax “the least onerous” of options for increasing the revenue side of the budget.
Despite a concerted push by a rump group of Democratic representatives, many of them freshmen, to alter or eliminate the alternative flat tax for the state's wealthiest taxpayers, that tax was left whole in the finance committee's budget. Whether the opponents will have the strength to change that when the budget goes to the House floor remains to be seen. A supermajority of 50 votes is required to pass the budget in the House. Asked if this budget has that kind of support, Costantino declined to answer Wednesday, saying he was concentrating on getting the budget voted out of committee.
A 2-cent hike in the gasoline tax, defeated a few months ago by that same group of dissidents when the 2009 supplemental budget was passed, is back in the proposed 2010 document. Currently, the state adds a combination of taxes and fees of 31 cents to each gallon of gasoline, that would increase to 33 cents.
Those extra pennies at the pump are expected to add about $8.8 million to state coffers.
If you shop online, this budget would make you pay more state sales tax than you are currently used to. Any online retailer that contracts with any Rhode Island company to provide goods and services would now have to start charging Rhode Island's 7 percent sales tax at the time of purchase when dealing with an Ocean State customer. Called the “Amazon tax” after the dominant online retailer, the change is expected to bring in about $1.4 million in the current year, but since that figure is little more than a guess, budgeters did not add any increased revenue in the current year's budget.
The proposed tax changes left Carcieri dissatisfied.
“While the budget does make some very difficult choices and includes pension reform, it does not include much needed structural changes that will move the state forward and make us competitive to create jobs and grow our economy,” the governor said in a written statement issued after the vote. “Absent in this budget are key proposals to give the cities and towns the tools they need to control costs and property taxes.  Further, by raising the gas tax and treating capital gains as ordinary income, the House proposal includes an increase in the overall tax burden.”
Last month, Carcieri vowed that any budget that raises taxes “will be dead on my desk.” But his statement Wednesday made no mention of a possible veto.
Pension reform would hike the minimum retirement age to 62, but those who already have 15 or more years of service time accrued would see that limit lowered proportionately depending on how much time they have in the system and how old they are now. The system is designed so that no employee will lose what he or she has already earned. But from September 30 onward, they would start moving toward their retirement date more slowly.  Those who would be eligible to retire by September 30 would see no change at all in their situation.
Cost of living allowances, now set at 3 percent per year for more senior employees, would change to match the rate of inflation with a cap of 3 percent, which is the COLA for less senior employees. The COLA would continue to be compounded annually. The amount of the pension would be a percentage of the five consecutive highest salary years, a change from the current three years. The state saves about $55 million from these changes.
The budget proposes extending a 5 percent across the board cut in personnel and operating expenses statewide that was started in the 2009 supplemental budget, for a cut of $46.1 million and would add an additional 2.5 percent cut starting in January, for an additional savings of $11.5 million. 
Costantino said the budget “is probably one of the most difficult in the history of our state.
“Everyone will have their own definition of fairness,” he said, “but ultimately we know this document will affect many, many lives in our state and there has to be a sense of balance. This document touches people who are vested in a pension system, people who are invested in a human services delivery system, people who are invested in some sense of a predictable tax policy and people who are trying to manage state government as efficiently as they can with the resources they have.”