Chafee meets with business leaders, talks of budget cuts

January 20, 2012

PROVIDENCE – Gov. Lincoln Chafee told reporters Thursday that his 2013 budget will contain “very, very painful cuts … deep, deep cuts that are going to be very unpopular.”
But, he added, “we can’t do it all on cuts. We have to come to the … as they did in Massachusetts, they raised their sales tax.” Stressing that the cuts are coming first, Chafee said it is a matter of “reform before revenue.”
Those halting, sometimes unconnected sentences were as specific as Chafee would get about the budget he plans to present Jan. 31. He previously said a top priority is to reverse the trend of steep cuts in state aid to cities and towns.
Asked specifically if Woonsocket’s recent bond rating downgrade would lead to state intervention in the city’s finances, Chafee said, “No. I want to change the direction of the drastic cuts in state aid so we don’t have the loss of bond (ratings) and the mechanisms that put Central Falls, East Providence and Woonsocket into state intervention.”
Chafee acknowledged that the budget he proposes at the end of the month will likely be radically changed by the General Assembly because, among other reasons, he says improving state revenues will give the legislature more money to work with in coming up with a spending plan than he does working from the November, 2011 revenue estimates.
The governor made those remarks as he emerged from a meeting with business leaders from across the state, the third in a series of “strategy sessions” that has already seen him huddle first with mayors and town administrators and then with labor union representatives. He said meeting with the public and retirees is also on his future schedule.
Chafee hailed Thursday’s session as “another very productive meeting with good attendance with many business leaders, chambers of commerce, discussing the plight of cities and towns.”
The governor said he used the meeting “to stress the magnitude of what I consider a crisis for our cities and towns, particularly our distressed communities. The state has taken our downturn in revenue and just passed it on to cities and towns in loss of state aid. This has disproportionately affected the distressed communities who obviously depend more on state aid than some of the affluent communities.”
He asserted that the woes of the poorer communities, “has a direct correlation to our economic prosperity in the state. We are not going to get our unacceptably high unemployment levels down if we don’t address the crisis of these cities and towns.”
Among the items discussed in the closed-door meeting, Chafee related, were “locally operated pension plans, state mandates that cities and towns object to.”
John Gregory, President of the Northern Rhode Island Chamber of Commerce, one of those who attended the meeting said, “obviously we have concerns” about local property taxes. “Most of the employers we know are smaller companies, so anything that happens with property taxes has a direct increase on them,” he said.
“With a bias, I will tell you that the only entity that creates wealth is the business community,” Gregory added. “Nothing else will happen unless there is a thriving business community.”
As an example of how businesses are challenged, Gregory pointed to a vote last November by the Cumberland Hill Fire District, which is not covered by the state property tax cap, that he said increased the property taxes on businesses by 65 percent, but hiked residential rates by a much smaller amount. Businesses in that part of Cumberland are trying to get a do-over by petitioning for a follow-up meeting.
“That comes directly out of your neighbor’s pocket who is running that small business,” Gregory said.
“We don’t want to see an increase in income taxes,” Gregory said, “we don’t want to see increases in sales taxes. We are going to have to see what the (governor’s) plan looks like and how it has an impact.”
Gregory said the businessmen and women told the governor, “you have to be sensitive to what is happening in the business community. We have to look at the impact of unfunded mandates on our communities. Less money in municipal coffers translates eventually into increased property taxes.”
Much like the mayors, the business leaders gave great credit to Chafee for just calling the meeting with them.
“The epiphany is that we are altogether here in the same place,” said Colin Kane, principal of the Peregrine Group of Rumford. “We have never seen that kind of activity in this house, at least not in the 10 years I have been doing business for myself in the state of Rhode Island.
Comparing efforts to improve the economy to passing the recent statewide pension reform law, Kane said, “You have to get to the edge of the precipice before people are willing to make decisions about how they are going to walk away from that precipice, or build a net underneath it.”
He said he is confident that “the solutions are there. The solutions aren’t painless. The issues that the governor has to address, that the General Assembly has to address, are the result of 25 years of small straws being placed on the camel’s back. We didn’t go into that room hoping we had a bucket to pour those straws off the camel’s back. But I think everyone recognizes that the last straw can’t be put on the camel’s back.”