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RI gov calls for lower biz taxes in state-of-state

David Klepper, The Associated Press

PROVIDENCE, R.I. (AP) -- Insisting that Rhode Island is on the rebound, Gov. Lincoln Chafee on Wednesday urged lawmakers to cut corporate taxes and boost education spending to encourage the state's fledgling recovery.

In an upbeat state-of-the-state address, the independent governor said rising revenues and receding deficits show the state economy is inching its way out of its deep doldrums. He used the speech to outline his $8.2 billion budget proposal, which comes without any increases in taxes or fees and no deep spending cuts.

"Two years ago, when I was sworn in as governor, Rhode Island was facing a $295 million deficit, our unemployment rate was 11.4 percent ... many cities and towns were on the verge of collapse," said Chafee, appearing relaxed and loose in the House chambers. "Our state workforce was demoralized. A gloomy cloud of negativity gathered over our state. It takes time for the sun to break through, but it is."

Chafee's proposal would lower the corporate income tax rate over three years from 9 percent to 7 percent. Currently, the state's rate is the highest in New England, but Chafee would drop the rate below its five neighbors.

Top lawmakers said they liked the message. House Speaker Gordon Fox and Senate President Teresa Paiva Weed both said they support calls to lower the corporate tax rate, and hailed his call to boost school spending by $30 million. That's in stark contrast to the tepid reception for Chafee's budget proposals in 2011 and 2012, both of which called for significant new taxes that were not approved by lawmakers.

"It's a very, very good start, probably the best start we've had," said Fox, D-Providence.

Paiva Weed, D-Newport, said that lawmakers may quibble with some of the details in Chafee's proposals, but she praised him for proposing "bold steps" to help the economy.

Chafee said it's essential to use the state's slowly improving finances to boost spending on schools, workforce development and roads and bridges — all investments that he said would pay off in the long-term and reverse an economic decline that saw Rhode Island become one of only two states to lose population from July 2011 to July 2012.

In addition to the $30 million in new public education funding, Chafee proposes $8 million in additional higher education spending to avoid tuition hikes at state universities.

Chafee also proposes spending $3 million on a workforce training program that would reimburse businesses who offer internships. He also wants to use $3 million in federal funds to offset the cost of child care for struggling parents.

Laurie White, president of the Providence Area Chamber of Commerce, said Chafee's proposals to invest more in workforce training and higher education are promising and said the reduction of the corporate income tax will please many business owners. That's a contrast to previous years, when many business leaders angrily protested Chafee's failed proposals for expanded sales taxes.

"We wanted to see a plan for economic growth," she said of Chafee's budget recommendation. "So we certainly like the idea at first blush."

The proposed spending plan would not reverse many of the steep cuts approved by lawmakers in leaner years, including a $15 million reduction in funds for the developmentally disabled.

Linda Teoli's 54-year-old brother Jeff has a developmental disability and has fewer services available to him following the cuts. She criticized Chafee for not restoring the funds.

"These cuts were devastating," she said. "They're not doing enough to help these people."

In his third state-of-the-state address, Chafee restated his support for gay marriage legislation, expected to get a vote in the House this month.

He also touched on the debacle surrounding the state's $75 million loan guarantee to former Red Sox pitcher Curt Schilling's video game company 38 Studios, which has filed for bankruptcy. Chafee opposed the investment as a candidate and said it's an example of the kind of poor leadership Rhode Island can no longer afford.

"We tried the 'get rich quick' approach by giving $75 million to a retired baseball player with no business experience," he said. "We cannot make such panic driven decisions again."

Chafee also won big applause when he vowed to work to craft legislation to prevent gun violence, citing last month's massacre of 20 children and six educators in Newtown, Conn.

But the 25-minute speech never strayed far from Chafee's economic prescription, and his confidence that the state is making strides.

The state expects to have $79 million in surplus funds when it ends the current fiscal year June 30 — marking the second consecutive year of surplus. State revenue estimates are up, and the state's unemployment rate is down — slightly — to 10.4 percent.

While that's still the second highest jobless rate in the nation, Chafee said there's reason for optimism.

"Things are getting better," he said. "And we must build on this momentum to continue our recovery."