U.S. Markets closed

RI leaders say state is vulnerable to fiscal cliff

David Klepper, Associated Press

PROVIDENCE, R.I. (AP) -- Rhode Island faces disastrous consequences if lawmakers in Washington can't strike a deal to avoid the combination of tax increases and spending cuts known as the fiscal cliff, state leaders and economists say.

Still, Gov. Lincoln Chafee, House Speaker Gordon Fox and others said this week they're confident Congress and President Barack Obama will negotiate a resolution to the political logjam because too much is at stake.

"It's a big concern, but I believe they'll solve it one way or the other," said Fox, D-Providence. "When you think about the impact on federal aid — programs like Head Start, student loans — the consequences are too high not to work it out."

If Congress and the president don't act by New Year's Day, the automatic tax hikes and spending cuts will go into effect. In Rhode Island, that would mean reduced spending on military contracts, university research and social service spending. Schools would lose more than $3.2 million in special education funding. Grants that pay for breast cancer screening, childhood vaccines, AIDS and child care subsidies would be reduced.

And virtually everyone would see taxes go up, eating into discretionary household spending and possibly stifling the state's nascent economic recovery.

"If we go off the cliff — and stay off the cliff — it would really hurt Rhode Island," said University of Rhode Island economist Leonard Lardaro. "The national economy would go into recession. We'd go into recession."

State lawmakers are watching negotiations in Washington closely. State Sen. Louis DiPalma, D-Middletown, said he worries about spending cuts trickling down to impact the state's most vulnerable residents. DiPalma's district includes many residents who work for defense contractors — he himself works at defense Raytheon Corp. — and wonders what cuts to defense contracts with submarine builder Electric Boat and others would do to the state's economy.

"The defense industry is a major contributor to jobs in Rhode Island," said DiPalma, who sites on the Senate budget committee. "There's just so much uncertainty. This is affecting everybody in the state. I'm tired of hearing about it on TV. I want to hear about results."

When asked about the fiscal cliff Chafee exhaled loudly in frustration. The former U.S. Senator said he's frustrated by the pace of negotiations in Washington, but said he expects resolution.

"I remain optimistic that cooler heads will prevail," he said.