Carcieri signs $7.8B budget plan with reservations

PROVIDENCE—Gov. Don Carcieri signed a $7.8 billion budget Tuesday that raises the state’s capital gains and gasoline taxes to bridge a big deficit brought on by soaring unemployment and tumbling tax revenue.

Carcieri acted hours before the start of a new fiscal year beginning Wednesday. While the Republican governor has repeatedly vetoed past spending plans, Democrats usually use their veto-proof majority to override Carcieri’s objections.

Carcieri spokeswoman Amy Kempe confirmed the governor signed the plan Tuesday but said she could not immediately comment further.

State leaders struggled for months to close a massive budget deficit that worsened as the state’s economy tanked, driving down consumer spending and tax revenue and pushing the state’s unemployment rate to 12.1 percent. The budget gap stood at $590 million, or approximately 17 percent of what the state expected to spend for its share of the budget.

The new spending plan raises taxes on income made from selling certain investments, also called capital gains. Previously, capital gains were taxes at a rate of 2.33 percent or less. They will now be taxed as normal income at a rate of 3.75 percent to 9.9 percent, depending on a person’s annual earnings.

The state’s gasoline tax will rise 2 cents to 33 cents per gallon just as drivers begin heading out for the July 4 holiday weekend. The extra money will help fund the cash-strapped Rhode Island Public Transit Authority, which operates a statewide bus service.

Democratic lawmakers kept Carcieri’s proposal to cut $55 million in state funding for city and town governments. As a result, local governments have laid off employees, asked public employees for concessions and raised property taxes.

The budget also reduces the value of state pensions for anyone not eligible to retire by Sept. 30. New state employees will have to be 62 years old to retire. Many had been eligible after as few as 28 years of service. Those already in state service will have a new retirement date set based on their age and years of service.

Pensions will be calculated by averaging their five-highest consecutive years or pay, instead of three, a change designed to lower pension costs.

The plan counts on Carcieri’s administration getting $68 million in savings from the already thinned state work force. Legislative leaders have suggested Carcieri can achieve the savings in part by leaving vacant jobs open.