$13.6-billion RI budget includes tax relief: Here's what the plan means for you

Rhode Island parents would get a $250 tax credit for each child and the car tax would disappear in a $13.6 billion state budget House Democratic leaders unveiled and passed out of committee Thursday night.

The budget for next year would also end income taxes on military pension income and scrap the $8 fee to replace your license plate as part of a package of tax relief proposals agreed to be Gov. Dan McKee, House Speaker K. Joseph Shekarchi and Senate President Dominick Ruggerio.

The tax and spending plan for the year starting July 1 would spend $500 million more than lawmakers budgeted for this year and $800 million more than McKee proposed in January.

The House Finance Committee passed the budget a little after 11 p.m. on an 11-3 vote with opposition from Republican members. The vote sends it to the full House for a vote next Thursday

"We wanted to, obviously, address the needs of Rhode Islanders, those who are hurting the most, but we also wanted ... some targeted relief for the people of Rhode Island," Shekarchi told reporters earlier in the day.

The budget includes no money for the Pawtucket soccer stadium project known as Tidewater Landing.

Shekarchi said neither McKee, nor Pawtucket and Fortuitous Partners had not made a "formal ask" for more money to make up for soaring construction costs.

The House also did not fund McKee's Municipal Learning Centers, the after-school program he pioneered as mayor of Cumberland and wanted $15 million to spread statewide. The centers were at the center of a consultant procurement investigation involving his allies.

Shekarchi said there was not enough interest in the idea from his members.

The budget also does not include the $6.5 million the McKee proposed for "Higher Education Academies."

It does provide authorize funding to create 5,000 new pre-kindergarten seats over the next five years, a priority of the Senate.

The budget also includes $250 million McKee proposed for housing affordability programs including downpayment assistance for would-be home buyers struggling with soaring prices.

The tax-cut plan announced earlier in the day takes advantage of the billions of dollars in federal pandemic aid the state has received, including more than $1 billion still in the bank, and a projected $877-million budget surplus.

Even with all that money, it does not include a reduction in the state sales tax, something many businesses have long pushed for and McKee said earlier this year he had hoped would happen.

"The money we have right now is one-time money," Shekarchi said when asked about the sales tax. "We don't know if we are going to have that money next year. If we lower the tax this year, having to raise it again next year is very possible."

McKee said he still wants to reduce the sales tax, but this "isn't the moment to do it."

Other new items in the House budget include:

- $1 million for the Rhode Island Turnpike and Bridge Authority to study suicide barriers on the Pell Bridge

- $35 million to build a wind turbine staging area at South Quay in East Providence

- $2.5 milion to test letting RIPTA riders use buses on the R-Line for free.

- $28 million to replenish the state's historic tax credit program

- $11.5 million for the SNAP program (food stamps) for a pilot program to incentivize purchases of fruits and vegetables.

The budget authorizes McKee to hire temporary workers and buy services from Deloitte to help the state handle Medicaid eligibility checks when the federal moratorium on de-enrollment ends.

And in response to outrage over the state not having a psychiatric facility for girls, it provides $12 million to reopen a temporary center and then $50 million toward a permanent facility in a yet-undetermined location.

How the child tax credit would work

The child tax credit proposal mirrors a tax relief plan approved in Connecticut last month and may provide Rhode Island politicians an opportunity to send voters checks in the fall of an election year.

The child tax credit would be available only to residents making $100,000 per year or less, $200,000 per year if they file as a couple. They can get credits for up to three dependents who were under 18 years old in 2021. Babies born this year don't qualify.

The tax credit program is estimated to benefit around 190,000 Rhode Islanders and cost $44 million, according to figures from the House fiscal office.

Under the plan, the Department of Taxation would review 2021 tax returns and issue checks this fall to those who qualify.

The tax package will also includes $4 million to expand the state’s property tax “circuit breaker” program for elderly and disabled residents.

Those tax credits would grow from $400 to $600 and the income eligibility limit would rise from $30,000 to $35,000.

Car-tax and license-plate breaks

In another boost to automobile owners, Ruggerio said the budget will include money to cancel the $8 fee drivers were going to have to pay to get new license plates over the next two years.

The Division of Motor Vehicles is set to issue the new plates, which includes a new take on the "wave" design, to drivers as their registrations expire starting sometime in late summer.

Ending the car tax this year instead of next year – at a cost of $64 million – has been expected since Ruggerio backed it early this spring.

Automobiles worth $6,000 or less are already tax free and accelerating the phaseout will shield all vehicles, no matter how expensive, from the tax in all but one community.

Since East Providence's fiscal year begins in November, some vehicle owners there would have to pay car tax for one more year.

East Providence Mayor Bob DaSilva tweeted Thursday evening that he has "spoken to our finance director" and is "working to give East Providence residents the same car tax break as every other Rhode Island resident."

The full car tax phaseout approved in 2017 is estimated to cost the state more than $220 million per year in reimbursements to cities and towns.

Exempting veterans' pensions

For years, veterans have asked for their pensions to be made fully tax-free, and McKee proposed doing so through a five-year phase-out in his January budget proposal. The budget would cut the tax on pensions immediately.

In addition to exempting veterans' pensions, the budget deal would also raise the exemption on all pension income from the first $15,000 to the first $20,000, Ruggerio said.

Asked whether the relief package leaves some people out, including those without children or cars, Shekarchi said he believes it "addresses everyone, especially the elderly."

Finally, the budget deal would inject $100 million into the pandemic-depleted unemployment insurance trust fund to prevent any increase in unemployment taxes this year.

Despite all the money headed for vehicle owners, Rhode Island Republicans criticized the absence of a gas tax cut in the budget agreement.

"The question is not whether we can afford to pay for a reduction in the gas tax ... but why do the politicians running the State House refuse to reduce the state gas tax?" the state Republican Party said in a news release Thursday. "Is it because these politicians are listening to radical environmentalists who do not want the price of gas to come down because they want to penalize people for driving a gasoline-powered car?"

panderson@providencejournal.com

(401) 277-7384

On Twitter: @PatrickAnderso_

This article originally appeared on The Providence Journal: RI 2022 Budget: Changes for car tax, vets pension + child tax credit