RI car tax set to be eliminated in new $13 billion budget

New $13 billion budget to scrap RI auto tax

Providence Rhode Island (WPRI) — Bye bye car tax.

State leaders announced Thursday that they plan to eliminate the much-maligned Rhode Island motor vehicle sales tax a year early this year.

The tax has been phased out under a law passed five years ago and the state compensates towns each year for lost revenue.

But with a surplus in the state budget released Thursday night leaders proposed eliminating the tax a year earlier.

On Thursday night the House Finance Committee passed the budget by an 11-3 vote. It will be considered by the full House next Thursday.

House Speaker Joe Shekarchi Senate Chairman Dominick Ruggerio and Gov. Dan McKee announced auto tax cuts earlier in the day the three top Democrats. Part of an agreement to include "targeted tax breaks" in the budget.

Another major program is a $250 child tax credit for tens of thousands of families.

Shekarchi said every city except East Providence will eliminate auto taxes this year because they operate on a Nov. 1 fiscal year schedule (rather than July 1) and are in the process of phasing out auto taxes. A year behind.

A spokesman for East Providence initially confirmed that the city would send out bills for another year. But not long after Mayor Bob da Silva told 12 News that he wanted to find a way to get rid of the car tax in his city rather than wait another year.

"I've spoken to our finance director," Da Silva said. "I'm working to give East Providence residents the same auto tax breaks that other Rhode Islanders do."

"I believe we will be able to come up with a solution," he added.

Ending the auto tax a year early is expected to cost the state $64 million more than expected to be phased out this year. The plan needs to be approved by the House and Senate.

"I'm very happy about phasing out the car tax," Ruggierio said. "We are seeking meaningful relief for Rhode Islanders."

State leaders also announced a one-time $250 child tax credit for families receiving $250 per child (up to three children).

The credit applies to dependents for the 2021 tax year so babies born in 2022 will not be eligible. The credit will apply to single filers earning less than $100,000 annually or joint filers earning less than $200,000 annually.

The checks are expected to be mailed to households in October as refunds for 2021 taxes.

The budget is also expected to divert $100 million of the state's huge surplus into the unemployment trust fund which has been severely depleted during the pandemic. The move amounts to a tax cut for businesses that contribute to the fund.

There are no plans to cut sales tax this year something McGee proposed on the campaign trail. There are also no plans to cut gas taxes as gas prices rise above $5 a gallon.

"I'm interested in lowering the sales tax," McKee said. "This is not the time to do this." He said he would seek lower sales taxes in the future.

"The money we have now is one-off money," Shekarchi said. "We're going to lower the tax this year and next year we're going to have to raise it." (Two additions to the list of items exempt from sales tax: breast pumps and funeral supplies.)

Shekarchi said cutting the petrol tax was "easier said than done" due to fees associated with petrol tax revenue. With prices changing so frequently lowering the petrol tax probably won't bring any noticeable relief to drivers he said.

The leaders also said that when Rhode Island's new plates are issued the state will pay drivers an $8 fee for getting new Rhode Island plates.

The tax relief package also includes increasing the so-called "circuit breaker" tax credit for seniors and people with disabilities from $400 to $600 and increasing the program's income limit from $30,000 to $35,000.

Lawmakers have also tabled a proposal to completely exempt military pensions from taxation. They rejected McKee's proposed $25 reduction in the corporate minimum tax and did not include his proposal to exempt the trade-in value of motorcycles from sales tax.

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How the state plans to spend $13.6 billion

The tax changes were incorporated into a massive budget bill that was released late Thursday and was immediately approved by the House Finance Committee. The plan is a revised version of McGee's budget presented in January.

The $13.6 billion plan which includes a nearly $900 million surplus and more than $1 billion in funding from the American Rescue Plan Act has left lawmakers inundated with questions about how to spend the one-time cash.

"This is an extremely challenging budget," Shekarchi told reporters at a briefing on Thursday night. He said there are "too many demands" on how federal funds and surplus money will be used but lawmakers are trying to find one-time spending When federal funding dries up make states accountable for continued spending.

"We're trying to balance the needs of the community with what we can do to prepare the economy for the future," he said.

Lawmakers chose to spend an additional $50 million on school construction over the $250 million in bond issues that McKee proposed to go to voters this fall Shekarchi said.

The Finance Committee agreed with McKee's plan to use $250 million of ARPA funds for housing including a down payment assistance program affordable housing homeless infrastructure and more.

But the committee didn’t fund McGee’s $15 million proposal for a municipal learning center a priority the governor has modeled on similar programs in Cumberland County where he was mayor.

"It's not tested," Shekarchi said. "I think there's some merit in being honest with you but I think it needs to be.. a little bit more mature."

"My colleagues in the House are not interested in this," he added.

The House budget also doesn't provide money for McGee's proposed higher education institutes to help adults go to college.

Shekarchi said the new budget plan adds $17 million to public school districts through the existing funding formula and more than $1 billion in educational aid for towns.

The budget also includes a plan to increase state preschool seats by 5,000 over the next five years. The bill requires the Department of Education to develop a plan by the end of the year to achieve this goal including how to build more classroom capacity and train early childhood educators to expand can be realised.

The budget adds $10 million to McKee's plan to provide ARPA funding to nonprofits for a total of $20 million.

Another new program in the House Budget would incentivize food stamp households to pay them 50 cents for every $1 spent on an EBT card for fruit and vegetables. The program is expected to cost $11.5 million.

Lawmakers also added $1 million to efforts to prevent suicides on state bridges and a $2.5 million pilot program to make one bus line -- the R-line -- free for a year.

The budget proposal does not include any funding for the proposed Pawtucket football stadium project Tidewater Landing which is currently seeking $30 million in additional state support due to soaring costs related to inflation and supply chain issues.

Shekarchi said he has not received any "formal requests" from R.I Commerce Corp. developer Fortuitous Group or Pawtucket city leaders. He insisted that any future requests would have to go through a regular review process by the House Finance Committee.

The new budget preserves McKee's proposal to spend $108 million to build a new 100-bed facility at Eleanor Slater Hospital's Zambarano campus in Burrillville. The new facility will replace the existing building which houses mostly long-term patients - many of whom have lived there decades.

Whether the $108 million estimated cost in January would be enough to build the new facility is unclear. Given the cost overruns on the Pawtucket football stadium project Shekarchi said he worries that estimates may be outdated. But he thinks the country needs Start somewhere because a new building is needed.

"We knew we were going to have to do something there," Shekarchi described the initial distribution as a "down payment."

The revised budget also allocates $12 million from ARPA funds and $45 million from R.I Capital Plan funds to renovate or build state-owned psychiatric facilities for girls who must currently be sent out of state.

The underlying plan Shekarchi said was to reopen an old facility as a temporary home while building a permanent residential facility for girls which would take years.

The budget assumes only a fraction of the net tax revenue — $1.2 million — from sales of recently legalized recreational marijuana starting midway through the fiscal year in December. Budget proposal assumes sale will bring in $6.6 million in taxes but costs Implementing the plan including hiring a new regulator will use $5.6 million of that.

Lawmakers don't want to overestimate how high sales will be in the first year of legalization especially since it's unclear how many stores will open at first Shekarchi said.

This story will be updated.