How can Rhode Island best use the more than $1 billion it will receive as part of the stimulus plan championed by President Biden?



That's part of the conversation this week on Political Roundtable with our guest, Michael DiBiase, president/CEO of the Rhode Island Public Expenditure Council, a business-backed policy research group. Joining me on the panel this week are Maureen Moakley, emeritus professor of political science at URI, and Patrick Anderson, Statehouse reporter for The Providence Journal.

Here's an edited transcription of the discussion.

Donnis: Let's start with the $11.2 billion budget proposal unveiled last week by Governor Dan McKee. This budget plan does not include more than $1 billion in federal assistance that will be coming as part of the latest relief package championed by President Biden. Michael DiBiase, you have talked about the need for the state to use this more than $1 billion in a strategic and smart way to build for the future. What are your thoughts on how to do that?

DiBiase: So first of all, this -- it's a lot of money. So just the state portion of that is $1.25 billion, which is three times the bond issue that we voted, just approved, which was the largest ever. So the magnitude is very large. I do think it's a once in a generation opportunity. We need to resist the temptation to use it to create new programs or expand existing programs, because it's one-time money. And we should be deliberate about it. We have nearly four years to spend it. We should learn from other places, other states and cities, you know what they're doing. And I also think the process is is important, it may be almost as important as the outcome getting the greater, broader population of Rhode Island involved in this decision.

Donnis: You seem a little general, in your comments. Is there a specific purpose or a variety of specific purposes that you would recommend this money being used for?

DiBiase: I would like to see the state use it for big bold ideas that could transform the state, that could actually change our economic prosperity or our quality of life in some fundamental way, instead of spreading it around in a bunch of different places. I don't think we should aspire to return to who we were before the pandemic. We had full employment, but we were at the highest poverty rate in New England, and a lot of our jobs were low-skill, low-wage jobs.

So I think we should use it to get to a different point. In terms of specific items, and I don't think RIPEC is going to be able to decide it that'd be wonderful if RIPEC could decide this, but it's going to be up to the General Assembly and the governor. But I think things like broadband, government IT, certainly public infrastructure, particularly at the local end -- the cities and towns are getting a lot of money. So we historically have been very poor in investing at the local level on capital and infrastructure. So things like roads and parks. We should think about housing, you know, can we incentivize higher density housing? On the human development side of things, which I think is harder with one-time funds, but maybe we could do some kind of big bang, adult ed, you know, some intensive three-year program, and we could really help a lot of people all at once. So those are a few ideas, but I think it has to be, you know, we have to think about these as one time investments. And that has to be what the thinking should be on this.

Anderson: It's just staggering, the amount of money coming in. I mean, just the state portion alone, the 1.1 billion, I think the state's general fund, meaning the pure state revenue that's proposed in the budget this year is a little over 4 billion. So that's, you know, like 25 percent of that. And one thing It makes me think of is, every year since I've been at the Statehouse, I've heard both in the legislature and the governor's office talk about how difficult a budget year that particular year is. I think I hear it 10 times. So is this, Mike, from your perspective, if you were in that room this year would this be an easy budget year? Or does having all of that money actually mean this is the hard budget year?

DiBiase: Well, yeah, the budgeteers say the only thing perhaps worse than not having enough money is having too much money. But I think if we think of this as one-time funds, and the worst thing we can do is use it to increase our spending level. Because we're right now where we're spending more than we can afford. Governor McKee's budget, which I think was relatively conservative, but still included a plug of federal funds. And it didn't worse than this structural deficit, but didn't make it any better. He's projecting next year to have a $375 million deficit before the budget even begins. So this money will not solve that budget problem, per se. But we got to find ways to make investments. It's much like the thinking of bond issues, you know -- where can we make one time investments that can actually lead to better things for the state either on prosperity or can we improve the quality of life of the citizens of Rhode Island?

Moakley: Well, I certainly agree with Michael. But the thing is that now the ball is in the legislature's court. In other words this year, the governor had the wind on his back, it was a nice budget, no broad-based taxes, no tax on high-end spenders. Some of the things that Gina Raimondo wanted, the Promise program, the legalization of marijuana, but now the ball is in Speaker Shekarchi's court. And he has wisely I think, indicated that he's aware of this problem. He's spoken up to the fact that he doesn't think we should just blow this in and in terms of new programs, so he's at least mindful of what's coming down the road. And hopefully, he'll be able to resist pressure from a lot of groups who want to spend this money in other ways, but I'm optimistic that the speaker has, at least is aware of this and mindful that we should turn turn this into long-term investments.

Donnis: Michael, as we know, Rhode Island has a serious need for more affordable housing and what is sometimes called workplace housing for low- to medium-income people. Governor McKee has proposed using money from the real estate conveyance tax to create a permanent annual revenue stream for housing. Do you think this is the best way to do this? Or would you advocate a different approach?

DiBiase: I think it's a start. I mean, we need some type of a state allocation for housing. This is relatively modest, but I think it's a good way to go. It was a proposal like that Governor Raimondo had as well. And I also think he's trying to have a focus on making housing more prominent in government. So he has a proposal around that. I do think, though, it comes down to a lot of the municipal restrictions and limitations on development. And I know the speaker is focused on this. And he's, he's he has a working group, but we just seem to have a lot of resistance at the local level to high-density housing. You know, housing prices are very high now. There's a lot of incentive to construct high-density housing, but it's very difficult to actually get it approved. So what you see is the development happens at the low-end and the high-end only. And that's unfortunate. So I think this is a place where we could use federal funds to incentivize approvals at the municipal level and basically, give funding to the municipalities to basically compensate them for whatever burden they think such housing might bring to their community.

Anderson: Mike, do you think that the federal windfall, the Biden bucks as they're sometimes known, have headed off any possibility of an income tax hike on higher earners this year? And is that a good thing?

DiBiase: Here at RIPEC, we're part of a broader group that's opposing that increased income tax on high earners. First of all, I don't think we need the money this year. I don't think the revenue, the revenues are needed. There's no proposed cuts and services. But I also think it's a bad idea longer term. And it's you know, it's politically appealing to soak the rich, but we still do not have the greatest business tax climate. I think we've increased it from the Tax Foundation study -- we went from like 47 to 37 over the years -- which is great, but we're still in the bottom third. Our income tax for high earners is still higher than Massachusetts. So I just don't think this is is the right way to go. And we're going to continue to oppose it. But certainly for this year, there's no revenue need. I would argue that this is not the time.

Moakley: Well, given the federal money that's coming this way, have you changed your projections for the speed of the recovery?

DiBiase: So I'm not an economist, and we don't typically do that. But I do expect that, that the economy will pick up quite a bit. I mean, there's a lot of we've been talking about the money going to state government. There's a lot of other money going to individuals and families and businesses and I just think we're going to have quite a strong rebound here. As a matter of fact, that's why I think we can be more deliberate about the state money. I think there's a lot of immediate response in relief money other than that into the system, that's going to help a lot of people. So I do expect we're going to rebound quickly. You know, it depends whether we're going to overheat a bit or not. There's economists on both sides of that, in terms of inflation. But we have seen real estate prices get very high, which, you know, can really hurt in terms of affordability. But I do think we're going to have a pretty strong recovery.

Donnis: Governor McKee's budget proposes starting a legal recreational marijuana program with the state giving out 25 licenses to sell marijuana a year, for three years. Launching the program next year. Once this is up and running, it would create an estimated $17 million or so a year in revenue. That's not chump change. But it's not an amazing amount of revenue, either. So do you believe that the benefits to the state and possibly the judicial system would outweigh any costs associated with enhanced marijuana use in Rhode Island?

DiBiase: Yeah, I think that, and first of all, I think some of that money, he wants to dedicate to new programs and things other than the state budget. So in terms of the net pay to the state budget. I mean, one of the things when I was dealing with putting the budget together [as the former head of the state Department of Administration] on behalf of Governor Raimondo, I was disappointed at how little revenue we can actually get from the sale of marijuana. I think the tax we're looking at is a 20 percent tax. Because of the black market and because of other states around us, we actually can't push that sin tax rate that high and the numbers just aren't that aren't that big. So my feeling is this should not actually be viewed from a budgetary point of view, it should be more of a of a, you know, of a social issue in terms of whether we want it or not. I don't have a position one way or another. I do think our medical marijuana kind of foundation for this has kind of distorted where we're headed and so I know that the governor is there in the legislature trying to make this more direct in terms of recreational marijuana, which is where we're gonna end up.

Anderson: One difference between Governor McKee's budget and and Governor Raimondo, she wanted to slow down the car tax phase out somewhat, whereas he wants to keep it moving at [former] Speaker Mattiello's pace. Are there any restrictions on tax cuts in the federal American Rescue Plan that was just passed on using our federal stimulus for the current tax cut? And then to do you think keeping the current pace is a good idea?

DiBiase: The new federal Act, the American Rescue Plan Act, forbids using the federal money to cut taxes. I do think that this proposal to do the next phase of the car tax violates the spirit of that law. I'm not sure if it violates the letter of the law, because as you remember, this law was already in enacted. So they're not asking for change. But I do think it is not responsible to use the federal funds, which is what we're doing to further cut the cost of the car tax. The car tax was a lousy tax for a lot of people, but we've reduced it quite a bit already. And I think, you know, freezing it at this point is more responsible. We're digging a deeper hole for ourselves, because we don't, we don't really have the money to make this next step of the car tax and we should be honest about it.