Raimondo budget sets up clash with lawmakers over car tax, marijuana

The Rhode Island State House.Jessica Rinaldi/Globe Staff

PROVIDENCE – Governor Gina M. Raimondo unveiled a budget proposal Thursday that puts her on a collision course with Rhode Island’s legislative leaders on two high-profile issues: marijuana and the car tax.

The Democratic governor’s $10.2 billion tax-and-spending plan for the fiscal year that begins July 1 would make Rhode Island the first state in the country to have total control over the sale of marijuana, but asks for more time to fully phase out the car tax.

The two requests are sure to draw the ire of House Speaker Nicholas A. Mattiello and Senate President Dominick J. Ruggerio. The legislative leaders have repeatedly said they oppose the legalization of marijuana and have offered no signs that they’re willing move away from Mattiello’s goal of eliminating the car tax by 2024.

The rest of the Raimondo’s proposed budget offers an array of broadly-supported investments, including the expansion of pre-kindergarten programming and affordable housing as well as improvements to the state’s beaches.

But the budget will likely face a significant rewrite from the House Finance Committee in the coming months before a new plan is put forward in June.

Under Raimondo’s marijuana proposal, the state would have final say over the number of retail stores, the price of pot and the types that can be sold. State officials say the goal is to have a program that functions similarly to the way New Hampshire controls alcohol sales.

Consumers would be limited to purchase one ounce of marijuana per day and adults would not be allowed to grow it on their own. If approved, the state would move rapidly to set up the retail shops by March 2021, with the goal of generating $21.8 million during the fiscal year.

Ruggerio quickly issued a statement calling the budget “out of balance” because the marijuana proposal is “unlikely to pass.” Raimondo’s aides argue the plan deserves a fresh look because it is far different from the one she proposed – and legislators killed – last year.

“This is an industry that is around us, like it or not,” said Liz Tanner, the director of the Department of Business Regulation. “We have to be ready.”

On the car tax, Raimondo’s proposal would still reduce the amount Rhode Island residents would pay – rates are set by individual cities and towns – but it wouldn’t fully be phased out until the 2028-29 fiscal year.

Mattiello, the architect of the car tax plan, has set a goal of completely eliminating the tax by 2024, with the state gradually increasing the amount it reimburses communities each year to make up for the tax revenue they are set to lose. By the time it is fully phased out, the state would send communities $234 million a year.

Extending the phase out until 2029 would give the state more budget flexibility because the reimbursement to cities and towns would be lower. Raimondo proposed changes to the car tax in last year’s budget, but Mattiello nixed the plan.

“It’s no secret that I’m interested in maintaining the current law regarding the car tax phase-out," Mattiello said in a prepared statement. “This is the second year in a row that the governor has tried to tinker with the car tax. We must keep our promise we made to our constituents and taxpayers.”

One of the main questions about Tuesday’s State of the State address was how the governor was going to pay for proposals she outlined in her speech. On Thursday, she answered that question in part by proposing a variety of new tax increases and extensions.

For example, Raimondo proposed applying the state’s 7 percent sales tax to a grab bag of new categories, including hunting, trapping, shooting ranges, lobbying, interior design, and computer system design. In all, that would yield $14.1 million in new sales tax revenue.

She recommended reinstating the state sales tax on wine and spirits, while also lowering alcohol excise taxes, for a net gain of $9.1 million in revenue. The budget document says Rhode Island removed the sales tax on wine and spirits in fiscal year 2014, but that move failed to generate the projected sales and cost the state more than projected.

Raimondo also called for hiking the cigarette excise tax by 35 cents to $4.60 per pack. Combined with tax increases on cigars and other tobacco products, that would generate $5.1 million in new revenue.

She proposed increasing the hospital licensing fee from 5 percent to 6 percent to produce $32.3 million. And she suggested increasing the state hotel tax from 5 percent to 6 percent to generate $4.7 million.

Following up on a promise in her State of the State speech, Raimondo called for boosting the minimum wage from $10.50 per hour to $11.50 per hour. By comparison, the Massachusetts minimum wage is $12.75 per hour, and the Connecticut minimum wage is $11 per hour.

When it comes to housing, Raimondo has called for a $25 million affordable housing bond to be placed on the November ballot, as well as the creation of a permanent stream of revenue by increasing the real estate conveyance tax on all new property sales of more than $500,000 to .92 percent. Commerce Secretary Stefan Pryor said 11 percent of properties sold last year would have been subject to the tax.

On education, Raimondo is proposing to make permanent the Rhode Island Promise scholarship program that provides two years from free tuition at the Community College of Rhode Island, a program currently expected to sunset after this year.

Raimondo is also seeking to borrow $15 million to build pre-kindergarten facilities and offer 2,170 high-quality pre-kindergarten seats at no cost to parents. Rhode Island has been widely praised for its pre-kindergarten programming, but it has faced criticism for having too few available seats.

In addition to $25 million for housing and $15 million for pre-kindergarten facilities, Raimondo is seeking to borrow $228 million for more than a dozen projects, including infrastructure improvements at all three of the state’s public colleges, along with improvements to public beaches and clean water initiatives.