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Proposed R.I. budget would legalize marijuana, extend car tax phaseout

The proposal also calls for restructuring the state-run Eleanor Slater Hospital

Governor Daniel J. McKee delivers inaugural address on the steps of the State House.Pat Greenhouse/Globe Staff

PROVIDENCE — In his first budget proposal, Governor Dan J. McKee on Thursday outlined an $11.17-billion spending plan that would legalize marijuana, take the next step in the car-tax phaseout, and restructure the state’s Eleanor Slater Hospital.

McKee submitted his proposed budget four days after his inauguration ceremony. The former lieutenant governor stepped in to become Rhode Island’s 76th governor after Gina M. Raimondo was confirmed as President Joe Biden’s secretary of Commerce.

The proposal comes after a year in which more than 130,120 Rhode Islanders have tested positive for COVID-19, and 2,563 residents have died from the virus, according to the most recent state Department of Health data. The budget sets aside $24 million for administering vaccines and $88 million for COVID-19 testing.


“My fiscal year 2022 budget proposal addresses the pressing needs posed by the pandemic, none more important than vaccinating the state’s population as quickly and safely as possible,” McKee wrote. “It also lays the foundation for a swift, sustainable economic recovery for all Rhode Islanders.”

On Wednesday, the U.S. House of Representatives approved a landmark $1.9 trillion COVID-19 relief bill that is expected to send Rhode Island $1.78 billion, including $1.1 billion for the state government.

“With this in mind, this budget as presented today has the potential to evolve,” McKee said. “We will also be intentional about how we spend the next round of stimulus in a way that moves Rhode Island forward and makes all 39 communities stronger.”

In a budget message, McKee said that new influx of federal money could be used to eliminate his proposed increase in hospital licensing fees, to refill the “rainy day fund” that the state raided during the pandemic, and to eliminate a proposal for the state to tax federal Paycheck Protection Program loans above the $150,000 threshold.


Legalizing cannabis

McKee proposed legalizing adult-use marijuana, with sales starting in April 2022.

Raimondo had proposed state-run marijuana stores much like New Hampshire’s state-run liquor stores. But McKee is getting behind what officials called a “market-based proposal” that would roll out 25 retail licenses each year for three years, with some set aside for minority-owned businesses.

Governor Daniel J. McKee's budget proposal regarding marijuana legalizationOffice of Governor Daniel J. McKee

The proposal would tax marijuana at an effective rate of 20 percent, including the 7 percent sales tax. Those taxes would generate $821,234 in revenue in fiscal year 2022 but then jump to $11.3 million by 2023 and $11.7 million by 2024.

The Governor’s Cannabis Reinvestment Task Force would decide how to spend that money in areas such as job training, affordable housing, health equity, and access to capital for small businesses.

Earlier this week, state Senate leaders detailed legislation that they are backing to legalize, tax, and regulate the recreational use of marijuana in the state. Under that bill, buyers would pay a 20 percent tax rate, which includes the traditional 7 percent sales tax, a 3 percent local sales tax, and a special 10 percent tax.

Car tax phase-out

McKee’s budget proposal includes $139.7 million to take the next step in the phaseout of the automobile excise tax. The budget reimburses cities and towns for the lost revenue.

Former House Speaker Nicholas A. Mattiello, a Cranston Democrat, championed the phaseout, and when he was defeated in the November elections, the future of the program was in doubt.


But McKee, a former Cumberland mayor, called for continuing it. “Fully funding the car tax ensures all phaseout parameters continue to advance, providing additional tax relief to taxpayers in all 39 cities and towns,” the budget proposal states.

James Thorsen, McKee’s acting Department of Administration director, suggested that Raimondo might not have extended the car tax phaseout if she were still governor. To continue the phaseout, the state would need to provide $175.3 million in fiscal year 2023 and $232.4 million in fiscal year 2024.

Eleanor Slater Hospital

The proposed budget calls for restructuring the state’s Eleanor Slater Hospital, which provides psychiatric services on its Cranston campus and complex medical care at its Zambarano campus in Burrillville.

Governor Daniel J. McKee's budget proposal regarding Eleanor Slater HospitalOffice of Governor Daniel J. McKee

The proposal calls for constructing a new $64.9 million long-term care facility on the Zambarano campus, closing and consolidating the state’s “aging long-term acute care hospital facilities,” and creating an Institute for Mental Disease at the Benton facility in Cranston.

The budget would reduce the number of authorized full-time equivalent positions at Eleanor Slater by 100, although officials said that would be done by early retirements and eliminating vacant positions, immediate layoffs.

“Rhode Island is the only state in the U.S. still operating under the current hospital model of care without a stand-alone psychiatric facility,” the budget states. “This proposal ensures that Rhode Island meets the national healthcare delivery best practices by treating individuals with much shorter lengths of stay, shifting treatments to comprehensive mental health services in the community rather than restrictive settings.”


Addressing the opioid epidemic

Rhode Island saw a record number of accidental overdose deaths in 2020, and the budget proposal calls for putting registration fees paid by opioid manufacturers and distributors into a restricted receipt account that would provide $6.2 million for expanding addiction treatment services. Also, it proposes a $846,000 increase in a medication-assisted treatment program at the Adult Correctional Institutions.

“The pandemic exposed issues that existed long before COVID-19 began,” McKee said. “Issues that were magnified by recent hardships – from the opioid epidemic and gaps in mental health services, to the disproportionate impact on communities of color.”

The budget proposal would increase the hospital licensing fee from 5 percent to 6 percent of net patient-services revenue to generate an additional $32.3 million for the state. But he said that if the state receives more federal COVID-19 relief funding, he would like to eliminate that increase.

Some state fees eliminated, others increased

McKee proposed eliminating the sales tax license fee. Currently, companies must pay a fee of $10 per year to register with the Department of Revenue to do business in the state. The proposal would cost the state about $330,000 in revenue a year.

At the same time, McKee proposed a variety of fee and fine increases aimed at raising $2 million to maintain and protect state beaches and parks. Officials said fees would go up at Misquamicut State Beach in Westerly, the most crowded of the state beaches. For example, the non-resident weekend fee would go from $14 to $30 and the resident weekend fee would go from $7 to $15.


Income tax rates

Progressive groups and Senate leaders have talked about increasing the income tax rate for the state’s wealthiest residents as the state looks for ways to plug huge budget gaps. But McKee’s budget proposal would leave income tax rates unchanged.

“We were contemplating a very difficult budget in the late summer and early fall. And lots of different proposals were thought about,” said Jonathan Womer, director of Office of Management and Budget.

But federal COVID-19 relief money is going to states “to help minimize the impact, to take less money out of the economy, to be able to keep the economy of Rhode Island moving forward,” Womer said. “So with that additional federal money, we didn’t think it was necessary to raise taxes.”

Economic development, housing, and education

Raimondo has prioritized the use of economic development programs and tax breaks to try to lure businesses to Rhode Island. McKee’s budget would provide an additional $3 million for the Real Jobs RI program and he would raise the cap for the Rebuild RI tax program from $210 million to $240 million.

The budget proposal calls for creating a permanent funding stream for “affordable and workplace housing.” The money would come in part from an increase in the real estate conveyance tax on the portions of residential property sales of more than $700,000. The proposal would generate $2.6 million in fiscal year 2022 and $5.7 million each year afterward.

Also, the budget proposal would increase education spending by $51.8 million in large part by continuing to fully fund the education funding formula.

House Speaker K. Joseph Shekarchi, a Warwick Democrat, credited McKee with being “very collaborative” during the budget process, and he said the newly approved federal stimulus bill will help the state “address long-term structural deficiencies” and help “put Rhode Island on a path for a robust and sustainable post-COVID recovery.”

“I am ever mindful that these one-time funds will not be there to support the ongoing costs of new or expanded programs,” Shekarchi said, “and we must be prudent in order to emerge from this crisis stronger.”

Edward Fitzpatrick can be reached at edward.fitzpatrick@globe.com. Follow him on Twitter @FitzProv.