Governor Chafee Addresses New Sales Tax Proposal With Chamber of Commerce

Gov. Lincoln Chafee was the surprise speaker in Newport on Thursday’s Newport County Chamber of Commerce economic update luncheon in place of Keith Stokes, executive director of the Rhode Island Economic Development Corporation, who was originally slated to give the update. Chafee addressed nearly 100 businessmen and women on his plans to decrease the state's deficit and adjust Rhode Island's sales tax.

To get Rhode Island back on track, Chafee said, the state has to address the “ABCs,” assets, budget and corruption. Chafee listed military defense and tourism as some of Rhode Island’s best assets that need to be harnessed to “make them work for us.” He also said it is important to change outside perceptions of Rhode Island as a corrupt state.

Rhode Island’s deficit, projected at $331 million, is something Chafee said should be tackled “in the long term.”

“We need to take the tough medicine now,” he said, regarding the broadening of Rhode Island’s sales tax in an effort to address rising tuition rates, infrastructure developments and staff cuts.

He proposed lowering the sales tax from 7 to 6 percent while also implementing a 1 percent tax on items typically exempt, such as clothing. Chafee predicted the shift would generate $165 million in its first year, closing the state's deficit by more than half.

Rising tuition rates at the Community College of Rhode Island, staff cuts at the Department of Motor Vehicles from 192 to 155 employees and closing six branches  were some of the of the “inherited deep cuts” across Rhode Island that he said would hopefully turn around with his sales tax proposal. He explained the broadening of the tax is aimed toward consumers who, during difficult economic times, avoid spending on taxable goods, thus generating a trickling revenue stream.

Investments will be put forth to a new educational funding formula, reversing the trend of inflated state school tuitions with no further increases at CCRI, a five-year bond interest to stop relying on borrowing and an incentive-based state pension program.

Chafee said the state will put $14 million into the education funding formula, $10 million into reversing tuitions, and $12 million a year for five years for the bond interest. He proposed tipping $19 million into incentivizing pension funds.

Despite the challenges that lie ahead, Chafee said he is proud of his budget, and called the current status quo “unacceptable.” For his proposal to work, he said, Rhode Islanders would have to be able to control their spending habits.

“The key is discipline  . . .  not to go on a shopping spree,” he said.

Responding to suggestions of regionalization and consolidation to save costs, Chafee said the potential impacts are inconclusive. He said combining fire departments was not out of the question as long as it had positive economic effects.

“I’ll try anything to make government more effective and less expensive,” he said.