Rhode Island budget debate heats up

PROVIDENCE, R.I. (AP) -- New funding for education, a proposal to default on debt related to 38 Studios and Gov. Lincoln Chafee's call to cut business taxes will all be on the table Tuesday as an $8.2 billion Rhode Island budget proposal heads to a pivotal test in the General Assembly.

The House Finance Committee is scheduled to consider and vote on the budget Tuesday evening, a necessary step before the full House takes up the spending plan for the fiscal year beginning July 1. It's likely the committee will make significant changes to the budget proposal, which was introduced by Gov. Lincoln Chafee in January.

Chafee's plan includes $40 million in new funds for higher education and public schools and a call to reduce the corporate income tax from 9 to 7 percent over three years. The budget also calls for additional spending on tourism marketing, child-care assistance and workforce development.

Lawmakers, however, must cut at least $30 million from the budget proposal because of reduced revenue estimates, putting some of those proposals in jeopardy. Chafee's business tax cut also appears to be in trouble because it would be offset through the elimination of a tax credit program that was worth $15 million last year to Woonsocket-based CVS Caremark.

Chafee spokeswoman Christine Hunsinger said the Democratic governor stands by his budget and hopes lawmakers adopt many of his core proposals.

"The governor understands there's a $30 million hole that needs to be filled but he put forward a budget he believes in," she said.

House Speaker Gordon Fox's spokesman Larry Berman said top lawmakers from the House and Senate have been working out a compromise on the budget, but said the details would wait to be worked out in the House Finance Committee.

One of the most contentious parts of Chafee's proposal is a $2.5 million bond payment related to the state's failed $75 million guarantee given to 38 Studios. An increasing number of lawmakers are urging the state to default on the bonds, saying taxpayers shouldn't have to pay for the debacle. But Chafee, who opposed the loan guarantee, argues the state has no choice but to pay what it owes to protect its bond rating and its reputation with investors.

The debate complicated negotiations over the budget and forced top lawmakers to bring in financial experts to describe the risks of defaulting.

Look for lawmakers to wrap up their annual legislative session soon after approving the budget. If the House Finance Committee endorses a spending plan Tuesday, the House is required to wait a week before considering it to allow lawmakers and the public time to review the complicated legislation. Then it would move on to the Senate.