Major Changes at the State House
 
It is a new year and it brings with it a potential new Governor, a new Speaker of the House Joe Shekarchi and many new members of the Rhode Island House and Senate. 
 
The Senate will meet Tuesday, January 12th at 4:00 pm.  Members of the Senate will begin filing new bills.  Committee assignments are also expected to be announced this week.  The House is set meet January 19th, although the House is accepting bill filings from members now.
 
The first bill filed in the House for 2021 was H.5000.  The bill requires the House and the Senate members to vote, in what is called the Grand Committee, to fill any vacancy in the Lieutenant Governor office.  This comes after Governor Raimondo agreed to accept President-elect Biden’s nomination as Secretary of Commerce.   The Rhode Island Constitution states, “ The governor shall, by and with the advice and consent of the senate, appoint all officers of the state whose appointment is not herein otherwise provided for and all members of any board,  commission or other state or quasi-public entity which exercises executive power under the laws of this state; but the general assembly may by law vest the appointment of such inferior officers, as they deem proper, in the governor, or within their respective departments in the other general officers, the judiciary or in the heads of  departments.”  The Constitution does not specifically state how a Lt. Governor vacancy is to be filled, so the Governor’s appointment provision would seem to govern.  
The timing of the confirmation process in Washington will be key to Rhode Island.  Last month, the legislature passed a budget that included the deferral of the Governor’s FY2022 budget submission requirement to March instead of January.  If Raimondo leaves prior to the March deadline, then the budget should be delivered by current Lt. Governor Dan McKee.  The Chamber will also be watching to see which members of Governor Raimondo’s staff are offered positions in Washington, and what changes will come with a McKee governorship.
 
 
CHAMBER MEMBER ACTION REQUEST - Preparations for 2021 Session
 
As stated in the last edition of UTD, the 2021 legislative session will be very different.  The House plans to meet at the Veterans’ Auditorium; and the Senate plans to meet at RI Community College.  Hearings will likely be at the State House, but testimony will have to be submitted in writing, or orally through virtual media.  Meetings with legislators will likely also take place virtually. 
 
The Chamber may be calling upon you more than ever before.  We are asking for your assistance as we prepare for this new session.  Please go to https://vote.sos.ri.gov and click on “Find Your Elected Officials.”  Enter your name, birthdate and zip code.  Find your State Representative and State Senator for your home address (if you live in Rhode Island).  Email your name and the legislators name to info@eastbaychamberri.org.  The Chamber will be compiling a database for future grassroots efforts.  If you also know a legislator who lives in another district, please send that information to the Chamber as well and we will include it in the database.
 
Thank you for your help!

At the State House
 
 
House Finance Committee Passes “Skinny” Budget
 
Last week, the House Finance Committee passed H.7171 SubA (on an 11-2 party-line vote), the budget for the current fiscal year.  Like everything else in 2020, this budget was unusual in that it has very little new policy initiatives, but there are items for consideration.  The full House is scheduled to vote on the legislation Wednesday starting at 3:00 p.m.  If passed, the Senate is expected to vote on it this week as well.
 
 
So what is in the budget?
 
The SubA budget is a $12.73 billion budget.  Of that amount, $4.153 billion comes from state-generated revenue.  To put that in perspective, last year's state-generated portion of the budget was $4.077 billion.  This is a maintenance budget.
 
To close the $275 million gap, from a big picture view, the SubA:

• Swaps $120 million of general revenue expenditures for federal funds
• Lowers previously anticipated state spending after 12/30 by $66 million.  The lowering of spending will have to be re-evaluated as time passes and the pandemic improves or worsens. 
• Pays back $90 million of the $120 million owed to the Rainy Day Fund.  The Budget proposal delays repayment of $30 million of the amount owed to FY2022. 
• Makes an adjustment of $70 million in surplus funds realized from the previous fiscal year. 

 
With a few miscellaneous increases in expenditures ($11 million), you get to a closure of the $275 million.
 
 
The SubA budget does not raise taxes as proposed by the Governor back in January.  It continues the phase-out of the car excise tax.  It adds personnel in the Department of Labor to deal with the increase in unemployment claims due to the pandemic.  It calls for $300 million in short-term borrowing in anticipation of receipt of taxes.
 
The SubA includes many bond questions ($400 million if voters approve all questions) to be placed on the ballot of a special election to be held March 2, 2021.  The budget includes $1.5 million for election expenses given the probability that voting will rely heavily on mail ballots.  
 
The following bond issues are proposed for voters' consideration:
 
1.  Higher Education  Total = $107.3 million
 
            This bond would include $57.3 million for repairs and new construction of a URI building to house musical, theatrical, visual and graphic arts programs; $38 million to reconstruct the Clarke Science Building at RI College; and $12 million for student support spaces at CCRI’s four campuses.
 
2.  Beach, Clean Water and Green Bond  Total = $74 million
 
            This bond question includes $33 million for capital improvements to state beaches, parks and campgrounds including Goddard Park beach, Roger Wheeler State beach, Scarborough State beach, Misquamicut State beach and Brenton Point; $4 million for I-195 infrastructure development; $4 million for up to 80% matching grants to municipalities to acquire or rehabilitate local recreational facilities; $3 million to pay for forest and farmland conservation easements; $15 million for wastewater collection and treatment upgrades, storm water improvements, water pollution control and drinking water supply improvements; $7 million for matching grants to municipalities for restoring or improving resiliency of infrastructure and vulnerable coastal habitats as well as restoring rivers and stream floodplains; $6 million to dredge the Downtown Providence River; and $2 million for Woonasquatucket River Watershed infrastructure.
 
3.  Housing   Total = $65 million to increase the availability of affordable housing and to redevelop existing structures
 
4.  Transportation  Total = $71.7 million to use for federal fund matching requirements to improve transportation infrastructure including ports, highways, roads and bridges. 
 
5.   Early Childhood Care and Education Fund   Total = $15 million for physical improvements to and development of licensed early childhood care and education facilities.  According to the bond request, in 2019, only 20% of the physical space licensed for the State’s 4 yr. old population meets the State definition of quality, and 18 cities and towns do not have any infant/toddler care options. 
 
6.  Cultural Arts & the Economy Grant Program   Total = $7 million
 
            This bond includes $2.5 million for Trinity Repertory Company; $1.5 million for RI Philharmonic; $2 million for the RI State Council on the Arts to be used for matching grants to nonprofit cultural organization that lease or own their performance space; and $1 million for a State Preservation Grant Program to assist nonprofit historic sites, museums and cultural art centers.
 
 
7.  Industrial Facilities Infrastructure  Total = $60 million
 
            Of the $60 million proposed in this bond, $40 million goes to industrial site development and infrastructure at Quonset; and $20 million goes to the Port of Davisville at Quonset to finance the Port master plan, pay for a new pier at Terminal Five, renovate Pier One and dredge the Quonset port.
 
 
Other budget items:

• H.7171 SubA allows the Governor to delay presenting the FY2022 budget to March 11, 2021.  The extra time will hopefully provide some clarity over what Congress will or will not provide in the form of stimulus to the states, and will give time to see how the vaccine distribution affects Rhode Island’s economy. This will, however, condense next year's budget process into three and a half months.

 

• Adjustments to revenues and expenses were made to reflect the recent “pause” and the closures that came with it.

 

• Because the budget technically covers expenditures made since July 1, 2020, many of the COVID related programs/expenses are reflected in the budget.  For example, the budget includes $55.8 million from federal funds to support businesses experiencing disruptions related to the pandemic or the pause period.  This includes $47 million for a grant program administered by the Division of Taxation.  “To be eligible, businesses must be a locally-owned Rhode Island tax filer, been impacted by the pause period, and not have declared bankruptcy.  Applicants are eligible for total reimbursement of losses from $500 to $50,000.”  A total of $7.3 million was included for eviction diversion programs, as well as $500,000 to help property owners make residential units available to individuals experiencing homelessness.

 

• H.7171 SubA did not include the Governor’s RIte Share employer requirement program, nor does it include the legalization of recreational marijuana.  These and many other policy issues will be up for debate in the next fiscal year budget.

 
To view the House Fiscal Staff’s 50 page summary go to:  H 7171 Sub A Running Summary.pdf (rilegislature.gov)

At the State House
 
The Senate Finance Committee will be meeting virtually Wednesday, November 18th at 5:00 p.m.  The meeting can be live streamed at: http://www.rilegislature.gov/CapTV/Pages/default.aspx  Written testimony will be accepted at SLegislation@rilegislature.gov  Testimony submitted prior to 3:00 PM on the 18th will be provided to the members of the committee at the hearing and will be included in the meeting records.  Testimony submitted after that time will be placed on file.
 
The Governor’s proposal for legalization of adult use marijuana is first on the agenda for the Senate Finance hearing.  Article 13 defines “adult” as an individual 21 years of age and older.  The Article establishes licensing requirements for the retail sale of marijuana in all forms.  It allows adults to legally transport 1 oz. and to possess 5 oz. at a residence.  If two or more adults live in a dwelling, they can possess, in the aggregate, 10 oz.  Owners of rental properties can, under the proposed Article, ban the smoking or vaping of marijuana on the rental property.  Violation of such a rule subjects the individual to a $150 fine by the State as well as any penalties established in writing by the landlord.  Smoking and vaping are also banned in businesses.  The Article states that no one is permitted to “undertake any task under the influence of marijuana, when doing so would constitute negligence or professional malpractice.”  It also bans smoking marijuana in a school bus, on public transportation, on school grounds, at a correctional facility, in any public place, in a drug treatment facility, or when it would affect the health or safety of children.
 
Article 13 seeks to provide employers with some protections.  It specifically states that employers do not have to provide accommodations for the use or possession of marijuana; but it does require employers to have a written policy; and that policy must be provided to employees prior to enforcing any policy.
 
The Article caps THC potency on various products, and establishes testing systems to ensure compliance.  Retail establishments cannot be close to schools.  Labels on products must warn against driving under the influence as well as to keep the product away from children.  Municipalities may adopt zoning laws that do not conflict with state law, and they can collect a municipal impact fee from marijuana establishments.
 
Taxation of marijuana is actually a sharing of net revenue.  The State gets 61% of the net revenue – the licensed retail contractor keeps 29% of the net revenue – the municipality gets 10%.
 
Lastly, anyone stopped by law enforcement for suspected driving under the influence can be asked to submit to a saliva test in addition to a blood test or breathalyzer test.
 
 
The Senate Finance Committee will also take testimony concerning two new proposed Articles to the Governor’s budget.  One bars health insurance companies from charging different premiums based on gender.  http://www.omb.ri.gov/documents/Prior%20Year%20Budgets/Operating%20Budget%202021/Amendments/13_GBA%2016%20-%20New%20Article%20-%20Relating%20to%20Accident%20and%20Sickness%20Insurance%20Policies.pdf
 
The second proposal would require health insurers to offer Medicare Supplemental Plans to individuals, regardless of whether the person has a disability.  http://www.omb.ri.gov/documents/Prior%20Year%20Budgets/Operating%20Budget%202021/Amendments/15_GBA%2018%20-%20New%20Article%20-%20Relating%20to%20Medicare%20Supplement%20Insurance%20Policies.pdf
 
S.2494, An Act Relating to Taxation – Personal Income Tax, is on the agenda Wednesday.  This act would create a new income tax bracket. The new bracket would be 6.99% on taxable income over $500,000 (the rate is now 5.99%), and any personal income tax collected on income over $500,000 would be deposited into a restricted receipt account, to be spent on education for grades kindergarten through twelfth grade.  http://webserver.rilin.state.ri.us/BillText/BillText20/SenateText20/S2494.pdf
 
S.2801, An Act Relating to Taxation – Personal Income Tax, is the final item on the committee agenda Wednesday.   This act would add one new income tax bracket. The new bracket would be a rate of 8.99% on taxable income over $400,500 (in 2011 dollars). Adjusted for inflation, the new tax bracket would apply to taxable income over approximately $475,000 (in 2020 dollars). This act would take effect on January 1, 2021. http://webserver.rilin.state.ri.us/BillText/BillText20/SenateText20/S2801.pdf
 
 
The House Committee on Oversight will meet at 3:00 p.m. on Thursday, November 19th.  The meeting will be live on Capitol Television, which can be seen on Cox Channels 15 and 61, in high definition on Cox Channel 1061, on Full Channel on Channel 15 and on Channel 34 by Verizon subscribers. It will also be live streamed at http://ritv.devosvideo.com/show?video=cd679c40105a
 
The Committee will hear from Dr. Nicole Alexander-Scott and from Governor Gina Raimondo.  COVID-19 emergency spending will be reviewed; and a discussion on future potential restrictions is on the agenda.

​At the State House
 
No hearings for this week have been scheduled as of Sunday, November 8th.
 
 
Election Results Lead to Calls for New Initiatives in Rhode Island
 
As most of us probably know by now, House Speaker Nick Mattiello lost his bid for re-election, paving the way for the current Majority Leader Joe Shekarchi to take the helm in January as the next Speaker of the House.  The Democrats held a caucus – open to the media for the first time – to nominate Shekarchi for Speaker and to name Representative Chris Blazejewski as Majority Leader.  With a change in leadership usually comes a change in various chairs of committees; but those changes have not been announced yet.  Shekarchi stated in a press interview that the current fiscal year budget will get addressed in the coming weeks and that everything is on the table including tax increases and cuts.  He also announced that the House will be looking at various House rule changes.
 
The Senate Democrats also caucused last week, reaffirming support for Senate President Dominick Ruggerio and Majority Leader McCaffrey.  The Senate also announced new chairs of committees as well as a “bold” agenda for 2021.  That plan includes an increase in the minimum wage to $15, passage of a carbon tax, an increase in the personal income tax for higher earners and legalization of marijuana.  President Ruggerio was quoted, “We are in the process of developing rules changes that will enable the Senate committees to work remotely and the Senate to meet regularly so that we can pass a bold agenda early in the coming session.”
 
The new Senate committee chairs are:

• Senate Finance – Senator Ryan Pearson (Cumberland, Lincoln)
• Senate Judiciary – Senator Cynthia Coyne (Barrington, Bristol, East Providence)
• Senate Commerce – Senator Susan Sosnowski (New Shoreham, South Kingstown)
• Senate Environment and Agriculture – Senator Dawn Euer (Newport, Jamestown)

 
 
November Revenue Estimating Conference Completes Work
 
Rhode Island received some good news Friday night, as the Revenue Estimating Conference adopted revenue estimates for the current fiscal year (FY2021) and FY2022.  The conference started at 9:00 a.m. and ended at 6:00 p.m.  Key takeaways are as follows:
 

• FY2021 Personal Income Tax is experiencing higher than expected returns.  The conference members now believes the FY2021 total will be about $1.45 billion. This amount is about $450 million more than the preliminary FY2020 (last year’s budget) close out figure.
• Business Corporation Tax is coming in higher.  Rhode Island can expect to receive $151.3 million in this category – an increase of $27 million over last year.
• Sales and Use Tax looks as if it will be higher as well - about $45 million higher over last year – for a total of $1.2128 billion
• The Massachusetts ban on menthol cigarettes provided a $25 million gift to Rhode Island.  The Estimating Conference members expect to collect $155 million in cigarette taxes this year – a $25 million increase over last year
• Revenue collections that are expected to be lower than FY2020 include taxes on financial institutions, racing and athletics, miscellaneous taxes, unclaimed property and lottery revenues.
• At this point, the conference members believe the lottery revenues may fall by $11.3 million over last year’s numbers.  If you read the Providence Journal account of the Revenue Estimating Conference, you will see that the conference members, last May, thought the lottery revenues would be even lower at this point.  Last Friday, when they adjusted the lottery estimate based on revenues received thus far, the Lottery line item was adjusted upwards $7 million over the May, 2020 estimate
• In the aggregate, total general revenue collections for FY2021 is now set at $4,056,425,000.  The May Revenue Estimating Conference had anticipated collections of $3,725,850,000.  For more perspective, last fiscal year the state collected $4,063,948,065.
• Total general revenue collections for FY2022 are estimated to be $4,044,950,000.  As you can see, the FY2022 budget will be even more challenging to resolve as caseloads (spending) will likely increase back to a normal range following an end to the pandemic once a vaccine is distributed.

 
It is important to keep in mind is that FY2020 (last year’s budget) started July 1, 2019 and ended June 30, 2020.  The COVID-19 pandemic took a hit on the State’s economy starting in March, 2020.  The final good news is that the May, 2020 Revenue Estimating Conference anticipated deficit of $750 million has been revised via a $331 million revenue upgrade and a decrease in spending of $113 million.  That still leaves a deficit to resolve.
 

​Please Remember to Vote
 
At the State House
 
There are no committee hearing this week, but the Fall Revenue Estimating Conference will finish its important work this week.  Friday is the big day, as the conferees may their best educated guess at the revenue and expense outlook for FY 2021; and they will likely revise the revenue and expense numbers to be considered when adopting a current year budget.
 
Monday, November 2, 2020  
 
9:00 A.M. Caseload Estimating Conference
2:00 P.M. Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator
Accruals – Accounts and Controls Peter Keenan, State Controller
 
Wednesday, November 4, 2020
 
Follow-up Testimony
1:00 P.M Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator
 
Friday, November 6, 2020 – Revenue Estimate 9:00 A.M. Revenue Estimating Conference
 
 
The following new bills were filed last week:
 
House Bill No. 8138  Williams, AN ACT RELATING TO STATE AFFAIRS AND GOVERNMENT -- MOUNTED VIDEO/AUDIO SURVEILLANCE CAMERAS (Establishes a central command video/audio surveillance center administered by the state police. Funding would be provided by use of fifty percent (50%) of the E-911 funds.)
 
House Bill No. 8140  Williams, AN ACT RELATING TO HEALTH AND SAFETY - RESIDENTIAL SECURITY EQUIPMENT PROGRAM (Creates the "Residential Security Equipment Program".)
 
House Bill No. 8141  Solomon, AN ACT RELATING TO PUBLIC UTILITIES AND CARRIERS - PUBLIC UTILITIES COMMISSION (Requires an electric utility company to bury power lines in the event of a residential power outage lasting ninety-six (96) consecutive hours or more, unless the outage was caused by the resident.)
 
Senate Bill No. 2929  Lombardi, AN ACT RELATING TO HEALTH AND SAFETY - RIGHTS OF NURSING HOME PATIENTS (Department of health to promulgate rules and regulations for essential caregivers at nursing homes during a declared emergency.)

Revenue Estimating Conference Begins
 
It is that time of year, when the Revenue Estimating Council begins its work to determine how much the State might have in revenues and fixed expenses for the next fiscal year.  The Council is comprised of the House and Senate fiscal staff members, and the Governor’s Department of Revenue staff.  This group will take testimony, debate and eventually come to a consensus which will obviously be more difficult this year given the pandemic.
 
Last week the Council heard from HIS Markit, a firm that provides economic forecasting analysis for the US and the State of Rhode Island.  Between February of 2020 and April of 2020, Rhode Island nonfarm payrolls “plummeted by 98,100” people.  Unemployment jumped from 3.4% in February to 18.1% in April.  The state experienced the 7th largest decline in nonfarm payrolls in the country and the 4th highest unemployment rate.  Since April, there has been a steady increase in payrolls (57,700) and a decrease in unemployment (10.5%).  Personal income did grow during the second quarter of 2020; however, a large part of the personal income growth came from the stimulus money and the COVID-19 unemployment program.
 
The tricky part comes in forecasting what may happen.  HIS Markit assumptions include the passage of some type of stimulus package at the federal level.  They believe the timing will depend on the outcome of the Presidential election.  If President Trump is re-elected, they believe the stimulus package will pass in 2020.  If Vice President Biden is elected, they believe Congress will wait until he takes office to pass a package.  The Revenue Estimating Conference members asked HIS Markit to provide an updated analysis that assumes no package is forthcoming, so that the members can see what that economy might look like under that scenario.
 
Given the current assumptions, HIS Markit is forecasting nonfarm payrolls to decline 1.9% in FY2021, grow 3.5% in FY2022 and increase 2.2% in FY2023.  That means Rhode Island’s economy would return to pre-COVID peak nonfarm employment in the second half of FY2023.  Real gross state product would return to peak pre-COVID rate in late FY2022.  And the State unemployment rate remains above 6% until the final quarter of FY2022.  Again, this forecast is based on an assumption of the passage of some type of stimulus package – most likely a household stimulus check and an ongoing unemployment benefit program of $300 a week (instead of $600).  The forecast includes an increase in personal income of 2.6% in FY 2021 due to those programs, a decrease of 0.9% in FY2022 as those programs phase out, and a 4% increase in personal income in FY2023 as the State’s economy recovers.
 
One interesting takeaway: across the United States, consumer spending on durable goods are above the pre-pandemic trend.  HIS Markit believes many people spent their stimulus checks on large items like cars, recreational vehicles and large household items.  These items are not quickly replaced, so predicting what individuals might do with another stimulus check is difficult.
 
The Rhode Island presentation can be viewed at http://www.rilegislature.gov/Special/rcc/REC%20Files/IHS%20RhodeIsland_Nov2020.pdf
 
The US presentation (which includes an analysis of Vice President Biden’s economic proposal) can be viewed at http://www.rilegislature.gov/Special/rcc/REC%20Files/IHS%20US_Nov2020_UPDATED.pdf
 
 
The remainder of the Revenue Estimating Conference Hearing Schedule is as follows:
 
Thursday, October 29, 2020
 
Testimony (if necessary)
9:00 AM Cash Assistance and Medical Caseloads –
Department of Human Services and Executive Office of Health and Human Services
 
Monday, November 2, 2020  
 
9:00 A.M. Caseload Estimating Conference
2:00 P.M. Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator
Accruals – Accounts and Controls Peter Keenan, State Controller
 
Wednesday, November 4, 2020
 
Follow-up Testimony
1:00 P.M Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator
 
Friday, November 6, 2020 – Revenue Estimate 9:00 A.M. Revenue Estimating Conference

​Last Week At the State House
 
The House Finance Committee met last week to discuss the preliminary closing of the FY2020 books and to understand what further adjustments might be coming in the near future.  Keep in mind that as this article talks about numbers, the comparisons are made to assumptions that were made as to what might happen given the COVID-19 potential effects on revenues and expenditures for the year.
 
As of now, it appears that revenues are up $141.8 million from the anticipated amount adopted at the May revenue estimating conference.  Good news - income and sales tax revenues account for $132.5 million of that number.  Remember, at the time of May revenue estimating conference, income taxes were delayed until July due to a federal order, so it was extremely difficult to accurately predict how the income tax would ultimately be affected by job losses as well as stimulus packages.  The business tax revenue was higher than expected; and the lottery also brought in a little more than estimated.  After all is said and done – in the aggregate – the closing revenue and expenses (which were lower than anticipated) came close to the budget passed over a year ago.  Further adjustments will have to be made to the FY2020 books as items, like the excess loss for pass-through entities, are finalized and the numbers changed accordingly. (Reminder - the $120 million from the Rainy Day Fund must be re-paid in FY2021)
 
Medicaid spending experienced a $37 million savings thanks to a reduction in enrollment and utilization during the pandemic.  The federal government’s extension of the emergency designation also means a higher Medicaid reimbursement rate to the State for three-quarters of a year, so that should bring Rhode Island an additional $25-30 million.
 
The federal government also provided some additional flexibility in the CARES Act money to cover certain Department of Corrections expenses.  It is believed that this may free up another $30 to $40 million to cover budget items.  However, that is the only new flexibility mentioned at this time.  That still leaves millions of dollars in a State account with great uncertainty as to how it can be spent.  The directive also still states that the money must be spent by December 30th or be returned to the federal government.  The challenge remains, does Rhode Island spend the money on immediate programs only to find out later that it could be used to balance a FY2021 budget that will undoubtedly be more difficult than the current budget?  Does the State save the money and the federal government say that it can’t be used to balance a future budget leaving the State with a missed opportunity to keep some business afloat or to assist in the State’s unemployment fund problem?
 
One interesting side note worth mentioning, the CARES Act money has earned about $400,000 in interest for the State.  That money appears to be useable, without strings. Another sobering moment from the hearing came from the House Fiscal Advisor Sharon Reynolds stating that Rhode Island is “on track to run out of money if we fail to pass a budget before the end of the fiscal year.”  That is why the legislature is expected to return in November to address the budget.
 
Next steps – State agencies were required to submit their FY2021 budget requests by October 1st.  Agency first quarter financial reports are due October 30th.  The Revenue Estimating Conference will meet November 2nd to review FY2021 caseload estimates (expenses), and November 6th to review FY2021 revenue estimates.  These meetings could be very helpful to the legislature as they return in November to pass a FY2021 budget.  The Governor is then required by law to submit her FY2022 budget to the legislature January 21, 2021.
 
 
This Week At the State House
 
At the time this edition of UTD is being written, no hearings were scheduled for this week.

Last Week At the State House
 
Electric Vehicles Pushed for Rhode Island
 
The Governor’s Mobility Innovation Working Group is moving forward with what appears to be plans on how to best spend dollars that will be collected should the regional TCI program move forward.  TCI is the cap and trade program for carbon brought into the state via gasoline and diesel fuel.  As reported in previous editions of UTD, TCI is expected to cost motorists millions of dollars which will be seen at the pump – not as a tax added, but as an increase in fuel price paid.  This is a regional proposal with up to 13 states as possible participants.
 
The Mobility Innovation Working Group is comprised of 12 representatives from state government agencies and 15 stakeholders.  The stakeholders include: AAA Northeast, Amtrak, SPIN, Utilidata, Inc., Bank Newport, Grow Smart RI, Banneker Supply Chain Solutions, City of Providence, National Grid, Alliance for Automotive Innovation, NE Clean Energy Council, RI League of Cities and Towns, Teamsters Local 251, Waterson Terminal Services (ProvPort) and Acadia Center RI.
 
DEM has hired Cambridge Systematics to perform modeling for the Working Group.  Their job, with the help of the working group members, is to develop a list of strategies to eliminate greenhouse gas emissions from the transportation sector, “bundle [the list] into investment portfolios”, analyze the portfolios for benefit impact and then help the Group choose in which investment portfolio to invest state dollars.  The Group is charged with making a final report to the Governor by the end of the year.
 
So, what are some of the items on the list of potential investments?  The list is large at this point and includes: rebates/incentives for purchasing electric vehicles, installation of public charging stations, priority parking spaces for electric vehicles, changing zoning laws to require electric vehicle supply equipment, investment in electricity grid improvements, installing charging stations at business locations, subsidizing RIPTA and revamping the system to encourage ridership, altering land use strategies to reduce travel, investment in bike paths, transfer of development rights of land to encourage smart growth, investments in pedestrian pathways, etc.  The idea which garnered the most discussion was the transition of public fleets and private vehicles to electric vehicles.  Since California Governor adopted an executive order banning the sale of any vehicle that is not zero-emission (basically an electric vehicle mandate) starting 2035, this issue will continue to be in the forefront of many discussions here in Rhode Island.  The question that has not been answered yet is how Rhode Island could shift that much increased electricity demand to the grid that now generates more than 95% of its electricity through the use of natural gas.
 
Another one of the ideas discussed was to work with businesses to educate and encourage employees to rideshare to work. 
 
The Working Group will be meeting again November 15, 2020.  However, they also announced that they will be holding a “public input meeting” October 22, 2020.  Anyone who wishes to make an oral comment, of three minutes or less, must send a request to colleenquin@gmail.com by October 14, 2020.  Written comments can also be forwarded to the same email address.  It is a little unclear what comments are being solicited, since last week’s meeting was more about brainstorming investment ideas for TCI monies collected if and when that program comes to fruition.  Members of the actual Working Group will be permitted to verbally provide comments for five to ten minutes at the October 22nd meeting.
 
This Week At the State House
 
As expected, the Senate Finance Committee will meet Wednesday at 4:00pm to take testimony surrounding the Governor’s request to amend Article 8 (Tax Article of the budget).  The amendment seeks to decouple Rhode Island tax law from the federal excess loss deduction found in 26 U.S.C. section 461(1)(1)(B) in tax years 2018-2020.  Members of the public wishing to testify may submit written testimony to: SLegislation@rilegislature.gov
 
(The following information was provided in last week’s UTD and is copied here for your use)
 
As background, prior to 2017, individual taxpayer’s excess business losses (pass-through entities) could deduct the total amount of loss in the year the loss was incurred, regardless of the amount of loss.  In December of 2017, Congress passed the Tax Cut and Jobs Act which changed the federal tax code to only allow deductions for excess loss up to $250,000 for an individual/$500,000 for joint filers.  Any losses incurred over and above that amount could be included in future tax filings as a loss.  When Congress passed the CARESAct this year, it suspended the cap on excess business losses for pass through entities, for the years 2018, 2019 and 2020.  This was a retroactive change to the federal tax code.   Some businesses may have filed amended returns already to take advantage of the federal change.
 
During the Rhode Island May Revenue Estimating Conference, this issue was raised, but the Department of Revenue (DOR) was unable, at that time, to predict the State’s revenue implications as a result of the federal change.  Rhode Island is one of the states that – for the most part – piggy backs state taxes on federal income calculations.  So, any change in federal income tax law, affects state tax collections.  Since May, DOR has been working to determine the impacts of the CARESAct change.  DOR believes 692 tax returns would be impacted should Rhode Island decouple and push off the retroactive tax change to future years.  Four hundred eighty-one (481) of those returns come from individuals with more than $1 million in federal adjusted gross income.  One hundred two (102) returns come from individuals with AGI of $250,000 to $1 million; and 109 returns have AGI of under $250,000.  While a majority of the returns are tied to non-residents, 80% of the refunds would go to Rhode Island residents because out of state filers must pay their own state income tax first then pay the remaining amount owed (according to Rhode Island law) to the state of Rhode Island.
 
DOR believes that if the Governor’s amendment is not passed, then the State will experience an $18.8 million decrease in state revenue in FY2020 and $10.3 million in FY2021.  If the amendment is passed, then the impact to State revenue would be $0 in FY2020, $0 in FY2021 and a reduction of $5.8 million a year from FY2022-FY2026.
 
One alternative discussed was the possibility of decoupling the excess loss provision in the current fiscal year instead of going retroactive to 2018 like the CARESAct.  The Division of Taxation asked for some time to consider that possibility from a technical capability view.
 
If this proposed amendment would affect you, please let the Chamber know.
 
 
 
The House Finance Committee will be meeting to accept a report reviewing the FY2020 Preliminary Closing Results.  The meeting will take place at 4:00pm, Thursday October 8th and can be viewed on Cox Channels 15 and 61, in high definition on Cox Channel 1061, on Full Channel on Channel 15 and on Channel 34 by Verizon subscribers. It will also be live streamed at http://ritv.devosvideo.com/show?video=cd679c40105a .  This report should provide the legislature and the public with a better picture of the current fiscal status of the State.  This is an informational hearing only.  The report is expected to reveal higher than anticipated revenues for the past fiscal year.  Keep in mind that the FY2020 year ended June 30th.  The members of the revenue estimating conference will begin taking testimony on FY2021 revenue estimates in October.
 
 
The following new bill was filed:
 
Senate Bill No. 2928  Gallo, Felag, Sosnowski, Lombardi, Archambault, AN ACT RELATING TO ALCOHOLIC BEVERAGES - RETAIL LICENSES (Authorizes a holder of a Class B license to sell alcoholic beverages with take-out food orders and would sunset on December 31, 2021.)

At the State House
 
At the time this edition is being written, only one hearing has been scheduled for this week.  The House Finance Committee will be receiving an update on the budget situation at the Eleanor Slater Hospital Tuesday at 4:30 p.m.
  
Last week, the House Finance Committee met to take testimony surrounding the Governor’s request to amend Article 8 (Tax Article of the budget).  As was stated in last week’s edition of Under the Dome, the amendment seeks to decouple Rhode Island tax law from the federal excess loss deduction found in 26 U.S.C. section 461(1)(1)(B) in tax years 2018-2020. 
 
As background, prior to 2017, individual taxpayer’s excess business losses (pass-through entities) could deduct the total amount of loss in the year the loss was incurred, regardless of the amount of loss.  In December of 2017, Congress passed the Tax Cut and Jobs Act which changed the federal tax code to only allow deductions for excess loss up to $250,000 for an individual/$500,000 for joint filers.  Any losses incurred over and above that amount could be included in future tax filings as a loss.  When Congress passed the CARESAct this year, it suspended the cap on excess business losses for pass through entities, for the years 2018, 2019 and 2020.  This was a retroactive change to the federal tax code.   Some businesses may have filed amended returns already to take advantage of the federal change.
 
During the Rhode Island May Revenue Estimating Conference, this issue was raised, but the Department of Revenue (DOR) was unable, at that time, to predict the State’s revenue implications as a result of the federal change.  Rhode Island is one of the states that – for the most part – piggy backs state taxes on federal income calculations.  So, any change in federal income tax law, affects state tax collections.  Since May, DOR has been working to determine the impacts of the CARESAct change.  DOR believes 692 tax returns would be impacted should Rhode Island decouple and push off the retroactive tax change to future years.  Four hundred eighty-one (481) of those returns come from individuals with more than $1 million in federal adjusted gross income.  One hundred two (102) returns come from individuals with AGI of $250,000 to $1 million; and 109 returns have AGI of under $250,000.  While a majority of the returns are tied to non-residents, 80% of the refunds would go to Rhode Island residents because out of state filers must pay their own state income tax first then pay the remaining amount owed (according to Rhode Island law) to the state of Rhode Island.
 
DOR believes that if the Governor’s amendment is not passed, then the State will experience an $18.8 million decrease in state revenue in FY2020 and $10.3 million in FY2021.  If the amendment is passed, then the impact to State revenue would be $0 in FY2020, $0 in FY2021 and a reduction of $5.8 million a year from FY2022-FY2026.
 
One alternative discussed was the possibility of decoupling the excess loss provision in the current fiscal year instead of going retroactive to 2018 like the CARESAct.  The Division of Taxation asked for some time to consider that possibility from a technical capability view.
 
If this proposed amendment would affect you, please let the Chamber know.
 
 
The following new bills have been filed:
 
House Bill No. 8130  Mattiello, Hawkins, Carson, Caldwell, Marszalkowski, AN ACT RELATING TO ALCOHOLIC BEVERAGES - RETAIL LICENSES (Authorizes a holder of a Class B license to sell alcoholic beverages with take-out food orders and would sunset on December 31, 2021.)
 
House Bill No. 8132  Williams, AN ACT RELATING TO STATE AFFAIRS AND GOVERNMENT -- PROMPT PAYMENT BY DEPARTMENT OF ADMINISTRATION--SUBCONTRACTOR PAYMENTS (Expedites payments on state contracts for subcontractors.)
 
House Bill No. 8136  Williams, AN ACT RELATING TO HOLIDAYS AND DAYS OF SPECIAL OBSERVANCE -- HOLIDAYS (Eliminates the state holiday of Victory Day and insert in place thereof the state holiday of Emancipation Day to be held on August 1.)
 
 
 

​At the State House
 
As was stated last week, it seems the budget will be the focus of attention for the next month and a half followed by voting on the budget in November. 
 
This week, the House Finance Committee will meet Wednesday, 4:00 p.m. to take testimony surrounding the Governor’s request to amend Article 8 (Tax Article of the budget).  The amendment seeks to decouple Rhode Island tax law from the federal excess loss deduction found in 26 U.S.C. section 461(1)(1)(B) in tax years 2018-2020.  While disallowing a deduction in FY20 and FY21, the amendment would allow for 20% of the “disallowed” deduction to be taken each year in 2021-2025.  If this change is not included in the FY2021 budget, the federal allowance is estimated to cost the state $18.78 million in FY20 and $10.3 million in FY21.  The change would delay the financial hit to the state to $5.8 million in FY22 through FY26. The meeting will be live streamed at http://ritv.devosvideo.com/show?video=cd679c40105a .  No in-person testimony will be taken at the hearing.  If you wish to testify, you can send written testimony to cobrien@rilegislature.gov or request to be heard verbally by sending an email to the same address – include the bill number (Article 8 Amendment), your name, For/Against, phone number to be reached for providing testimony and affiliation (if any).
 
 
Carbon Pricing Study Update
 
Last Friday, two consultants provided an update on the carbon pricing study that is being undertaken as a result of legislation passed in 2019.  Three agencies – RI Department of Environmental Management, RI Department of Transportation and RI Office of Energy Resources - are working together on this project.  The consultants announced that they will be modeling six different scenarios under the study that take into account different carbon pricing points, the inclusion of varying level of incentives to the public and governments to use certain technologies, and varying levels of rebates (direct checks to individuals and/or businesses).
 
Program Incentives would include items like:  purchase of electric vehicles, free RIPTA fares, electric RIPTA bus purchases, electric vehicle changing station installations, air and ground source heating pump installations in buildings, and bike infrastructure creation.
 
The modelling will include a low price of $9 per metric ton by 2030 (which would likely bring RI to 45% below 1990 emission levels), to a high price starting at $88 per metric ton (likely bring RI to 71% below 1990 by 2030).  The high price point came from the federal American Opportunity Carbon Fee Act, a US legislative proposal touted by RI US Senator Sheldon Whitehouse.  The lowest model would start at $9 per metric ton in 2030 and go to $25 per metric ton by 2050.  The highest model (AOCFA) would start at $88 per metric ton in 2030 and go to $282 per metric ton in 2050.
 
What was very clear is that electric vehicles and electric heating of buildings are key to the models achieving the targets set in state statute, keeping in mind that the targets are “goals” and are not hard requirements enforceable by the courts.
 
The Consultants – Synapse and CADMUS – hope to have the final report completed November.  They have yet to add economic and health issues to the models.  They acknowledged that the modelling will assume a regional approach with neighboring states on board.  Without the regional approach, it is difficult to predict the health effects because migration of GHG would still exist, and economic predictions become more difficult as businesses and individuals can move across borders.