FY 2010 Revised Budget and Beyond: State & Local Government Structure & Tax Policy Staff Presentation to the House Finance Committee April 22, 2010 1 PDF created with pdfFactory trial version www.pdffactory.com
Introduction l Government Services Overview l State and Local Governments l Services and Functions u How are they delivered? u How are they funded? l What are options for change? 2 PDF created with pdfFactory trial version www.pdffactory.com
References l House Fiscal Reports: Revenues, Education and Local Aid u http://www.rilin.state.ri.us/HouseFinance l Department of Revenue u http://www.tax.ri.gov u http://www.muni-info.ri.gov l RI Dept. of Elementary & Secondary Ed u http://www.ride.ri.gov/Finance/ride_insite/Default.htm 3 PDF created with pdfFactory trial version www.pdffactory.com
References l US Census Bureau u http://www.census.gov/ l Rhode Island Public Expenditure Council u http://ripec.com 4 PDF created with pdfFactory trial version www.pdffactory.com
Government Services Overview l State of RI = Population 1 million u Five Counties • 39 cities and towns – 39 municipal governments – 36 school districts – 38 police departments – 52 fire departments/districts 5 PDF created with pdfFactory trial version www.pdffactory.com
State Expenditures FY 2010 Gov 2011 Change Gen. Rev. $3,000.3 $2,849.1 $(151.3) Federal 2,828.2 2,717.5 (110.8) Restricted 162.4 176.8 14.4 Other 1,823.8 1,769.6 (54.1) Total $7,814.7 $7,512.9 $(301.8) 6 PDF created with pdfFactory trial version www.pdffactory.com
Uses – All Funds by Category Local Aid 13.9% Personnel & Operating Asst., Grants, 30.7% Benefits 47.3% Operating Xfers Capital 1.7% 6.4% 7 PDF created with pdfFactory trial version www.pdffactory.com
Uses – General Revenues by Category Local Aid Personnel & 28.2% Operating 31.3% Asst., Grants, Benefits 30.4% Operating Xfers Capital 4.3% 5.7% 8 PDF created with pdfFactory trial version www.pdffactory.com
Uses – All Funds by Function Gen. Govt. Human Svcs. 19.5% 39.4% Transportation 5.7% Nat. Res. 1.3% Public Safety Education 6.0% 28.1% 9 PDF created with pdfFactory trial version www.pdffactory.com
Uses – General Revenues by Function Human Svcs. Gen. Govt. 36.5% 13.5% Nat. Res. 1.3% Public Safety Education 13.5% 35.2% 10 PDF created with pdfFactory trial version www.pdffactory.com
State Government Functions l 46 departments, agencies, boards etc l Quasi-public entities l 13,000 -15,000 staff 11 PDF created with pdfFactory trial version www.pdffactory.com
State Government Functions l Safety Net expenses l Local Aid l All Other u Public Safety - prison, courts, state police u Infrastructure u Regulatory functions u Public Health/Environment u Education – higher ed., policy u Government 12 PDF created with pdfFactory trial version www.pdffactory.com
State Government Functions l Recessions renew review of government structure as well as discrete costs l Often focus is on if services are delivered cost effectively, efficiently u How many agencies does a business, come in contact with completing a single job or starting an enterprise ? u How many agencies are involved in the lives of a family in need? 13 PDF created with pdfFactory trial version www.pdffactory.com
State Government Functions l Also need to consider policy choices on the services themselves l How much can the economy support? u What services are essential? u Necessity vs. Desirability l Out year forecasts show current revenue structure does not support current spending patterns 14 PDF created with pdfFactory trial version www.pdffactory.com
Sources Gas Tax Restriced Other Taxes Dept. Misc. Other Lottery Business ESSI/TDI Univ./College Sales PIT Fed. Funds $- $0.3 $0.6 $0.9 $1.2 $1.5 $1.8 $2.1 $2.4 $2.7 15 PDF created with pdfFactory trial version www.pdffactory.com
Revenues: How We Compare Share of State & Local US RI Taxes (FY 2007 Census) Individual Income 20.4% 20.6% Property 27.1% 37.2% General Sales 21.1% 16.6% Selective Sales 9.9% 9.4% All Other Taxes 21.5% 16.3% 16 PDF created with pdfFactory trial version www.pdffactory.com
Revenues: How We Compare State & Local Taxes Rank Rank 1997 Per Capita 2007 (FY 2007 Census) Individual Tax Collections 24 26 Property Tax Collections 7 7 Gen. Sales Tax Collections 39 30 Selective Sales Collections 15 23 All Other Taxes Collections 21 15 17 PDF created with pdfFactory trial version www.pdffactory.com
Revenues l Recent Assembly actions attempted to improve these rankings l Alternate Flat tax l Stronger Property Tax caps l Meal and Beverage and Hotel l Previous increases in general revenue sharing and car tax phase-out 18 PDF created with pdfFactory trial version www.pdffactory.com
Evaluating Revenue System l Equity l Economic Efficiency l Competitiveness l Revenue Adequacy l Revenue Responsiveness & Stability l Accountability l Simplicity – Ease of Administration 19 PDF created with pdfFactory trial version www.pdffactory.com
State Revenues l Rhode Island has high-rate, low yield revenue structure l Exemptions, credits and narrow bases l Income and Sales largest sources of general revenues 20 PDF created with pdfFactory trial version www.pdffactory.com
Personal Income Tax 25% of federal liability on the federal rates in l effect immediately prior to 2001 tax cut, with brackets adjusted for inflation Marginal Rates: Example below for single filers l 3.75% >$0 7% >$33,950 7.75% $82,250 9% $171,550 9.9% $372,950 21 PDF created with pdfFactory trial version www.pdffactory.com
Personal Income Tax l Flat Tax option since 2006 u % of federal AGI: no deductions or credits other than taxes paid to other states u The tax rate was 6.5% for 2009 and will be 6.0% for 2010 l 860 filers in 2007; 1,140 in 2008 l Most still find current rate structure more favorable because of credits and deductions 22 PDF created with pdfFactory trial version www.pdffactory.com
Personal Income Tax l Recent proposals have sought to replace current system with more simplified brackets l Remove “stigma” of 9.9% top marginal rate in state comparisons l Issue of winners and losers persists 23 PDF created with pdfFactory trial version www.pdffactory.com
Business Corporation Tax l 9% Percent of Net Income w/$500 minimum tax l 2008 SOI data u 48,597 returns u 45,063 paid minimum l $94.1 million in FY 2010; est. $100 million for FY 2011 24 PDF created with pdfFactory trial version www.pdffactory.com
Business Corporations Governor’s FY 2011 budget: $22.5 million loss from new and l increased tax credits and tax cuts New losses, tax cuts Small Business Job Tax Credit H 7397 $(10.0) Corp minimum tax from $500 H 7397 (11.5) to $250 K-12 Scholarship Organization H 7397 (1.0) Contribution Credit 25 PDF created with pdfFactory trial version www.pdffactory.com
Business Corporations: Issues l Gross/Net receipts l Proposals to phase out tax rate and replace with tiered minimum l Combined Reporting 26 PDF created with pdfFactory trial version www.pdffactory.com
Sales and Use Tax l The tax began July 1, 1947 at 1 percent. The current 7 percent rate became effective July 1, 1990 l State has high rate but narrow base l No local option 27 PDF created with pdfFactory trial version www.pdffactory.com
Sales and Use Tax l Comparisons with other states u 46 states levy sales tax (Alaska at local level only) u 2007 Census data ranks RI 30th on per capita collections; 37th on collections as percent of personal income 28 PDF created with pdfFactory trial version www.pdffactory.com
Sales and Use Tax l The tax began July 1, 1947 at 1 percent. The current 7 percent rate became effective July 1, 1990 l State has high rate but narrow base l No local option 29 PDF created with pdfFactory trial version www.pdffactory.com
Sales and Use Tax • RI does not generally tax services - declining base relative to consumption • 21 of 45 states taxing services (7-1- 2009) 17 tax cleaning services u 22 tax repair services u 12 tax transportation services u 6 tax professional/personal services u 30 PDF created with pdfFactory trial version www.pdffactory.com
Sales and Use Tax Many exemptions that narrow base No local sales tax Most states have city/county/special u district local option sales taxes When added up, exceed 7% in many u cases 31 PDF created with pdfFactory trial version www.pdffactory.com
Local Government 32 PDF created with pdfFactory trial version www.pdffactory.com
FY 2010 Local Revenue Sources Property Taxes 64.5% State 26.8% Non-Property Federal 8.2% 0.5% 33 PDF created with pdfFactory trial version www.pdffactory.com
Property Tax l RI Constitution – Article XIII, Section 5 “ Nothing contained in this article shall be deemed to grant to any city or town the power to levy, assess and collect taxes or to borrow money, except as authorized by the general assembly.” 34 PDF created with pdfFactory trial version www.pdffactory.com
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