Raimondo’s $9.9 billion budget would extend sales tax, raise fees, add health-insurance mandate

Jan. 18--PROVIDENCE -- Governor Raimondo on Thursday rolled out key details of a proposed $9.9-billion budget that calls for a slew of new sales taxes and fees, an individual health-insurance mandate and a first-ever penalty on large employers whose uninsured employees have been forced to rely on state-subsidized Medicaid.

Packed with ambitious spending initiatives, including the extension of free tuition to Rhode Island College students and mid-career adults at the community college, the spending blueprint that Democrat Raimondo proposed to lawmakers hinges on tens of millions of dollars in new taxes, fees and assessments, and millions more in "scoops" from Rhode Island Housing and other satellite agencies.

In her proposed budget for the year that begins on July 1, for example, she calls for a 25-cent hike in the state's $4.25-a-pack cigarette tax, which would make it the highest in the country; a boost in the state's 5-percent hotel tax to 6 percent; and $24 million in new revenues from sales taxes on an array of currently untaxed items. These include recreational marijuana (assuming it is legalized); the digital download of videos, music and books; lobbying; interior design; landscaping and other "services to commercial buildings"; and "hunting, trapping and shooting ranges."

Unspecified fee hikes at the state's beaches and campgrounds are also built into Raimondo's revenue projections, along with a $1 increase in a $1.50 transaction fee at the DMV.

The proposed budget also includes a new 10-percent surcharge on guns and ammunition, with details to come.

To avert a big, honking deficit -- while also launching new programs -- Raimondo is also seeking to scale back the car-tax relief that lawmakers envisioned when they passed a multiyear phaseout championed by House Speaker Nicholas Mattiello and shepherded to passage after his tough 2016 reelection campaign.

The first $2,000 in vehicle value is currently exempt from local motor-vehicle taxes, with the state reimbursing cities and towns for the lost revenue. If Raimondo prevails, the exemption will edge up to $2,800 next year, instead of the $3,000 called for by current law.

Raimondo budget advisers told the media this "smoothing" will reduce the required reimbursements -- and by extension, the next round of scheduled car-tax relief -- by about $16 million.

"The phase-out of the car tax is currently set in law," Mattiello said in a statement. "It is being counted on by the citizens of Rhode Island and it is a state promise that I take very seriously. We will carefully analyze the governor's proposals in their entirety."

The governor is also seeking to reduce by about $6 million a state aid program known as "P.I.L.O.T." that compensates cities and towns for their tax-exempt property, while giving them authority to make up that loss by taxing doctors' offices, Starbucks cafes and other for-profit activities within otherwise tax-exempt hospital and school buildings.

If passed by lawmakers, Raimondo's spending plan would elevate Rhode Island's state-and-federally financed budget by more than $357 million from $9,572,741,806 this year to $9,930,037,416 during the year that begins on July 1.

There were many fewer details of the budget publicly available on rollout day than there have been in years past. For example, there were unspecified "savings" attached to the recommendations of an "efficiency commission" that has not yet been created.

But the most potentially far-reaching new proposals involve Rhode Island's health insurance market, where Raimondo is proposing both an individual mandate with penalties matching those stricken down at the federal level; a state-sponsored "reinsurance" program; and a 10-percent tax on the wages of every employee, working for a company with 300 or more employees, who is enrolled in Medicaid.

All three would go into effect at some point next budget year, when overall Medicaid spending in Rhode Island is projected to increase to $2.49 billion. (The state's portion would be $968.8 million, up from $954.3 million this year.)

-To offset some of the state's Medicaid costs, Raimondo is seeking to impose a new "assessment" on for-profit companies employing 300 or more people that do not provide their lowest-wage, Medicaid eligible employees with health insurance. Other states have taken similar actions, including Massachusetts.

Under the plan, employers would be charged 10 percent of these employees' wages, with an annual cap of $1,500 per employee annually. Employees enrolled in Medicaid due to a disability would be exempted, as would nonprofit companies.

The move is projected to generate about $15.6 million next year. Raimondo maintains this will help shore up Rhode Island's Medicaid program and maintain the state's low uninsured rate, currently less than 4 percent.

Raimondo's budget team estimates this tax will affect about 140 unnamed companies in Rhode Island, possibly including some of those named in an annual "Unified Economic Development Report" on the number of employees of companies getting state tax incentives that are enrolled in Medicaid.

According to the most recent report, for 2017, that included Citizens Bank, with 67 employees on Medicaid; CVS (163); Electric Boat (99) and United Natural Foods (22).

-Raimondo is also proposing an individual health-insurance mandate, with penalties assessed on people who do not have insurance. The penalties would be assessed during the 2021 fiscal year when individuals file taxes.

The most recent count indicates there were 17,000 or so Rhode Islanders who, in 2016, had to pay roughly $11 million in individual-mandate penalties to the IRS under the Affordable Care Act for not having health insurance.

Zachary Sherman, the director of the state-run health-insurance marketplace known as HealthSourceRI, said Rhode Island is seeking to reinstate, at the state level, the penalties struck down at the federal level: $695 a year per adult or 2.5 percent of household income (whichever is greater), for anyone who does not have health insurance.

The penalty associated with the federal individual mandate was zeroed out effective Jan. 1 as part of the Tax Cuts and Jobs Act of 2017, which was passed by Congress and signed into law by President Donald Trump. In response, New Jersey, Washington, D.C. and Vermont passed state-based individual mandates. Massachusetts has one as well, which predates the Affordable Care Act, according to Sherman.

"What we are proposing to do is basically replicate the federal mandate penalty here in Rhode Island," explained Lisa Vura-Weis, the state's acting secretary of health and human services. "And the goal there is really to encourage market stability. We want to make sure that we have a balanced risk-pool on our [health-care] exchange."

-The dollars collected in Rhode Island as a result of the proposed new individual-mandate would go into a reinsurance fund, Sherman said. Five states -- Alaska, New Jersey, Minnesota, Oregon and Maryland -- already have reinsurance programs that "provide funding to insurers who cover consumers with high medical costs to prevent them from raising insurance premiums on all enrollees."

As Vura-Weis explained: healthier people are the most likely to try to forgo insurance, limiting the pool of insured people to those more likely to need care which increases insurers' risk which, in turn, leads to higher premiums. "The combination of an individual mandate to keep young healthy people in our marketplace is critically important from a risk-pool perspective, and it also funds the reinsurance program."

A new law passed last year provided the authority for HealthSourceRI to apply to the federal government for a waiver to create a reinsurance program. "We have been working on that, doing the actuarial modeling that is needed...how much money is needed, how will it be distributed, what type of federal match can we get," Vura-Weis said.

-With reports from Journal Staff Writer G. Wayne Miller

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