TAX NEWS - June 2010

Rhode Island Tax: Council taps surplus, approves budget

WARWICK — Looking for tax relief for residents, the City Council on Monday night opted to draw down the city's savings rather than introduce new car taxes in adopting the fiscal 2011 budget.

After long nights of public hearings last week, the council changed the revenue sources for the roughly $267-million budget proposed by Mayor Scott Avedisian.

Avedisian had advocated some cuts to school funding and increasing the car-tax base by eliminating a $6,000 value exemption that was instituted by the state. Under that program, vehicle owners got $6,000 deducted from the value of their cars for tax purposes and the state reimbursed cities and towns for the difference.

The General Assembly recently gave municipalities the option to tax cars on all but the first $500 of value after eliminating all reimbursements for fiscal 2011.

Councilman Joseph Solomon said he did not think taxpayers could afford higher taxes in the current economy and noted that many residents have two vehicles or more.

Solomon advocated that $2.7 million be taken from the city's unencumbered savings — known as the fund balance — of $5.9 million. The move, which received unanimous support from the council, leaves the city with about $3.2 million in the bank.

Since more revenue was needed to support the budget, the council also unanimously backed Solomon's recommendation that the residential tax rate be increased from the $16.90 per $1,000 of assessed value proposed by Avedisian to $17.48.

Solomon stressed that since home values dropped substantially in a recently completed revaluation, the slight bump in the tax rate will still mean a slightly lower tax bill next year for someone with a home valued at the median of about $170,000.

When asked by council members about the effect of their changes, city Finance Director Ernest Zmyslinski said it will create a structural deficit because the budget is reliant on a onetime revenue source. Next year, Zmyslinski said the city will start $2.7 million in the hole.

Asked during a break if he was concerned about tapping the city's savings, Solomon said that tax relief was the most important issue. "There's a time and a place for everything, and this was the time for this," he said.

Avedisian said Tuesday that he will not veto the budget because the council clearly has the six votes it would need to override his veto. He said the most important thing now is making the budget work for the city.

"I had suggested the car tax because it encompasses a larger group of people, including people who rent homes and do not pay property taxes," he said.

The next big question is how the School Department will react to the budget, which cut its requests for local funds by about $9 million.

School Committee Chairman Chris Friel said a special meeting will likely be called over the next several days to try to deal with such a huge loss of funding. He said he remains committed to keep sports and activities, and the only way the School Department can deal with a cut of this magnitude is to look at the salaries and benefits of its employees.

He said school officials will be approaching the teachers and other unionized employees as well as nonunion workers.