Thursday, August 11, 2011

RI Municipal Fiscal Crisis “For Dummies”

In keeping with the title of this post, I will not discuss or use any specific numbers to support my argument – only theoretical (and very simple) examples. Also, this same scenario is playing out in cities and towns throughout RI and the U.S.

Step 1:
In the year 2000, presidential candidate George W. Bush proposed a sweeping tax cut if he was elected. Despite the fact that it was pointed out that the wealthiest 1% of the citizens of the USA would be the biggest benefactors of such a plan Mr. Bush was determined to downsize federal government – and, perhaps coincidentally, help out his rich friends as well.

In January of 2001 he took office. He proceeded to push through his tax cut and, indeed, cut many of the federal programs he saw as being better served by individual states (RI included). This meant much less funding of social programs by the federal government. Millions of people around the US were faced with losing social programs to which they’d come to depend on.

Unfortunately the need for these social programs didn’t disappear when the federal funding did. The responsibility for funding was merely shifted to the state (RI). But…most of us were paying lower (oh so slightly) federal income taxes. The wealthiest 1% of the population, however, saved millions of dollars in taxes!

Step 2:
The states (including RI) were now scrambling to offset the decline of federal funding to help with their budgets. At the same time there were a growing number of citizens in the state who were in desperate need of social and economic government programs to aid in their daily survival due to these same federal cuts. They now turned to the state (RI) to provide a continuation of these services. At this same time RI (having an income tax that piggy-backed the federal system) was forced to raise it’s percentage of the federal tax in order to maintain the same level of income via resident’s income tax payments.

Although this wasn’t truly an ‘increase’ in taxes by RI, it sure looked that way to the casual observer. A rise in tax would come eventually. The last thing a governor wants to do, particularly a republican governor like Donald Carcieri, is to raise taxes and expand government’s responsibility in social programs. So, as the burden on the state grew he was forced to choose between raising taxes or cutting programs and reducing the aid to the cities and towns.

Just as the president had done at the national level, Governor Carcieri decided these programs were better run by the local governments as opposed to by the state. After all, he didn’t run for office to expand state government – he ran to ‘cut big government’ (as all good republicans do). He cut social programs and cut funding to the individual cities and towns and desperately attempted to balance his budget without the need to raise taxes. Tens of thousands of people were facing the possibility of losing the governmental assistance and programs that had helped them get by on a day to day basis. That responsibility now shifted to the cities and towns. But…most of us were paying lower (oh so slightly) federal income taxes, and about the same amount in RI tax. The wealthiest 1% of Americans (as well as RIer’s) were still saving millions!

Step 3:
Around this same time Central Falls, Providence, Pawtucket, Woonsocket and West Warwick (not coincidentally the cities and towns affected the most by these hard economic times), being urban centers, have always had a disproportionate number of the state’s lower income citizens in the most desperate need of the social programs that were cut on the national and state level. Therefore, these cities and towns quickly became one of the biggest losers in a country led by Bush and a state led by Carcieri.

Thousands of people were now dependent on their city or town to provide the funding for their needs. Crap runs downhill, and the cities and towns are at the base (bottom) of our governmental ladder. There was no other entity to pawn off this responsibility. With no other choice, the city began to spend much more than it was earning via its main source of income – property taxes. Inevitably the city had to raise its tax rate to bring in additional revenue. Home owners in these cities and towns began to foot the bill for the federal tax cuts – the trickle down effect run amuck.

A typical home owner in one of these cities or towns was paying about $200 lower federal tax and about the same in RI tax, but they were paying about $500 more in property tax per year – with no end in sight.


As things got progressively worse ProJo and other media began to point their fingers at the municipal unions. Their outrageous salaries and benefits, it seems, has pushed the city over the edge. It doesn’t seem to matter that these union members are “working” people of RI always paying their fair share of income taxes and property taxes. These lower middle income citizens and families are accused of breaking the financial backs of RI and its cities and towns.

The emphasis has been strongly toward giving the upper income citizens and corporations more tax relief in order to create jobs and stimulate the local economy. All this at a time when investors on Wall Street are reaping the benefits of record setting profits despite the dire financial picture for the average citizens of the U.S. Corporations are paying back federal stimulus money in order to allow them to pay outrageous bonuses to their CEO’s and upper management people, as well as lift what they consider unfair restrictions on their businesses such as outsourcing jobs overseas. Corporate greed is once again the norm.

Is this the way we Americans want our system to work? The more we “right the ship” on the backs of working class people the more we are destined to create a “have and have-not” social structure – eliminating the middle class altogether.

Tom Kenney