Header, the Administration of the Honorable Lincoln C. Almond
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July 17, 1996

TO THE HONORABLE, SPEAKER OF THE HOUSE OF REPRESENTATIVES:

In accordance with the provisions of Section 43-1-4 of the General Laws, I am transmitting herewith, with my disapproval, 96-H-8783 Substitute A, As Amended, "An Act Making Appropriations for the Support of the State for the Fiscal Year Ending June 30,1997."

As passed by the General Assembly, this Appropriations Act fails to deliver the fundamental change needed to move Rhode Island forward. The Act does not provide the tools to improve the management of state government, and unacceptably interferes with my ability to effectively manage the budget. The Act is based on speculative revenues and unfunded expenditures, and includes an excessive amount of proposed bonded indebtedness. Yet, important spending initiatives are not addressed.

Before discussing these substantive issues, there is a significant constitutional question as to whether this budget is properly before me. Article 6, Section 11 of the Rhode Island Constitution requires that "[t]he assent of two-thirds of the members elected to each house of the general assembly shall be required to every bill appropriating the public money or property for local or private purposes." Although the House of Representatives passed the Appropriations Act by a vote greater than two-thirds, the Senate did not. As such, the Act as presented to me cannot validly contain any private or local appropriations. A plain reading of the line items contained in the Act appears to reveal no such private or local appropriations, so that the Act may be properly before me. This, however, may not be what the General Assembly has intended.

For decades, the General Assembly has utilized the Appropriations Act to appropriate millions of dollars of public funds each year in so-called "legislative grants" for selected private and local purposes. In earlier years, such private and local appropriations were separately itemized in the budget legislation. In recent budgets, however, including presumably in this one, the General Assembly has buried such appropriations such that none are identifiable in the Act itself. After passage of the budget, the General Assembly customarily has then directed executive branch departments and agencies to distribute millions of dollars in public money to favored private and local entities.

The lack of identification of these private and local items in the Appropriations Act plainly runs afoul of the constitutional requirement that such appropriations by two-thirds vote are only valid where "the record of the vote in each house of the general assembly shows that the members thereof had full knowledge of the private purpose of the appropriation in the bill upon which they are voting." Opinion to the Governor, 79 R.I. 306, 308 (1952). In addition, because there are no line items for private or local appropriations specifically contained in the budget, such spending, if intended, cannot logically be severed from the valid public appropriations contained in the budget, which require only majority vote. See Opinion to the House of Representatives, 45 R.I. 289 (1923) (severing private from public appropriations in senate version of budget bill where no two-thirds vote existed and requiring return of bill to house for further action). Thus, if private or local appropriations were intended to be effectuated by the Act, the bill did not validly pass the Senate yesterday and was improperly transmitted to me.

As for the substance of the Appropriations Act, my original budget submission proposed to cut the state workforce by over 1,000 employees, in addition to the hundreds of positions I have eliminated since taking office. My budget also sought to merge and consolidate 23 departments and agencies in order to streamline government. I also proposed a program of personnel reforms to give me the tools essential to effectively manage state government. The impetus for this plan was to generate dramatic restructuring of government in order to improve the delivery of services and to address the chronic deficit inherent in the state budget over the last several years.

The Appropriations Act passed by the General Assembly fails to take the bold action needed to bring the budget under control and to permit Rhode Island to finally invest in its future. The Assembly has rejected my plan to dramatically cut the state workforce, and has rejected personnel reforms, such as elimination of the 20-year rule and provisions relating to privatization, which could facilitate effective downsizing. The Assembly also has rejected most of my consolidations and mergers, preferring instead to leave intact small, independent agencies that are often inefficient and unaccountable.

The General Assembly in the Act has imposed restrictions on my budgetary authority which are likely unconstitutional arid will obstruct the management of government. In Article 1, Section 4, the Assembly has eliminated the Governor's authority to transfer portions of appropriation items within departments in case of emergency or unforeseen circumstances— a power that has been exercised by Rhode Island Governors for decades in order to effectively manage government operations and services. Read together with the provision in Article 1, Section 19 that "each line . . . shall constitute an appropriation," (and given that there are literally hundreds of appropriation lines in the Act), the removal of my transfer authority, and underfunding in certain appropriation items by the Assembly undoubtedly will lead to lay-offs and service cutbacks.

Besides placing severe restrictions on my budgetary authority, the General Assembly in the Appropriations Act has imposed burdensome new budgetary and auditing requirements. While some of these requirements may be meritorious, the Assembly has not provided additional resources to perform these tasks. Specifically, the Act requires performance objectives and performance data as part of the budget submission (Article 1, Section 16), new auditing requirements to be performed by the Bureau of Audits (Article 4), preparation of a preliminary closing statement by the State Controller (Article 10, Section 6), approval by the Budget Officer of all hiring of new personnel (Article 11), inclusion of five-year projections as part of the budget submission (Article 11), and submission of a separate supplemental appropriation submission in January (Article 11).

The Act passed by the General Assembly also includes speculative revenues that should not form the basis of a responsible budget. Specifically, the Assembly has included $7,936,585 in FY 1997 general revenue for recovery of a claim by the State against Blue Cross in connection with the State's employee health plan, despite that there was no consensus at the most recent Revenue Estimating Conference in May to include any revenues with respect to this item. Given that the general revenue portion is net of federal reimbursement and a contingency to be paid to the consultants, approximately $16 million would be required to be recovered from Blue Cross to attain this amount.

In addition, the General Assembly is relying on speculative revenues of over $4.1 million in increased tax collections as a result of hiring more employees in the Division of Taxation. While my budget proposal included an additional $1.7 million to be realized as a result of the consolidation of collection activities from Department of Employment and Training and the Department of Human Services in the Department of Administration (Article 12), the Assembly has added $4,112,802 for increased collections connected with the hiring of additional personnel at the Division of Taxation at an increased expenditure of $471,468.

Article 5 of the Appropriations Act passed by the General Assembly seeks to spend more in future capital expenditures than the State can afford. While my budget sought state bond referenda totaling $174 million, the Assembly increased this proposed bonded indebtedness to over $254 million, which is excessive given that Rhode Island presently has one of the highest rates of indebtedness in the country. Also a high total bond amount could result in the rejection by some voters of all bond referenda.

Despite relying on speculative revenues, the Assembly has not seen fit to include some important spending initiatives which I have proposed. The Assembly Act takes $2 million from Department of Transportation's budget for road maintenance. These funds are critical given that DOT'S maintenance budget is woefully inadequate, and given the huge debt obligation incurred by DOT under the prior Administration. Despite having one of the highest gas tax levies in the country, Rhode Island is among the worst in state support of our roads.

The Appropriations Act passed by the General Assembly also fails to include an appropriation for a new boot camp program proposed by the Department of Corrections. Under the Federal Crime Bill, DOC already has been awarded a $600,000 federal grant for this innovative rehabilitation program for 100 young non-violent offenders annually. Under the Assembly Act, this federal grant would be lost and future funding would be jeopardized. If the boot camp is not instituted, inmates would need to be added to the prison population, potentially affecting the time frame for opening the Special Needs Facility, which has been deferred beyond FY 1997 by the Assembly, The cost of the boot camp in FY 1997 would be approximately $1 million in state funds and approximately $1.6 million in total.

After increased revenues were determined at the most recent Revenue Estimating Conference, I proposed to increase the homemaker/home health provider rate by $1.16 per hour. The basis for this proposal is that the current rate, which is very low compared to our neighboring states, has become an impediment to maintaining an adequate capacity of qualified providers. An increase of these rates and building provider capacity will be critical to meaningful reforms in long-term care. While the cost of this item was only about $700,000, this initiative was rejected by the Assembly.

The Assembly also has rejected my proposal to increase the appropriation for Centers of Excellence from $500,000 to $1 million. Instead, the Assembly increased funding for the Centers to $750,000 as part of the Economic Development Corporation Budget, but $250,000 of this amount would come from general funding for EDC. The Centers initiative is an important program which has proven its worth in creating jobs in other states, and would be funded at a relatively low level, even at $1 million.

The Appropriations Act passed by the Assembly also fails to include legislation to modify the apportionment factors used by manufacturing firms to calculate business corporations tax owed to Rhode Island. Current law provides for a three-factor test based on sales, payroll, and property, each of which has equal weight in apportioning the amount owed. Under my proposal, the sales factor would have been increased gradually over time until the tax is based entirely on this factor. Several states are moving to full weighting of sales, including Massachusetts. Current Massachusetts law provides for a 50 percent weighted sales factor. Under my proposal, the modified apportionment formula would be permitted only for those firms at least sustaining their employment level. While the original revenue loss attributed to this item in FY 1997 exceeded $2 million, I had agreed to modify the proposal such that the revenue loss would be reduced to only $500,000 in FY 1997. Unless we enact a change in this tax, Rhode Island will be at a serious competitive disadvantage to other states, and particularly Massachusetts, in attracting and retaining manufacturing jobs.

I also object to certain provisions of Article 22 of the Assembly's Appropriation Act relating to education. Restrictions on the hiring and budgetary authority of the Department of Elementary and Secondary Education, together with the Assembly's elimination of the ability to transfer between line items and the increase in the number of line items for the Department, is unwarranted and is certain to impede the independence, efficiency, and effectiveness of that agency. I also must take issue with the special joint commission established to formulate a new funding plan to the extent that this commission consists only of legislators and does not contain representatives of the executive branch or members of the public (Article 22, Section 5).

For the foregoing reasons, I disapprove of this legislation and respectfully urge your support of this veto.


Sincerely,

Lincoln Almond
Governor