A Tale of Two Deficits

1201110426With all the hullabaloo over the stock market and the upcoming/ongoing recession, and its impact on business, it’s easy to forget that the government is also staring at big problems. Massachusetts faces a $1.3 billion deficit, and our neighbor to the south is dealing with a $450 million budget gap.

Yet Rhode Island’s governor has called for an extreme belt-tightening, while Gov. Deval Patrick is planning new ways to spend money the state doesn’t have.

Last week, Rhode Island’s state workers were furious over Gov. Don Carcieri’s plan to force them to take six unpaid days off per year to cut costs. Unions representing the workers flat-out refused the furlough day plan, though the governor could possibly make the mandatory days off happen without union permission.

Tensions in the Ocean State won’t be alleviated anytime soon, and the governor continued to call for sacrifices at last night’s State of the State speech. Among his proposals, Carcieri wants to bring the cushy state benefits on par with private-sector packages, bring city and town workers into the state plan, and put a 2-year limit on welfare benefits. The speech projected a gloomy immediate future for the state.

“This crisis presents us with an unprecedented opportunity to make fundamental and lasting change that will quicken the transformation of Rhode Island from a ship today that’s taking on water to a world-class vessel,” he told the lawmakers in his annual State of the State address.

While the state of Rhode Island sounds like the last moments of the Titanic, just over the border in Massachusetts, Patrick is talking like it’s the heady times before the doomed ship left port.

In advance of tomorrow’s state of the state speech, Patrick has unveiled several new spending plans. He wants to increase spending on public safety by $106 million. The public education system will get a $368 million bonus. Beaches and parks will get nicer with an 8 percent increase in spending that will put the DCR’s budget at $100 million.

Patrick plans to find the money for all this new spending by closing corporate tax loopholes, tapping the reserve funds, and penciling in casino revenue, among other ways. Even with the casino revenue the governor penciled in, the state is still in trouble. In today’s Globe, Steve Bailey practically begs the governor to stop.

If the governor has not noticed, a recession is upon us. Yesterday, there was wholesale panic in the markets, abroad and at home, which were both comforted and alarmed by a surprise interest rate cut of three-quarters of a point by the Federal Reserve.

Governor Patrick, by contrast, is proposing a large tax increase for business as part of his plan to close a billion-dollar budget gap. His timing could not be worse. A tax increase should be dead on arrival on Beacon Hill.

Now that the governor’s budget it off to the House Ways and Means Committee, we’ll see what happens to his lofty expectations. And we’ll keep our eye on how Rhode Island’s unions deal with Gov. Carcieri’s belt-tightening budget.