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3. Enhances Fiscal Discipline.
Targeting multi-year tax cuts can be an effective tool to engender State fiscal discipline and focus resources on providing solutions to the long-term needs of reducing dependence on the property tax.

The FY 2002 proposed budget represents a $389.9 million increase from FY 2000 - a 17.5 percent increase over this two-year period. As shown on Table 7, the major drivers of State spending are grants and benefits (driven by caseloads and changes in eligibility criteria), representing the largest source of growth in the budget. For every $1.00 increase in general revenue spending from FY 2000 to FY 2002, 34.4 cents would be associated with these programs.

Expenditure growth in the State’s overhead expenditures (personnel, operating and debt service) represents 30.1 percent of the growth. School aid growth represents 22.4 percent of the growth in the budget.

As proposed by the Governor, the expenditures related to the motor vehicle excise tax are proposed to increase from $43.8 million in FY 2000 to $74.8 million in FY 2002 during this two-year period. Expenditure growth for the program represents 7.9 percent of the total growth in general revenue expenditures during this period.

If the General Assembly were to re-allocate the estimated $23.1 million needed to continue the phase-out of the motor vehicle tax from other categories in the State Budget, expenditures related to the phase-out would represent 13.9 percent of the total growth in expenditures. If the General Assembly were to add the $23.1 million to the base, thereby increasing total expenditures by $413.0 million rather than $389.9 million, the motor vehicle share would be approximately 13.1 percent.

4. Eliminates taxpayer inequities.
Many Rhode Islanders view the tax on motor vehicles as unfair because taxpayers with a similarly valued vehicle will experience a different tax burden depending on where they reside. This is due to having 39 municipalities taxing motor vehicles at different rates.

For example, as presented in Table 8, if a car was valued at $5,000 in FY 1998, motor vehicle tax burdens would have ranged from $383.90 in Providence to $65.40 in Charlestown (excludes New Shoreham). The State median was approximately $130.00 for a $5,000 vehicle in FY 1998. As this data indicates, Providence's tax burden on the $5,000 car is three times the State median.

Another way to look at the difference in the relative tax burden is to see what the value of the car would have to be in each community to generate the same amount of tax revenue as Providence with a $5,000 vehicle ($383.90). Based on FY 1998 motor vehicle tax rates, 30 communities would have to have an automobile valued at $10,000 or greater to generate a similar level of revenue to Providence. Of these 30 communities, 16 would have to have car values ranging from $10,000 to $20,000 depending on local rates. The 14 remaining communities would have to have car values of $20,000 or more to generate a similar amount of revenue as Providence.