When legislators did away with the car tax, the state reimbursed municipalities the lost tax revenues. The plan was to ensure property owners received tax relief and that municipalities didn’t lose out on revenues.

That’s the way it has worked and is slated to continue in the upcoming fiscal year.  Also, as part of the tax relief package, legislation will exempt the first $50,000 in tangible valuations thereby giving businesses a break and cutting tangible tax returns to cities and towns.

Brian Daniels, director of the Rhode Island Office of Management and Budget, said in an interview Friday the reduction in lost tangible tax revenues amounts to $28 million, which the state would reimburse.

“When you add in the (lost municipal taxes)  motor vehicles  that amounts to $262.3 million in tax relief provided for property owners,” he said.

The motor vehicle legislation includes a provision designed to account for the flocculation in automobile values from year to year. W hen municipalities levied the car tax, revenues increased when people bought new cars as well as when the values of older car increased. So as to reflect  the increase or decrease in revenues had the tax not been eliminated, reimbursements are to be indexed by the growth, or decline, in sales tax receipts for the prior year.

While those figures haven’t been finalized, Daniels estimates the growth in sales tax receipts at about 3 percent.

That’s the number Warwick City Finance Director Peder Schaefer came up with when calculating the city budget. Based on car tax reimbursements of more than $25 million in the current year, he questioned why the governor’s budget does not reflect an $800,000 boost in reimbursements next year.

Daniels explained that the index provision takes effect in the FY 2026.

“Warwick is not missing out on anything,” he said.

 But the index provision won’t even take effect next year if the governor gets his way.

“The governor proposes to change the law so it doesn’t increase,” Daniels said.

What Daniels explained is that the governor’s budget projects increased aid to education of at least 3 percent. To make it all balance, Daniels said is a matter of making cuts or raising taxes.

“With education growth going up,  we have to balance our budget,” he said.

 Provided legislators don’t change the budget restoring the index for FY2025, Daniels said the provision is gone indefinitely. Municipalities would continue to receive reimbursements for lost motor vehicle tax receipts at the current rate indefinitely.