As we resume much of the “normal” life we had before the pandemic, our observance of Mental Health Awareness Month provides an opportunity to reflect and remember the many members of our community whose struggles continue from the plague that arrived three years ago. May is also the month in which the General Assembly makes its final estimates of revenues and case loads to set a fiscal frame for next year’s budget. In this week’s letter, I discuss some of the budget options we have seen to date in the Finance Committee.
The 2023-24 State Budget
The State’s budgets for the past three years have been exceptional in terms of both the range of crises that required a massive response and the amount of additional federal funds provided to meet those challenges. The federal government also supported a rapid rebound of the national economy through generous fiscal and monetary policies, described in a recent PBS documentary as the Age of Easy Money. The pandemic exposed several holes in the State’s “safety net” for vulnerable Rhode Islanders, which the State was able to alleviate with a temporary “patch” of federal funds, as well as a substantial surplus in last year’s State budget.
This coming year’s budget will have less support from the federal funds “patch,” which by then will be largely exhausted. The State’s initial projection of a surplus of State funds for this year’s budget also likely will be reduced, as it was based in substantial part on a failure to fill more than 1,000 vacant State positions that are being filled, and which is subject to revision this month as we recover from the “Age of Easy Money.” In light of this, I believe the State’s fiscal capacity to fund new multiyear initiatives and/or to enact substantial permanent tax cuts will be significantly constrained. Among the major proposals for new initiatives that will compete for priority in this fiscal environment are the following:
A. Tax Relief
1. Sales Tax
The Governor’s budget proposes a permanent 0.15% reduction in the sales tax rate (reducing it to 6.85%), which would provide annual savings of $39 to the average Rhode Island household and have a fiscal impact of $25 million next year and $35 million in subsequent years. Other legislation proposes larger reductions to 6.5% ($119 in household savings, $112 million in lost revenue) and 6% ($239 in household savings, $225 million in lost revenue).
2. Gasoline Tax
The Governor’s budget proposes a “pause” in next year’s scheduled increase in the gasoline tax, which would reduce revenue by $12 million annually.
3. Tangible Tax
The Senate leadership has proposed a statewide tangible property tax exemption of $100,000 (with the shortfall reimbursed to municipalities with State funds) that would require an annual commitment of $36 million.
B. Programmatic Initiatives
A recent Rhode Island Foundation report was but the latest reminder of the State’s longstanding shortage of housing generally, especially affordable housing. The report calls for a strong State response, beginning with greater staffing to coordinate local and private projects, and extending to the creation of a State housing development corporation. This later proposal, which is included in Senate Bill 866, was proposed last year with an initial capitalization amount of $300 million.
2. Public Transportation
The Rhode Island Public Transportation Authority received federal funding to maintain its operations in the face of reduced ridership during the pandemic. With the exhaustion of those federal funds, RIPTA has requested an additional $30 million in State funding to avoid drastic service cuts.
3. Social Services
As first documented in my November 28, 2021 letter and in others since then, the pandemic exposed holes in the State’s safety for for Rhode Islanders with disabilities, seniors, children and families, and those battling mental health conditions and substance abuse. The State allocated federal funds to create a two year “patch” to stabilize this emergency, but those funds will largely run out at the conclusion of the current fiscal year. At one point, the United States House of Representatives approved the Build Back Better Act, which would have provided long-term investments of federal funds in this area, but the bill was not approved by the United States Senate. The General Assembly approved legislation last year to conduct a comprehensive review of provider reimbursement rates to be completed later this year, but in the meantime, Senator DiPalma has proposed bill S-782, which would appropriate $200 million in general revenues for the next year to continue the increased wages and reimbursements pending completion of the rate review process.
4. Higher Education
In a Presentation to the Senate Finance Committee, the President of the University of Rhode Island documented the State’s disinvestment of 37% over the last 20 years (in inflation adjusted dollars) at a time when enrollment has grown by 33%, leaving URI as worst-funded “flagship” public university in the country. This disinvestment has manifested itself in threadbare programming and crumbling facilities. URI requested an additional $32 million in operating funds next year and $122 million in capital funds over the next five years.
5. Relief for Retired State Employees
In 2011, the General Asssembly enacted pension reform, which included a freeze on cost of living adjustments (COLA’s) for retirees until the fund reached 80% of the actuarily “fully funded” amount. At a hearing last week, we learned that the current target date to resume COLA’s is 2031, and that the purchasing power of a pension awarded in 2011 or earlier has declined by 30% since the reforms took effect. There are a series of proposals to provide partial compensation that range from $5 million — $30 million as a one-time expenditure, to others that would commit $30 million or more annually going forward.
6. Other programs
Many other governmental departments requested budget increases beyond the Governor’s budget, such as for teacher training, pre-kindergarten, public education and other initiatives in amounts of less than $5 million apiece. It also is possible I will learn of new initiatives proposed before the Senate Finance Committee and/or from elsewhere in the General Assembly in the coming weeks.
In hearings before the Senate Finance Committee, we have heard and will continue to hear often compelling presentations describing the social benefits of proposed tax reductions and/or investments in existing or new government programs. When I consider each presentation in isolation, I often see arguments to justify its incorporation into the budget; however, such an approach is not financially possible in the aggregate. These individual decisions ultimately will be determined in part by the financial projections the General Assembly will make this month. Once that amount is set, the State will have to decide which items within the universe of worthy possibilities can be made priorities in next year’s budget.