Rhode Island Gov. Dan McKee on Thursday unveiled a $13.7 billion budget for 2023-24 that his administration touts as a way to boost incomes, improve student performance and make the state healthier.
“It is the governor’s specific plan on how to deliver on these priorities, to make Rhode Island a better place to live, to raise a family and to do business,” James Thorsen, state Director of Administration, said during a midday briefing for reporters.
Among other things, the budget proposal includes $100 million in tax relief, fulfills a vow by McKee to expand abortion coverage to cover state employees and women on Medicaid, and adds staff to support Rhode Island’s effort to confront a paucity of affordable housing.
The budget marks the second consecutive spending plan fueled by a big surplus.
In previous years, the state has been marked by large deficits. State officials said the current $610 million surplus is due to strong revenue collections, lower spending from unfilled state jobs, and additional federal aid during the pandemic.
The spending plan adds money to the state’s rainy day fund, includes $70 million to cover lost toll revenue — with at least a temporary halt to the state’s truck toll program — and uses $35 million in surplus money to retire various debts.
The General Assembly will now spend months reviewing McKee’s proposal before making a series of changes and passing a revised plan ahead of the July 1 start of the next fiscal year.
“At first glance, I am pleased that many of the initiatives proposed in the governor’s budget align with Senate priorities, including investment in education, providing tax relief for Rhode Island residents and small businesses, and taking fiscally responsible steps to ensure we are prepared for predicted economic downturns,” said Senate Finance Chairman Louis DiPalma (D-Middletown).
House Speaker Joe Shekarchi pledged that the House will closely review the governor’s plan.
Last year, McKee proposed a $12.8 billion budget, and the General Assembly wound up passing a $13.6 billion spending plan.
Here’s a look at some specific parts of the proposal McKee laid out on Thursday.
EDUCATION
The budget includes an increase of almost $58 million for K-12 schools. About $10 million of this is to support districts with economically disadvantaged students. With the statewide student population down by more than 5,000 students, some of the money will compensate districts for enrollment losses. The budget also calls for an almost 7% increase, or $14.2 million, in funding for public higher education. This includes an additional $1.5 million for so-called blue economy research and faculty at URI.
TAXES
McKee’s proposed tax cuts include reducing Rhode Island’s 7% sales tax to 6.85%, with the goal of matching the 6.25% rate in Massachusetts through incremental cuts over the next five years. The initial annualized cost of the cut is $35 million.
While Massachusetts has used a surplus to make a one-time refund to taxpayers, Brian Daniels, head of the state Office of Management and Budget said there’s a good reason for the different approach in Rhode Island.
“The difference is that this is long-term tax relief, and this is about making Rhode Island businesses more competitive,” he said. “A third of Rhode Islanders live within three miles of the [Massachusetts] border. They can cross the border. They can shop in Attleboro, they can shop in Seekonk. That puts Rhode Island businesses at a disadvantage.”
The budget also wipes out a 3-cent hike in the gas tax, to 38 cents, scheduled for July 1. State officials say this would save drivers almost $25 million over the next two fiscal years.
The budget trims the corporate minimum tax by $25 to $375, reduces taxes on the trade-in value of trucks, and would refund tax on electricity and natural gas bills this winter, for an average saving of $24 to $30 for consumers.
ECONOMIC DEVELOPMENT
The spending plan includes $45 million to cultivate the life sciences industry, with $20 million of that going to the creation of wet labs. The budget also has $25 million for a second phase of the South Quay Marine Terminal in East Providence, a project related to the wind power sector.
HOUSING
A new state Department of Housing came into being Jan. 1 as part of the state executive branch, and the budget includes money to staff the agency – charged with implementing spending $250 million in previously approved money on housing – with 21 additional full-time employees. The budget would also use $30 million to expand shelter capacity for people facing homelessness.
THE LONG HAUL
The state workforce has rebounded from a low of 13,430 workers in October 2021, to 13,739, but that is far below the 15,455 authorized employees. The budget recommends hiring 136 new full-time equivalents.
Finally, consecutive budget surpluses have helped reduce Rhode Island’s structural deficit – caused by a longtime gap between spending and revenue – to a projected $40.9 million for fiscal 2028. That’s the lowest level by far in many years.
Daniels recalled that, when he was working for former Gov. Lincoln Chafee, the structural deficit in 2012 was about $330 million, or about 10% of the state’s operating budget. The long-term deficit grew to about 20% of the operating budget.
Now the situation has improved, as revenues have grown faster than expenses in recent years.
“This is why it really matters having fiscal discipline,” Daniels said, “and not spending more than we’re taking in.”
Ian Donnis can be reached at idonnis@ripr.org. You can follow him on Twitter @IanDon.
