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Raimondo's Budget Challenge: Eliminate $190M Deficit While Boosting RI's Economy

Rhode Island faces a big financial gap as Governor Gina Raimondo prepares to unveil her first budget Thursday. State law requires a balanced spending...

Raimondo with Commerce Secretary Stefan Pryor, one of her key point people on economic development.

Rhode Island faces a big financial gap as Governor Gina Raimondo prepares to unveil her first budget Thursday. State law requires a balanced spending plan, and Raimondo has pledged to improve Rhode Island’s economy while wiping out the red ink. But that will be no easy task.

Governor Raimondo has spent her first few months in office underscoring the depth of Rhode Island’s economic woes. During a Statehouse news conference last month, Raimondo outlined a variety of troubling indicators, like the loss of manufacturing jobs and the extent to which Rhode Islanders rely on public assistance. She took up the same theme this week at a union hall, calling on lawmakers to raise the state’s minimum wage.

"I know we have a tall hill to climb," she said. "I know that, Rhode Island."

Raimondo told union members she knows about their struggles and how many building trades members are out of work. The governor also held out hope of better days to come. "Together, you and I, we’re going to climb this hill and we’re going to get people back to work," she said.

Raimondo has underscored the need for Health & Human Services Secretary Elizabeth Roberts (left) to curb Medicaid costs.

Raimondo vows her spending plan will be what she calls a “jobs budget.”

"I have three priorities: attracting businesses, innovating in the economy and in state government, and in making sure that Rhode Islanders have the skills they need to be successful," she said, "and my budget’s going to have initiatives along all of those priorities." 

Raimondo declined to get more specific ahead of the formal presentation of her budget to the General Assembly.

But she did offer an appetizer Wednesday by briefly outlining plans to boost college scholarships and efforts to retain young workers in Rhode Island.

“We have to break the cycle that we’ve been in, which is that a poor economy leads to painful cuts," Raimondo said. "The only way forward is to resuscitate our economy and to do that, we have to invest in growth, along the lines of building skills, attracting entrepreneurs and businesses and innovating, including in state government. So everything you see in the budget will fit into one of those three categories.”

Yet it’s clear Raimondo faces a series of challenges in her first spending plan. She needs to wipe out a $190 million dollar deficit for the fiscal year starting July 1, and a considerably smaller budget hole for the current year. Raimondo has also said she wants to reduce long-term deficits that undermine the state’s ability to make strategic investments.

"The biggest long-term challenge we have in the state is the structural deficit," said House Minority Leader Brian Newberry (R-North Smithfield).

When he says structural deficit, Newberry means the cost of state government and the services it provides, which are growing at about twice the rate of state revenue.

"I think the governor should come out with a budget proposal, however painful it may be, that takes the important steps toward eliminating that deficit," he said, "which can’t be done in one year, but if you set a goal and have a budget idea that goes long-term, you can do it."

To reduce the structural deficit, Raimondo has cited the need to cut spending on Medicaid, the subsidized healthcare program that’s mostly for poor Rhode Islanders. Medicaid has grown to take up about a third of the almost $9 billion state budget. Federal dollars pay for a little less than two-thirds of all state spending.

On the plus side, state tax revenues are running tens of millions of dollars ahead of earlier forecasts, and that shows how Rhode Island is finally starting to get a taste of the national economic recovery. Yet groups like the Hospital Association of Rhode Island are already mobilizing against possible budget cuts. And that shows how different advocacy groups will fight almost any attempt to cut back on state spending.

Former state revenue director Gary Sasse, now the director of Bryant University’s Hassenfeld Institute for Public Leadership, says there’s a relatively narrow amount of wiggle room in the state budget.

"Probably have to find most of your savings out of about 20 percent of that budget, and that’s going to be very difficult," Sasse said.

It’s going to be difficult because many parts of the state budget are fixed costs. They pay for things like public schools, Medicaid and other assistance programs, and salaries for state workers.

If the state makes no changes, the structural deficit is projected to top $400 million in three years’ time. Other factors could worsen the problem, such as increased competition in the gambling industry, Rhode Island’s third-largest source of revenue. And then there’s the ongoing legal challenge to the 2011 overhaul of the state pension system.

Yet Governor Raimondo may ultimately benefit from good timing, since the national economic recovery is expected to continue to boost state revenues in the years to come.

The battles over this budget will play out in the months to come in closed rooms and public hearings at the General Assembly. Lawmakers usually sign off on a final spending plan in June or July.

Raimondo's Budget Challenge: Eliminate $190M Deficit While Boosting RI's Economy
Raimondo's Budget Challenge: Eliminate $190M Deficit While Boosting RI's Economy