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Gov. Gina Raimondo and her Statehouse team have drawn high marks for handling this health crisis. Her daily television appearances and reliance on medical opinion and scientific data has calmed an anxious state.
Now comes a challenge that could prove even tougher –leading the state out of the impending financial fiasco. The way Raimondo and the General Assembly deal with the impending financial fiasco will be her legacy as she finishes the final two years of her term.
What we know is that Rhode Island faces budget red ink of more than $800 million, as sales income and gambling taxes have cratered. Spending is up, jobs are down and the future looks bleak. No one knows how much the federal government may help states.
This virus-induced recession is uncharted territory. Yet the state has faced big deficits before. In modern times, the credit union crisis of the early 1990s and the 2008 recession are precedents.
During the crash of the credit unions, about a third of Rhode Islanders had no access to their money during a recession. State employees were given unpaid furloughs. Taxes were raised on the wealthy. Programs were cut. It wasn’t easy.
The 2008 recession brought debilitating cuts to education and state aid to communities was slashed. Then-Gov. Don Carcieri was determined not to raise taxes and he didn’t. In Massachusetts, then-Gov. Deval Patrick refused to make deep cuts in education and aid to municipalities. Instead, he persuaded lawmakers to increase the sales tax by one percent.
Now, with a better economy and a rainy day fund of about $3.5 billion, Massachusetts is poised to recover faster than Rhode Island.
Rhode Island’s rainy day fund is at about $200 million. The state also relies on gambling taxes more than Massachusetts. The closed casinos are costing the state about $1 million a day. But how do you open a casino in an era of social distancing? That’s just one of the dilemmas lawmakers and the governor must consider.
Another will be how to treat cities and towns. Already, local leaders are sounding alarms. They are worried about money for state aid to education and financing for distressed urban communities that are bearing the brunt of Covid-19 cases . The cities and towns are also burdened with higher costs for police and firefighters who respond to the virus. Slicing state aid puts pressure on the cities and towns to raise property taxes.
Raimondo is a Rhodes Scholar, but not always a Rhode Island scholar. She and her aides don’t have great relationships with lawmakers. She has to lead by example; the first steps should include a state hiring freeze, followed by talks with union leaders about controlling personnel costs.
Yet, contrary to some public opinion, salaries for state workers are not the big item in the state budget. About 70 percent of state spending is in education aid, social service programs, particularly Medicaid, and debt service.
In times as perilous as these, the state may have to look for new revenue. Gary Sasse is director of Bryant University’s Hassenfeld Institute and a veteran of state government. Sasse says that equity should be a guide. If taxes must be raised, Sasse says Raimondo and lawmakers should first consider an increase in income taxes on top earners. “The one-percent,” says Sasse, “have to be part of the solution.”
Scott MacKay’s commentary can be heard every Monday morning at 6:45 and 8:45 and at 5:44 in the afternoon.
