Experts: One-time money balances gov’s budget

House Fiscal Offices raises questions, concerns about governor's $8.6B proposal

Gov. Gina Raimondo delivers her budget address in March 2015. (photo: WPRI/Dan McGowan)

PROVIDENCE, R.I. (WPRI) – Gov. Gina Raimondo’s new budget proposal covers a big chunk of Rhode Island’s $190-million deficit with one-time revenue that won’t be available next year, according to an analysis released this week by the House Fiscal Office.

“Almost a third of the deficit is resolved through one-time items,” House Fiscal, which crunches numbers for Rhode Island’s 75 state representatives, wrote in its 41-page report to the House Finance Committee, which leads the budget-writing process.

Raimondo defended the newly unveiled $8.6-billion budget blueprint during an event Wednesday. “We closed a $200-million deficit without any broad-based tax increases, and that is something that is good for Rhode Island,” the governor told reporters, noting that it provides new funding for programs she says will create jobs.

Raimondo aides emphasized last week that 62% of the $190-million deficit would be closed with spending cuts, primarily in health and human services. But another 31% of the deficit-cutting would come from what they referred to as “Transfers and Other Operational Changes,” which the House Fiscal Office says is one-time money.

The biggest chunk of one-time revenue is $23 million that will be scooped out of Rhode Island’s quasi-public agencies, including $11 million from the R.I. Clean Water Finance Agency, $5 million from the R.I. Health and Educational Building Corporation and $1.5 million from the R.I. Resource Recovery Corporation.

Another big source of one-time revenue: $19 million from a recent refinancing of the R.I. Tobacco Settlement Financing Corporation’s debt, which gets paid off as the state receives its share of proceeds from the landmark 1998 legal settlement between state attorneys general and the tobacco companies.

The recent tobacco refinancing yielded a total of $36 million for the state. In addition to using $19 million of the money to plug the budget hole, Raimondo’s budget proposes transferring $7 million into the state’s Information Technology Investment Fund, which is less than lawmakers had ordered.

The result of all that – as well as the future costs of new programs Raimondo proposes creating in this budget and funding in future ones – is an estimated budget deficit of $75 million for the next budget year, which is 2016-17, and a shortfall of $377 million by 2019-20. The Raimondo administration, however, has noted that its projections of future deficits are down from earlier forecasts.

The point about one-time revenue is among a series of questions and concerns about Raimondo’s budget tacitly raised by House Fiscal analysts in their report.

On Raimondo’s proposal for a so-called “Taylor Swift tax” – a new statewide property tax aimed at million-dollar second homes to take effect July 1 – House Fiscal’s number-crunchers come down firmly on the side of those who claim the legislation is written so that it would apply to apartment buildings.

“It appears that the intent of the legislation and the revenue estimate excludes apartment buildings from the tax; however, as written, the tax would apply to these properties,” the House Fiscal report says. Paul Dion, chief of the R.I. Office of Revenue Analysis, said he didn’t include apartment buildings with six or more units in his revenue estimate.

Raimondo said Wednesday the text of the budget legislation will be revised if it accidentally levies the tax more widely than she intended, but she defended the broader idea of taxing high-end homes as a way to share the burden of deficit reduction.

And, she added, “Newport’s still a bargain relative to Nantucket.”

House Fiscal also raised doubts about the math behind the Raimondo administration’s proposed assessment on individual and small-group health premiums that would be used to pay for HealthSource RI, the state-run Obamacare marketplace.

The Raimondo administration estimates the new assessment would bring in $11.8 million to fund HealthSource RI during 2016, and Health and Human Services Secretary Elizabeth Roberts has said the cost is meant to mirror how much Rhode Island would pay to join the federal-run HealthCare.gov site. They estimate the cost would be $8.8 million in assessments and $3 million in transition costs.

Noting those figures, House Fiscal wrote, “The $8.8 million figure assumes significant growth in premiums written through the exchange.” No further details were provided.

House Fiscal also highlighted a previously unreported aspect of the budget that would again limit local voters’ say over how much their municipality borrows.

Language in Article 8 of the governor’s draft budget bill would let cities and towns borrow unlimited amounts of money through three programs – all masterminded by Raimondo – “without charter or referendum approval” during a limited period: July 1, 2015 to June 20, 2016, according to House Fiscal.

One of the programs already exists: the R.I. Clean Water Finance Agency’s municipal road and bridge fund, which Raimondo worked with former House Speaker Gordon Fox to create back in 2013. The General Assembly passed a law at the time that allowed cities and towns to borrow money from the new fund without voter approval during 2014, which officials said at the time would allow them to get projects started sooner.

The Article 8 language once again exempts road and bridge fund borrowing from voter approval, this time during the July 2015 to June 2016 period, and extends the exemption to two other programs that Raimondo’s budget proposes to create: a new Efficient Buildings Fund inside the proposed Rhode Island Infrastructure Bank, and the new School Building Authority that the governor wants to house at the R.I. Department of Education.

That wasn’t the only mention of the proposed School Building Authority in the House Fiscal report. The analysts acknowledged confusion about the differences between the new authority, which Raimondo wants to seed with $20 million in proceeds from refinancing state debt, and the existing school construction aid program, which she proposes funding at $71 million in 2015-16 and $80 million in 2016-17.

“The legislation is not clear on how the existing aid program and new fund will work together,” the report said.

Raimondo’s budget proposes the creation of multiple new tax breaks for businesses, including “Rebuild Rhode Island” tax credits for developers, “Anchor” tax credits for large companies who lure their suppliers to the state, and a still-to-be-finalized tax credit for employers who add jobs, the last of which is the brainchild of state Rep. Joe Shekarchi, D-Warwick, a longtime Raimondo ally.

In the cases of both the Rebuild Rhode Island and Anchor tax credits, the budget bill places no limit on the total amount of money the state could spend on the credits, nor does it cap how much money a single organization could receive from the credits, House Fiscal noted. And the budget includes no estimate of the eventual cost of the Shekarchi tax credit, which is still being debated.

The Anchor tax credit – which Raimondo said on last week’s Newsmakers could convince large local companies such as CVS Health, Electric Boat and Raytheon to attract their suppliers to Rhode Island – would provide them with “an unspecified amount that may be applied against corporate income tax liability for up to five years,” House Fiscal said. The governor’s office has allocated $5.7 million in proceeds from refinancing state debt to fund the tax credits, but the House analysts said there is no language limiting their cost to that amount.

The Rebuild Rhode Island tax credit, which would be partly refundable, would provide real-estate developers with a credit to cover up to 30% of the cost of their projects. The Raimondo administration estimates the state will shell out $7 million on the Rebuild Rhode Island credits in 2016-17 and $25 million in 2019-20, but House Fiscal noted there is again no limit on the cost.

In a bit of inside baseball, House Fiscal said Raimondo’s budget proposes delaying the annual due date for the state budget by one month, to the third Thursday in February. In years when a new governor is inaugurated, she wants to move the due date by five weeks, to the second Thursday in March. Right now such delays are given at the discretion of the General Assembly.

Raimondo also wants to add an additional revenue estimating conference during the first 10 days of February to go along with the current ones held in March and November – which would give a governor a chance to use the most up-to-date estimates of state revenue to craft his or her budget. Perhaps not coincidentally, when Raimondo wrote her budget she was stuck using November forecasts of tax revenue that were gloomier than the actual amount coming in, which is running $44 million ahead of projections.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

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