RI facing $112M budget deficit next year

PROVIDENCE, R.I. (WPRI) – Rhode Island’s tax revenue is on the rise, but not by nearly enough to offset the red ink looming in the next state budget.

The House Fiscal Office said Tuesday it estimates the state is facing a deficit of about $112 million in the 2017-18 fiscal year. The deficit forecast had been even higher last summer – when it was roughly $185 million – but was recently lowered thanks to rising revenue and unexpectedly large surpluses this year and last year.

“It’s no secret the state continues to face some structural budget problems,” Sharon Reynolds Ferland, the House of Representatives’ top budget expert, said during a House Finance Committee hearing at the State House.

“We’ve been using the surplus to close budget gaps,” she said.

The announcement comes six weeks before Democratic Gov. Gina Raimondo is due to submit her proposed 2017-18 budget to the General Assembly on Jan. 19; the governor is required to propose a balanced budget. The legislature usually approves a final budget plan in June.

Rhode Island’s neighboring states are arguably in even tougher shape. Massachusetts Gov. Charlie Baker said Tuesday he will make $98 million in midyear cuts to close a deficit in the current budget there, and Connecticut officials are grappling with a deficit set to rise from $68 million this year to $1.3 billion in 2017-18.

Closing the deficit isn’t the only challenge the governor faces as she crafts her budget proposal. She also needs to decide whether to incorporate Democratic House Speaker Nicholas Mattiello’s promise to begin a five-year phaseout of the municipal car tax, which brings in about $215 million a year for cities and towns. Mattiello has said the state will make up the local revenue lost from the car tax’s elimination.

And Rhode Island’s budget deficits are only going to get worse in the coming years, according to the House Fiscal Office.

Ferland’s team projects the annual shortfall will grow to more than $300 million over the next few years as spending – notably on health care and education – rises faster than revenue. State salaries and benefits are also set to grow by an average of 4% a year.

Another reason deficits are expected to rise is reduced expectations for how fast the U.S. and Rhode Island economies will grow going forward. Rhode Island has yet to recover all the jobs lost during the Great Recession, and economists hired by the state have become more pessimistic about its prospects, Ferland said.

One bright spot: gambling revenue. It’s expected to fall from $382 million in 2014-15 to $364 million this budget year, a drop of less than 5% – not nearly as much as had been feared when Lincoln’s Twin River Casino began facing competition from the recently opened Plainridge slot parlor over the border in Massachusetts.

“The decline was not as steep as expected,” Ferland said.

Ferland expressed concern about how the troubled rollout of the Unified Health Infrastructure Project (UHIP), the state’s new $364-million computer system for benefits programs, will impact the budget going forward. She said her office has been unable to obtain its usual monthly enrollment reports since just before the system launched in September.

“I would say that’s an area we need to be careful about because we don’t have as much information as we typically do,” she said.

Rhode Island relies on federal funding to cover nearly one-third of its roughly $9-billion annual state budget, and Ferland noted that Republican President-elect Donald Trump and his GOP colleagues in Congress have indicated they hope to make major changes in health programs that direct federal money to the states.

“I would just put that out there as a reminder,” she said.

Here’s how state spending is currently allocated, according to House Fiscal:

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Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter, Facebook and Instagram