RI faces tougher budget math after $100M miss on tax revenue

PROVIDENCE, R.I. (WPRI) – Rhode Island leaders received some unwelcome news Wednesday, as experts warned them they’ll have about $100 million less to spend than originally forecast as they put together the new state budget.

The number-crunchers who took part in the state’s twice-a-year Revenue Estimating Conference announced they expect state revenue to be $60.1 million lower in the current 2016-17 budget year and $39.5 million lower in the 2017-18 budget year compared with what they projected the last time they met, in November.

It follows the same officials’ determination last week that state spending on social services, chiefly Medicaid, will be nearly $15 million higher than expected over those two years – blowing a sizable hole in the $9-billion budget plan Democratic Gov. Gina Raimondo put forward in January.

“We’ve been fortunate the last couple years to come out of May with additional funds, so it’s not a great situation to have to deal with,” Tom Mullaney, the state budget officer, said after the numbers were finalized.

The weaker revenue will be a key factor in budget talks as Raimondo and Democratic House Speaker Nicholas Mattiello continue to joust over whether the tax-and-spending plan should include first rounds of funding for his car tax cut and her tuition plan, at estimated costs of $40 million and $10 million, respectively. Democratic Senate President Dominick Ruggerio, who took office in March, has expressed reservations about whether the money is there for either proposal.

“This is going to make a lot of the budget decisions more difficult,” said John Simmons, executive director of the Rhode Island Public Expenditure Council think tank.

The final estimates show state revenue is now projected to dip slightly this budget year, from $3.67 billion in 2015-16 to $3.66 billion in 2016-17, then rise to $3.74 billion in 2017-18.

“It’s going to require a lot more difficult decisions,” Simmons said.

Raimondo spokesman Mike Raia suggested the culprit is in Washington, arguing that “President Trump’s policies have created a lot of uncertainty for businesses and state fiscal officers.” He added: “The General Assembly has some tough choices ahead of them, and Governor Raimondo’s ready to roll up her sleeves and work with them.”

Mattiello said some of the blame lies with Raimondo herself.

“I can understand that certain economic projections have been revised to reflect lower growth, but it is frustrating to me that a lot of the budget problems are due to not achieving budget savings or revenue initiatives the administration proposed last year,” Mattiello said. “State government must be managed better so that it works more cost effectively for the taxpayers.”

“My budget priorities have not changed,” the speaker added. “We will continue our diligence and make sure we cover this gap. We will look at everything.”

The Republican Governors Association, which has been releasing a steady stream of news releases critical of Raimondo ahead of her 2018 re-election campaign, said the “bad news … continues to paint a grim picture for the Ocean State’s outlook.”

In Rhode Island, the close of the May revenue meeting fires the starting gun on the always-frantic final weeks of the annual General Assembly session, as legislative leaders finalize a budget, their biggest undertaking of the year.

The governor and lawmakers are required by law to use the Revenue Estimating Conference’s forecasts when they put the budget together.

One of the biggest hits to revenue is in how much money the corporate tax will raise. In November that amount was expected to grow by $33 million versus last year, but it’s now instead expected to drop by nearly $11 million – a big swing.

“It does give me some concern on the economy,” Simmons said, suggesting the numbers may indicate “the business state of the economy isn’t as strong.”

Rhode Island has company in its budget challenges, with tax revenue slumping across Southern New England. Officials in Massachusetts say revenue there ran $462 million below forecast through April, and officials in Connecticut recently downgraded their projections for the next two years by nearly $1.5 billion.

A report Monday by the Rockefeller Institute of Government, a New York think tank, said the trend of weak tax revenue is being seen across much of the country. “States continue to face sharply constrained resources and budgetary uncertainty heightened by debates surrounding federal tax reform and potential federal spending cuts,” the report’s authors wrote.

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 and Facebook