RI on track to finish budget year with $14M surplus

Estimate revised down significantly; free tuition, car tax plans being revisited

PROVIDENCE, R.I. (WPRI) – Overspending by state agencies and unexpectedly weak tax revenue has put Rhode Island on course to finish the current budget year with a much smaller surplus than previously expected, according to a new report.

The report, issued Tuesday by state budget officer Tom Mullaney, said the state is on track to finish its 2016-17 fiscal year with a surplus of $14 million when it closes the books June 30. The projection is based on actual spending from July through March and incorporates newly updated forecasts for revenue and social services.

The projected surplus is $45 million lower than was expected six months ago, when it was estimated Rhode Island would finish the 2016-17 budget year $59 million in the black. The governor estimated an even higher surplus when she put together her initial budget proposal in January.

The key drivers are higher-than-budgeted spending by state agencies, which are expected to run a net $15 million ahead of what lawmakers budgeted last June, as well as $15 million less in revenue. Much of the overspending is in social services, which have been struggling since the botched launch of the new UHIP computer system.

The new numbers come as Democratic Gov. Gina Raimondo and legislative leaders continue behind-the-scenes negotiations over the final details of the next state budget, with much attention focused on Raimondo’s proposal for free tuition and House Speaker Nicholas Mattiello’s proposal to eliminate the car tax. Both have signaled in recent days they will have to amend their plans, after experts last week said $100 million less in tax revenue is now expected to come in through mid-2018.

“Am I disappointed? Yes. Am I surprised? No,” Raimondo told reporters Tuesday, adding: “This isn’t, ‘The sky is falling.'” She attributed the reduced revenue largely to uncertainty over future federal policy coming out of Washington, where President Trump is pushing major changes to tax and health law.

Asked about her tuition plan – which would cost an estimated $10 million in 2017-18, and $30 million once it’s fully phased in – Raimondo said she’s open to changes, including phasing it in more slowly or limiting it by income. But she said she still wants to see it included in the next budget.

“I know the budget is tighter so we have to get more realistic, but I’d like to try to find a way to maintain the investments we’ve created and continue to make investments,” she said.

Larry Berman, a spokesman for Mattiello, downplayed the tuition plan’s prospects on Tuesday.

“With the $100 million revenue shortfall and the large caseload increase, Speaker Mattiello does not believe it is the time to create new government programs,” Berman said. “All proposals are still being reviewed by the House Finance Committee,” he added.

Mattiello’s own top priority – eliminating the car tax, at a cost of about $220 million to the state – has also been affected by the weaker numbers. The speaker now says he’s crafting a plan that would get rid of the tax over six years rather than five, with 2017-18 as a “transition year.”

“The reason is because many communities value their vehicles differently, and we need a transition year to reduce the variability and ensure a smooth adoption by each city and town,” Berman said. “The transition year will still provide immediate relief for the car taxpayers in every community.”

Raimondo has proposed a more modest cut in the car tax, and on Tuesday she again expressed reservations about whether the state can afford to repay cities and towns the entire $220 million in revenue they would lose from the tax’s elimination, as Mattiello proposes to do.

“Six years is certainly better than five,” Raimondo said. “I’m so eager to see a plan around how do we phase it out, where does the money come from, what does it do to the long-term deficit. So again, once we see that then we’ll look at the details.”

“Even at six years, it’s hard to know where that money would come from each year over time,” she added.

Mattiello has promised to unveil his detailed plan to eliminate the car tax before the final budget is released, and to hold a hearing on it.

Legislators have been holding hearings on Raimondo’s $9.3-billion budget proposal since she introduced it in January. In the wake of the disappointing tax revenue forecasts, Senate Finance Committee Chairman Bill Conley said Friday he doesn’t expect a compromise budget blueprint to emerge until June.

Mullaney’s office published this list of all agencies projected to spend significantly more or less than they were supposed to under the budget adopted in June:

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