Expert raises alarm on RI finances; 18-month budget gap tops $200M

PROVIDENCE, R.I. (WPRI) – A legislative expert painted an alarming picture of Rhode Island’s finances Tuesday, warning of more than $200 million in red ink over the next 18 months and questioning whether Gov. Gina Raimondo’s administration has moved fast enough to tackle the problem.

Sharon Reynolds Ferland, the House fiscal advisor, told the House Finance Committee the main culprits are the same ones identified in the past: spending that goes up faster than revenue year after year, particularly on social services for low-income and vulnerable residents, combined with relatively weak growth in tax receipts.

“Your revenues grow at a slower rate than your expenditures,” she told the committee. “It’s an ongoing issue.”

The State Budget Office said last month the state is on track to run a $60.2 million deficit in the current 2017-18 fiscal year, which ends June 30, and then is facing an additional $204 million deficit in the 2018-19 fiscal year. The governor is scheduled to unveil her plan for closing the budget gap by Jan. 18.

Ferland’s estimates differ somewhat from the budget office’s, but her bottom line was basically the same: a sizable shortfall in the current budget year, which is nearly half over, and a much larger one in the new year that begins July 1.

Ferland expressed the most concern about the deficit in the current budget, suggesting time is running out for a turnaround. It’s the first time Rhode Island has faced a midyear gap since the fall of 2014, during then-Gov. Lincoln Chafee’s final year in office.

“You have six months left to solve it,” Ferland said.

The budget enacted by lawmakers over the summer was balanced on the premise Raimondo would find $25 million in unspecified savings. Yet Ferland suggested the administration waited months to get serious about the effort, noting a voluntary-retirement program has only recently been announced and hiring has not slowed.

“It does seem like there’s some sort of delayed course correction,” Ferland said. “Some of these issues have been lingering and they don’t appear to be on the right track yet. … There’s something there that’s lacking.”

“The urgency is not as much as you would expect,” she added.

In an apparent bid to head off the criticism, the Department of Administration released a memo just before Tuesday’s hearing ordering “an immediate curtailment of discretionary spending,” saying expenses over $25,000 – and as low as $5,000 for agencies already in the red – will need special permission. They also said only “critical” jobs will be filled.

Michael DiBiase, the Department of Administration’s director, told lawmakers the budget they enacted is “tight,” and said savings in social services are particularly “difficult to achieve.”

“Those agencies cannot choose not to serve folks,” he said.

Still, DiBiase said, “We are confident we are going to meet the $25 million savings target.” Part of the challenge in balancing the budget, he said, is “no one wants to cut programs, no one wants to lay people off, no one wants to raise broad-based taxes.”

The voluntary-retirement program – which encourages nearly 1,000 retirement-eligible state workers to do so by offering them a one-time bonus of up to $40,000 – emerged as a worry for multiple lawmakers, who said they feared a loss of institutional knowledge and reductions in services at agencies if there’s a delay in filling the newly vacant jobs.

“We do have a lean government at this point, and I have concerns that these delays are going to have significant impacts on our economic development hopes as well as our social services needs,” said Rep. Teresa Tanzi, D-Narragansett.

DiBiase said the concerns are valid, but also said the retirements will give agencies an opportunity to fill the jobs with lower-paid newer hires as well as restructure the way some work is done.

The administration originally estimated 426 eligible employees will take the retirement incentive, for a net savings of roughly $6.5 million in state funds by June 30, according to Ferland. The program will also slightly increase the unfunded liability in the state pension fund, but General Treasurer Seth Magaziner has said it will not delay the restoration of suspended cost-of-living adjustments.

Ferland warned the retirement program savings are crucial but uncertain. “There are any number of ways this could not work out well,” she said.

State agencies have proposed a variety of other ways to help close the deficit, from provider rate cuts at the Department of Children, Youth and Families to a perennial offer by the Department of Corrections to sell unused property near the state prison.

At a separate hearing before the Senate Finance Committee, Health and Human Services Secretary Eric Beane defended the agencies he oversees. He said their share of state spending has remained relatively constant over the last decade – and fallen in dollar terms if adjusted for inflation – while their total work force has declined about 14%.

“When we discuss overspending across our agencies, context is important,” Beane said in prepared remarks. “It’s rescuing a child from neglect and abuse. And it’s working with a person with developmental disabilities to ensure they have every opportunity to succeed.”

There was one small bit of apparently good news related to the Unified Health Infrastructure Project (UHIP), the problem-plagued new computer system for benefits. Jonathan Womer, director of the Office of Management and Budget, said a recently announced credit of $58.6 million from contractor Deloitte should eliminate any deficit in the Department of Human Services.

The problems facing state leaders won’t be over once they finish writing a new tax-and-spending plan next spring. Ferland said her estimates show the state’s annual budget gap is expected to grow to more than $250 million by the 2021-22 fiscal year. Key cost drivers include social services as well as House Speaker Nicholas Mattiello’s six-year phaseout of the car tax.

While the state budget totals more than $9 billion, less than $4 billion of that is funded by state revenue, with the rest covered by the federal government or other sources. Ferland provided these two slides showing how the state-funded portion of the budget breaks down:

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