12 things to know about Gov. Raimondo’s RI state budget plan

A WPRI.com cheat sheet with key facts on the $9.4-billion tax-and-spending proposal

PROVIDENCE, R.I. (WPRI) – Democratic Gov. Gina Raimondo unveiled her $9.4-billion state budget plan for 2018-19 on Thursday, delivering hundreds of pages of documents to the General Assembly as they kick off the annual tax-and-spending debate. The final budget deal isn’t usually signed into law until June.

Here’s a cheat sheet with some key things to know about the budget plan.

1. The budget is going up again, but not by as much as last year. The governor is proposing a total state budget of nearly $9.4 billion for the new fiscal year that starts July 1, equal to about $8,850 per Rhode Islander. How does that compare to now? Lawmakers authorized spending of $9.2 billion in the current budget, so Raimondo is suggesting an overall increase in spending of about 1.5%. Last year she proposed more than twice as big an increase: 3.5%, which brought the budget over $9 billion for the first time. As usual, a sizable chunk of the budget is going to be funded by the federal government: $3.1 billion of the total, or about one-third. Other big sources of funding: the state income tax ($1.3 billion), the state sales tax ($1.2 billion), tuition and other fees at state colleges ($915 million) and lottery revenue ($380 million).

2. Broad-based taxes aren’t going up, but there are still some hikes. Once again, the governor’s budget proposes making no changes to the rates for broad-based taxes: the sales tax, the income tax and the corporate tax will all stay at their current levels. But with a sizable deficit to close, Raimondo is proposing a number of changes that would result in higher revenue. One is an old perennial: the cigarette tax, which would rise another 25 cents, to $4.50. She proposes extending the sales tax to two categories of products that are currently taxed in neighboring states but not Rhode Island: security services (think armored cars) and cloud-based software-as-a-service programs like Microsoft Office 365 and iCloud storage. Those two additions are supposed to bring in $14.5 million. Fees would also be raised on mutual fund managers and insurance adjusters.

3. Sports betting is coming to Rhode Island – if the U.S. Supreme Court allows it. States nationwide are closely watching a U.S. Supreme Court case that will determine whether they have the right to legalize sports betting. Like other governors, Raimondo is betting the justices will side with the states – and rather than wait for their ruling, she’s proposing to pre-authorize it now so games can be up and running by Oct. 1 once the ruling comes out. Sports betting would only be offered at Twin River’s two casinos, which the governor’s aides said is because it’s considered casino gaming and under the Rhode Island constitution that can only take place at voter-authorized locations. (Online sports betting might be looked at later.) Residents would not be allowed to bet on local college sports teams. The governor is banking on $23.5 million in revenue from sports betting in its first nine months, and there’s no Plan B if the Supreme Court rules the other way. Separately, the budget would also authorize “gaming innovation pilot initiatives,” such as stadium gaming. (And speaking of gambling: the state is also negotiating with Twin River to try and get the company to fork over $2 million to help balance the current budget before the fiscal year ends June 30.)

4. Social services are getting squeezed for savings once again. The biggest program in the state budget is Medicaid, the state-federal health insurance program for low-income people. In Rhode Island, Medicaid costs well over $2 billion a year and covers nearly one in three residents. Raimondo’s team is seeking to scale back the program’s spending by about $165 million in 2018-19, through what they call “strategic cuts.” The budget does not propose cutting eligibility or reducing which benefits are covered, but it does propose 11 changes to save money, some of which are somewhat arcane. They include having Rhode Island join 24 other states that require co-pays for some Medicaid enrollees; the budget proposes co-pays of $2.50 to $8 for a handful of services, such as prescriptions and non-emergency use of the ER. Among other Medicaid cuts, it proposes to freeze payment rates for hospitals, increase them only 1% for nursing homes and reduce administrative payments to insurers.

5. The governor wants to “scoop” money out of quasi-public agencies. This is an old trick that isn’t popular with budget wonks but which governors have been using for years when they need extra money. The state’s various quasi-public agencies – think Rhode Island Housing or the R.I. Resource Recovery Corporation – sometimes have unspent funds in their accounts. Rather than let the agencies hold the money in reserve or spend it on their own programs, governors will “scoop” the money and put it in the general fund to balance the budget. The governor is proposing to “scoop” roughly $26.6 million from those agencies between the current and next budget years, most of it in the current year to help close a projected deficit of about $60 million. (She also wants to reduce the transfer of DMV fees to RIDOT’s highway maintenance account by about $10 million, and keep that money for the general fund, too.) Budget experts say this isn’t a good practice, because it’s one-time revenue that won’t be available next year and because it could harm the agencies targeted. It appears the governor doesn’t necessarily disagree – in a letter accompanying the budget, she urged lawmakers to get rid of the “scoops” if they can be avoided due to higher-than-expected revenue.

6. More medical marijuana is being eyed for a boost in revenue. Rhode Island currently has three compassion centers that are authorized to sell medical marijuana to cardholders. The governor’s budget would quintuple the number of dispensaries from three to 15, which her aides say will boost revenue by “increasing geographic access” for patients. The budget would also let cardholders in Massachusetts and Connecticut buy medical marijuana in Rhode Island; add acute pain as an eligible condition to receive a card; and create a license for manufacturing medical marijuana. One thing the budget does not do – legalize recreational marijuana. There is currently a legislative study commission looking at that possibility, and its report is due in a few months. Raimondo and other Rhode Island leaders have expressed some wariness about taking that step, saying other states have found the revenue boost isn’t as big as some think and fearing side effects.

7. The billion-dollar school-repair plan is laid out in detail. One of the headline-grabbing announcements Governor Raimondo made in her State of the State speech on Tuesday was a proposal to spend $1 billion on school repairs over the next five years. The budget fleshes out that idea a bit more. The money breaks down as $650 million in state funds and $350 million in municipal funds. The state funds break down further as $80 million a year in the budget for repairs – which the state already has been doing – plus getting voters to approve a $250 million bond in this November’s election. General Treasurer Seth Magaziner, who co-chaired a task force that came up with the plan, said while state subsidies for school repairs will continue to be partly based on the wealth of communities, cities and towns will also be eligible for bonuses based on the types of projects they’re undertaking and how quickly they can do them.

8. Speaker Mattiello’s car tax phaseout will continue. No program is more dear to the heart of House Speaker Nicholas Mattiello than phasing out the car tax, a promise he made during his 2016 re-election campaign. The current budget includes the first year of a six-year phaseout plan, with the state sending money to cities and towns to make them whole for the foregone revenue. While Raimondo has at times expressed reservations about whether the state can afford to phase out the car tax entirely – the cost of full repeal would top $200 million a year – her new budget proposes continuing the phaseout for a second year. It adds another $20 million for a second cut in the tax, on top of about $24.5 million this year.

9. They still found money for a number of new programs. Despite needing to close a two-year budget gap of roughly $260 million, the governor’s team still found money to propose a number of new programs. Many of the ideas relate to education and skills training. A few examples: increased funding for child care and pre-K; allowing low-income full-time college students to qualify for subsidized child care; and adding new “performance-based” funding for state colleges. Other new spending: she wants to create a new Behavioral Health Link to help tackle the opioid crisis; boost funding for the Rhode Island’s Promise free tuition program to about $7 million; and increase rates paid to foster parents.

10. A package of “small business friendliness” changes is included. Raimondo said during Tuesday’s State of the State that her budget would have a focus on small businesses, and the proposal fleshes out what is being proposed. It includes $3 million for initiatives such as doubling loans to small businesses, expanding a tax credit for manufacturers, and launching a new program called “Supply RI” to convince colleges and hospitals to buy from local companies. There are also a number of regulatory changes proposed that the governor’s team argues will help entrepreneurs. They include eliminating some professional licenses and fees, allowing digital submission of application materials, and getting rid of some notarization and oath requirements. (The “retail frozen dessert processors fee,” which has made news in the past, is one slated to get the axe.)

11. The state is still facing budget shortfalls as far as the eye can see. The good news: Rhode Island’s budget deficits over the next few years are now projected to be lower than the experts thought a year ago. The bad news: they’re still pretty big, and expected to keep growing. The deficit for the 2019-20 fiscal year is now forecast to be $87 million, down from a forecast of $184 million a year ago. From there, though, it’s expected to rise annually, reaching $227 million by 2022-23. The governor’s aides cite a number of reasons for the rising shortfalls, including the escalating price tag to phase out the car tax and the ever-rising cost of health care.

12. This is hardly the last word on what will wind up in the budget. Governors usually get a lot of what they want when the General Assembly passes the final tax-and-spending plan in late spring or summer, but they never get everything – partly because lawmakers have their own ideas, and partly because circumstances can change. For example, state revenue came in $17 million higher than expected in November and December, which means there is already a smaller deficit for this year to be closed than the one tackled in the governor’s budget. As mentioned above, Raimondo already offered some of her own ideas about what lawmakers should do if it turns out there’s more money to spend come June than expected now. In addition to eliminating the “scoops” from quasi-public agencies, she suggested increasing rates to hospitals and nursing homes, cutting the minimum corporate tax and raising pay for workers in the home health and developmentally disabled fields.

BONUS. It’s a $9.4-billion budget – there’s a lot more in there. Three other November bond referendums are suggested on top of the $250 million for school repairs: for URI’s Narragansett Bay campus ($45 million), RIC’s Horace Mann Hall ($25 million) and environmental projects ($48.5 million). The Westerly Higher Education Center would get a sister facility in Northern Rhode Island. T.F. Green would get more money to subsidize additional flights. Yearly revenue from truck tolls is now expected to be about $41 million. The Division of Taxation would be restructured to bring in more money. There’s no 38 Studios bond payment thanks to legal settlement proceeds. Want more details? All the budget documents are here.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He is a weekly panelist on Newsmakers and hosts Executive Suite. Follow him on Twitter and Facebook