PROVIDENCE, R.I. (WPRI) — Rhode Island lawmakers on Friday night unveiled a nearly $14 billion proposed state budget for the 2024-25 fiscal year that boosts funding for education, health care and state pensions but leaves out a controversial bank tax cut.
“This was not an easy budget to do,” House Speaker Joe Shekarchi told reporters at a briefing. He said the state is feeling the same “pain” from rising costs as average Rhode Island households, making it more expensive to provide services.
The budget bill is a revised version of the tax-and-spending plan that Gov. Dan McKee put forward in January. It follows months of public hearings as well as private horse-trading between the House, the Senate and the governor’s office.
The final budget plan is about $271 million bigger than McKee’s original proposal, as legislative leaders found money for a host of priorities that had gotten less or none at all in the governor’s plan. They were aided by revised financial projections that gave them more cash to spend.
The rates for broad-based taxes will remain unchanged, though the cigarette tax will be increased 25 cents and a new two-tier tax on vaping products will be created. The latter system is modeled on the policy in Connecticut.
No wait for full Medicaid rate hikes
On health care, lawmakers included full funding for Medicaid reimbursem*nt rate increases that had been proposed in an official study by the health insurance commissioner. McKee had wanted to phase in those increases over three years, rather than all at once as the House budget bill does.
The state will also create a $1 million experimental program to forgive medical debt and a scholarship program for health providers, among other medical-related proposals championed by Senate President Dominick Ruggerio and other Senate Democrats.
On education, lawmakers reversed a change in the K-12 funding formula sought by McKee that would have slowed the annual growth of school aid. School committees had protested the reduction.
The budget provides an additional $2 million for the University of Rhode Island and an additional $1 million for the Community College of Rhode Island, as well, in both cases to help stabilize their operating budgets.
Pension COLAs returning for some
In a notable move, legislators decided to reopen the 2011 pension changes enacted at the urging of then-Treasurer Gina Raimondo, which retirees have protested ever since for freezing their benefits in order to close a massive funding shortfall in the state pension system.
According to Shekarchi, the budget makes four significant changes to state retirement benefits: allowing pensioners who retired before 2012 to get annual cost-of-living adjustments (COLAs) now rather than waiting until the system is 80% funded; lowering the funding threshold for all retirees to get COLAs from 80% to 75%; calculating benefits off the highest three years of salary, rather than five; and moving some public-safety workers into the better-funded state-run municipal pension fund.
“We think this is fair,” Shekarchi said. The newly authorized COLAs will be based on the same variable formula laid out under current law, which bases the size of the increases on metrics such as the recent performance of the pension fund’s investment portfolio.
General Treasurer James Diossa’s office said the state’s actuaries estimate the various changes will worsen the shortfall in the pension fund by about $417 million, and require taxpayers to contribute almost $39 million more to the fund next year versus current policy.
“In discussions with the state’s fiscal advisor and actuary, my office has been cautioned that increases in liability, combined with additional debt service, could potentially have an impact on the state’s bond rating in the future,” Diossa said in a statement posted on social media late Friday night.
“I look forward to working with the legislature over the coming days to ensure that the changes to the pension system protect taxpayers and the integrity of the fund,” he said.
Citizens ‘disappointed’ over bank tax
A high-profile proposal that didn’t make the final cut was an arcane change to the way banks are taxed in Rhode Island, which McKee had submitted as a late addition to his budget plan.
The change, which was expected to reduce state revenue by about $16 million, would have shifted Rhode Island to the same tax apportionment policy for banks that Massachusetts is adopting on Jan. 1. Their tax liability would now have been based solely on sales, rather than three factors (sales plus payroll plus property).
“I don’t want to be the speaker who loses Citizens Bank,” Shekarchi said. However, he indicated the tax change had been brought forward too late in the budget process to get a full review, and hadn’t won over many rank-and-file House Democrats.
“I will roll up my sleeves and get to work with [Citizens] over the summer so we can prefile legislation that can be vetted early in the year, but right now, we don’t have enough information to know whether this plan is the right move for our state,” Shekarchi said.
In a statement, Citizens spokesperson Rory Sheehan said bank executives were “disappointed” by the move.
“This decision will make it difficult for the state to compete on a level playing field with Massachusetts and other states, and is not in the best interest of Rhode Islanders,” Sheehan said. “We urge the Rhode Island General Assembly to address the issue before the end of the session.”
“We are committed to working diligently to achieve a positive outcome,” he added.
Bond questions: arts in, archives out
The House budget offers a somewhat different plan for funding the $455 million demolition and reconstruction of the Washington Bridge compared with the proposal McKee put forward. Rather than borrow against future gas tax revenue, lawmakers plan to tap a combination of federal American Rescue Plan Act money and funds in the state’s capital account.
RIPTA will receive a $15 million boost, which Shekarchi said will be enough for the public transit agency to avoid service cuts for now. McKee’s budget had given the agency a smaller infusion of money but not enough to close its current deficit.
Lawmakers authorized several bond questions to be put before voters on the November ballot, including a $120 million housing bond, the largest in state history, with authorization for a new public housing developer; an education facilities bond; a “green” bond for environmental and related causes; and a $10 million arts bond for cultural facilities, with some of the money earmarked for Trinity Rep, the Newport Ballet and the Tomaquag Museum.
But Secretary of State Gregg Amore’s proposed $60 million bond for a new State Archives building, which McKee had included in his budget, didn’t make the cut. Shekarchi cited a lack of details around other funds that would be needed to complete the facility.
Deficit outlook still a mystery
Previous forecasts have indicated Rhode Island is facing a roughly $250 million deficit for the next fiscal year — that is, for the budget bill McKee will propose next January. Shekarchi was not immediately able to say if the House budget bill makes that deficit bigger or smaller.
The state’s final pre-pandemic budget totaled $9.4 billion in 2018-19, but the budget for the current fiscal year has now been revised up to $14.1 billion — meaning the budget has grown by 50% in five years. While much of that increase has been federal money, state-funded spending has risen considerably, too.
The House Finance Committee gave immediate approval to the budget bill Friday night on a 13-1 vote, sending it to the full House floor for a debate and vote next week.
“Tough, but responsible and fair, choices were made, and I firmly believe this budget will further the progress Rhode Island has made over the past few years,” House Finance Committee Chairman Marvin Abney, D-Newport, said in a statement.
Additional changes to the budget, sometimes minor and sometimes significant, are usually made by House leadership during the floor debate. Once the budget passes the House it will head to the Senate, which in most years makes no further changes before sending it on to the governor for his signature.
The new fiscal year begins July 1.
