PROVIDENCE, R.I. (WPRI) — As if a worldwide public health emergency wasn’t enough, the coronavirus pandemic is quickly creating a state budget crisis for Rhode Island, too.
The increasingly draconian measures Gov. Gina Raimondo has ordered to try and stem the spread of COVID-19 are having a ripple effect across the state economy, with clear implications for the state’s roughly $10 billion annual budget.
Many restaurants have shut down, taking their sales tax receipts with them. Conventions and conferences are cancelled, decimating hotel tax receipts. The state’s two casinos are closed, turning off the state’s third-largest revenue source. And the nearly 20,000 people who’ve applied for jobless benefits in recent days won’t be paying income tax for the time being.
The problem is clearly on Raimondo’s mind. “Our state revenue is going to take a serious hit,” she said during her daily news briefing on Wednesday.
“What I’m doing now is trying to figure out, number one, try to assess how bad it will be, and number two, try to line up liquidity for the state — cash, short-term cash,” she said.
The timing of the virus outbreak could hardly be worse from a state budget perspective.
With barely three months left in the 2019-20 fiscal year, lawmakers have little room left to maneuver, even as they face a constitutional requirement to balance the budget by June 30. And the federal government is considering a delay in the April 15 deadline for 2019 tax payments, which Raimondo said would create an additional “challenge” for the state.
On top of that, even before the economy went south the state was already facing a difficult budget outlook for the 2020-21 fiscal year that begins July 1. The budget proposal Raimondo released in January had to close a roughly $200 million projected shortfall, and legislative leaders have panned some of her proposed fixes, including recreational marijuana legalization.
The biggest concern in the short term, however, appears to be cash. Like any household or business, the state needs enough liquid funds to meet its immediate expenses, such as employee paychecks and vendor payments.
Raimondo disclosed earlier this week that her successor as general treasurer — fellow Democrat Seth Magaziner — has already begun examining options.
Magaziner’s spokesperson, Evan England, said Magaziner and his advisers are “closely monitoring the impact of the COVID-19 crisis on the state’s cash balances” and are “committed to ensuring that state agencies have the resources they need to support Rhode Islanders during this difficult time.”
“We expect to make recommendations to the governor and General Assembly later this week on measures to maintain the strength of the state’s cash position in the months to come,” England said.
Gary Sasse, who was an influential member of then-Gov. Don Carcieri’s cabinet during the Great Recession, said Raimondo and Magaziner are right to be concerned.
“To state the obvious, the national economic free-fall brought on by the coronavirus does not bode well for state revenue collections,” Sasse told WPRI 12 in an email. “It puts the state in a precarious situation with no guaranteed solutions.”
One seemingly obvious option for state officials to come up with cash would be one the state has used in the past: Tax Anticipation Notes, or TANs, a short-term loan against soon-to-arrive tax receipts. But right now, Sasse said, floating TANs is “not as safe an option as it has historically been in Rhode Island.”
“The Rhode Island Constitution, Article VI Section 17, requires that any funds borrowed in anticipation of revenues must be repaid in the fiscal year they are borrowed,” he said. “Under these condition issuing TANs three-fourths into the fiscal year in the midst of an unprecedented and unpredictable economic free-fall could be extremely risky and costly.”
A second option — one that has never been attempted, Sasse said — would be transferring money out of Rhode Island’s Budget Reserve and Cash Stabilization Account, often referred to as the rainy day fund.
There was about $204 million in the account as of June 30, budget documents show. Under the state constitution, any money taken out of the rainy day fund to balance the 2019-20 budget would need to be paid back in the 2020-21 budget.
Sasse said there should be another consideration for state officials as they weigh their options. “State tax and fiscal policy during this crisis should contemplate its impact on the cash flow of small business,” he said. “Decision-makers should give serious consideration to postponing the tax filing deadline and waiving penalties and interest.”
So far, Raimondo has sounded resistant to delaying tax payments in an effort to provide relief to hard-hit businesses.
While Massachusetts Gov. Charlie Baker announced Wednesday he would let small businesses wait until June 30 to remit their sales, meals and hotel tax payments for March, April and May, Raimondo has declined similar entreaties from the restaurant industry to delay a monthly payment due Friday.
“We are not going to change that deadline,” she said. “This is the sales tax that they collect. If you go out to a bar, there’s a sales tax, they collect it — they hold that money in escrow. That’s the state’s money. And so that ought to be remitted on Friday.”
“Having said that,” she added, “the whole world is upside down right now. I have a whole lot of empathy for what restaurant and bar owners are going through. Some of them may not even be able to reach their accountant by Friday. So on a case-by-case basis, call the Department of Revenue and we’ll work it through with you and give you some leniency if we think it’s necessary.”
Among state leaders, there is hope that Congress could come through with money to help ease the budget woes, as happened during the financial crisis. Raimondo said she is “in constant contact with the White House and our congressional delegation to make sure that the federal government steps in to give us what we need.”
Some steps in that direction have already been taken: U.S. Sen. Sheldon Whitehouse’s office said the emergency coronavirus legislation approved by the Senate on Wednesday could mean roughly $150 million in additional federal Medicaid funding for Rhode Island. And various proposals to bolster state coffers are being discussed as Capitol Hill considers a potentially $1 trillion stimulus bill that has early bipartisan support.
“Rest assured, I will continue doing everything I can to ensure Rhode Island has the federal resources it needs,” U.S. Sen. Jack Reed said in a statement last week.
Ted Nesi (email@example.com) is WPRI 12’s politics and business editor and a Target 12 investigative reporter. He is a weekly panelist on Newsmakers and hosts Executive Suite. Follow him on Twitter and Facebook