PROVIDENCE, R.I. (WPRI) — Rhode Island’s budget deficit for the upcoming fiscal year is now estimated at $329 million, but that number doesn’t account for President Biden’s massive proposed relief bill, lawmakers were told Thursday.
Members of the House Finance Committee heard a presentation from Sharon Reynolds Ferland, their fiscal adviser, days before Lt. Gov. Dan McKee is expected to take over from Gov. Gina Raimondo. McKee has already been delegated the task of putting together the 2021-22 budget proposal that’s due to the General Assembly by March 11.
The state’s budget experts continue to struggle to pin down the overall fiscal picture due to the coronavirus pandemic. The health crisis has caused huge economic disruption and enormous new costs, while also bringing in an ongoing flood of federal aid money.
“I would say that the uncertainty that is pervading this discussion complicates every one of these calculations,” Ferland told the panel at the outset of her presentation.
“You’re going to see that that is a theme throughout my comments,” she said. “I know everybody wants me to tell them a number — ‘tell me the number’ — there isn’t a number. There are a range of things that could happen and things that you’ll need to be prepared for. … Certainly, drop the idea of having certainty in this environment.”
The budget for the current 2020-21 fiscal year, which ends June 30, was not enacted until December due to the pandemic. That tax-and-spending plan is currently on track to finish out the year in the black, with the most recent estimate showing a $44 million surplus.
But far bigger questions loom about the budget for the 2021-22 fiscal year, which will start July 1. McKee will put forward a plan for the upcoming budget year in his proposal due next month.
The Rhode Island Public Expenditure Council (RIPEC) released a report in January warning of a roughly $500 million deficit for 2021-22. Ferland said her initial estimate was in the same ballpark but somewhat lower, at around $450 million.
However, that deficit estimate has now shrunk to $329 million thanks to Congress’s passage of a sixth coronavirus stimulus bill in December, plus the newly inaugurated Biden administration’s decision to enhance federal funding on shared expenses involving Medicaid or FEMA.
Yet even that number carries major caveats.
The $329 million excludes any potential funding from the $1.9 trillion relief bill that Biden is currently steering through Congress. U.S. Sen. Jack Reed, a senior member of the Appropriations Committee, has estimated Biden’s proposal would steer approximately $1.1 billion to Rhode Island’s state government, plus hundreds of millions more to municipal governments.
“The possibility of additional federal aid is very welcome,” Jonathan Womer, director of the R.I. Office of Management and Budget, told the finance committee.
RIPEC CEO Michael DiBiase said last week the current version of the Biden bill would more than wipe out Rhode Island’s 2021-22 deficit, though he also warned lawmakers they should use the money strategically rather than simply to paper over long-term spending gaps and kick the can down the road.
Ferland echoed that point during the hearing, saying, “A lot of the funding available to you to help you get past this period is limited, and so the choices you make about how to use it, how to invest in certain things, what long-term commitments you make with the money — all of those things will affect your recovery.”
Ferland noted other contingencies, as well, highlighting how some could benefit the state’s budget while others could hurt it.
A potential boon: Biden’s decision to waive the usual 25% state match for FEMA-funded disaster expenses tied to the pandemic. One that could hurt: the potential loss of tens of millions of dollars in state-level revenue due to the tax treatment of federal Paycheck Protection Program (PPP) loans.
Ferland said she didn’t have “good estimates” yet for the financial effects of either one.
“The federal government can give with the stimulus, and it can also take away, from a state budget perspective,” she said. Plus, she added, “many of these programs come with strings attached and limitations.”
In the meantime, state budget officials continue to make complex accounting moves as they seek to use federal coronavirus money to cover as many expenses as possible. Those efforts have been challenged in part by shifting federal guidance on what is and isn’t allowed.
From a big-picture perspective, the state’s budget has ballooned during the pandemic.
Lawmakers initially enacted a $9.97 billion state budget for fiscal year 2019-20, up from $9.4 billion the year before. Just before the pandemic hit locally early last year, Raimondo proposed a new tax-and-spending plan for 2020-21, which would have increased the state budget to $10.2 billion.
After the pandemic hit, however, Raimondo and state lawmakers decided to put off all budget-making decisions, as business shutdowns hammered the state’s economy and revenue slumped.
Subsequently, Congress sent a surge of federal money to deal with COVID-19, notably expanding unemployment benefits and providing $1.25 billion for coronavirus-related costs. That caused lawmakers to hike the 2019-20 budget to $11.8 billion and pass a 2020-21 budget of $12.7 billion.
Put another way, over the last two years the state budget grew by $3.3 billion, or 36%. But because so much of that increase was federal money, General Fund spending — derived from state-level revenue — only increased 6%, or $229 million, during the same time period.
Ferland also cautioned against direct comparisons between Rhode Island’s budget and those of other states.
“When you compare Rhode Island with another small state, it’s important to look at what they include in these numbers,” she said. “Not every state includes tuition and fees for their public colleges. Not every state includes the flow of unemployment benefits; some of them account for them outside this consolidated budget, where Rhode Island does it differently. And therefore sometimes those numbers appear very jarring.”
Ferland’s latest estimate shows Rhode Island has received a whopping $3.3 billion in federal relief funds since the pandemic began, even before potential passage of Biden’s relief bill.
That includes the much-discussed $1.25 billion that U.S. Sen. Jack Reed helped secure for Rhode Island in the CARES Act by creating the Coronavirus Relief Fund, which steered pots of federal aid money directly to states.
Ferland estimates that at most only $47 million of the state’s Coronavirus Relief Fund allocation is still available. McKee said earlier this week his staff is reviewing spending from the fund to see if he can direct more of what’s left to small business grants.
“It’s a moving target,” Ferland said.
An ongoing spending problem that McKee will inherit from Raimondo is at Eleanor Slater Hospital.
The state-run psychiatric facility has been out of compliance with federal billing rules for an extended period of time, requiring lawmakers to shovel more and more state revenue into its operations. The hospital’s annual federal funding has dwindled from roughly $60 million to only about $20 million, according to the House Fiscal Office.
The state also “has some work to do” in order to get into full compliance with a 2014 federal consent decree regarding services for Rhode Islanders who have developmental disabilities, Ferland said. The Raimondo administration recently steered $10 million of federal coronavirus funds towards that issue, and it is expected to be addressed further in McKee’s budget proposal.
Looking ahead, Ferland hinted that one potential bright spot could be the May updates to state revenue forecasts, pointing out that sales tax receipts have been more robust than originally projected in recent months, though there are questions about how the pandemic will affect other revenue sources.
Ted Nesi (email@example.com) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter, Facebook, LinkedIn and Instagram