PROVIDENCE, R.I. (WPRI) — Rhode Island’s state government is still operating in the black, but the margins are getting tighter.

After years of massive budget surpluses caused by a gusher of federal money and surging tax revenue, the state is on track to finish the current 2023-24 fiscal year with a more modest surplus of $98 million when the books close next June, according to a new report issued by state budget officer Joe Codega.

That would be the smallest budget surplus since 2018-19, which was the last fiscal year before the start of the pandemic. It would also be a sharp reduction from the $410 million surplus the state ran during the 2022-23 fiscal year, which ended June 30.

The projection is based on actual spending from July through September, plus newly updated forecasts for revenue and social services, as well as money carried over from last year’s surplus.

The expected surplus would be considerably higher if not for a major projected deficit of the Department of Corrections, which is on track to overspend its budget by $14 million. The agency blames factors such as an 11% increase in the number of inmates since last year, as well as the failure of a plan to consolidate 13 housing modules at the ACI.

Rhode Island’s annual state budget currently totals about $14 billion, an increase of over $4 billion since before the pandemic, thanks to the huge inflow of federal funds tied to the pandemic and Biden administration policies, as well as rising state-level spending.

The new numbers come as Democratic Gov. Dan McKee and his advisers are deep in discussions about his next budget proposal, which is due in January. The rollout of his plan will kick off months of hearings by lawmakers, who usually release a final compromise budget bill in June.

In his report, Codega urged policymakers to engage in “continued fiscal discipline.” He noted previous forecasts show a potential budget gap of over $100 million for the upcoming 2024-25 fiscal year — a figure that doesn’t include “additional funding requests” such as those suggested in a recent report on Medicaid rate increases.

On the other side of the ledger, the state continues to save money due to the unusually large number of employee vacancies across government departments. The state is averaging 13,788 full-time equivalent employees this year, up from 13,494 in 2022 but still below the 2020 total of 14,205.

In addition, one of the biggest spigots of federal funding during the pandemic has now been turned off: FEMA reimbursements tied to the COVID-19 state of emergency. FEMA has covered $631 million worth of state expenses in recent years, with only $16 million still under review.