PROVIDENCE, R.I. (WPRI) — Rhode Island lawmakers received a grim update on the state budget picture Thursday as they began grappling with how to address a nearly $800 million plunge in revenue caused by the coronavirus downturn.
The House Finance Committee spent more than two hours digesting a presentation from Sharon Reynolds Ferland, the House fiscal adviser, that illustrated how much uncertainty remains about the situation the General Assembly is facing.
“We have not been here in quite a while, and a lot has happened,” said House Finance Chairman Marvin Abney, D-Newport, at the start of what was his panel’s first meeting in two months. The effects of COVID-19 were visible in the room, with lawmakers wearing masks and spaced out at newly added seats, while members of the press and the public were kept out.
There is still no official estimate for the budget shortfall the state faces in the current 2019-20 fiscal year. That number is expected to be disclosed Friday, when the Raimondo administration is required to release its report on state spending through the third quarter.
Still, two facts were already evident at Thursday’s hearing: a huge amount of previously expected state revenue isn’t going to materialize, while a huge amount of new federal money is flowing in to help with the crisis. Yet it’s far from clear how much the latter will be able to offset the former.
And even the new revenue estimates announced last Friday — a $281 million cut to this fiscal year followed by a $516 million cut to next year — are an educated guess.
“What I can tell you is I’m sure the estimates are wrong,” Ferland told the committee, adding that she is just hoping they don’t prove to be too far off.
Multiple factors are driving the plunge in revenue. First and foremost is the unprecedented collapse in economic activity caused by the virus; Rhode Island’s unemployment rate, which started 2020 below 4%, is now expected to average nearly 16% over the next year.
Other factors are less obvious. Residents have switched from buying meals at restaurants, which are taxable, to buying food at the grocery store, which isn’t. Congress is letting seniors skip a usually required distribution from their retirement accounts, which also means the state won’t get an estimated $6.6 million in income tax they would have paid on those withdrawals.
Adding to the challenge: the state has less than two months to close the shortfall in the current budget before the fiscal year ends on June 30. Ferland estimates the hole will be around $200 million, including what she described as a widening deficit at Eleanor Slater Hospital, the state psychiatric institution, which was already over $20 million in the red and whose leader just resigned.
“I don’t think it’s going to be easily fixed,” Ferland said, “but I think it’s fixable.”
A significant portion of Thursday’s hearing was spent walking through all the new federal money Congress has steered to Rhode Island in the four emergency coronavirus spending bills that President Trump has signed since early March, as well as the potential for FEMA to cover a significant share of the state’s COVID-19 costs.
As of Thursday, the Raimondo administration’s running tally of coronavirus-related expenses totaled about $176 million, much of it for costs such as ventilators and personal protective equipment, according to Ferland. She suggested most of that spending could be eligible for reimbursement by FEMA under the Stafford Act coronavirus disaster declaration that President Trump has granted Rhode Island.
However, federal law usually requires that states come up with the money to cover 25% of disaster costs in exchange for FEMA covering the other 75%. Rhode Island has asked for a waiver of its share, but no decision has been made yet. It’s also unclear whether the state could use other federal money to cover its 25% state match.
“That is one of the many unknowns,” Ferland said.
By far the biggest pot of federal coronavirus cash Rhode Island has received is its $1.25 billion allocation from the CARES Act Coronavirus Relief Fund. U.S. Sen. Jack Reed, one of the CARES Act negotiators, helped secure a minimum amount for small states, and that made Rhode Island “a winner” in terms of per-capita relief fund money, according to Ferland.
Still, she reiterated previous warnings that the $1.25 billion is “fairly limited” in how it can be spent, with the CARES Act specifying it must be put toward coronavirus-related expenses that were not already budgeted. While Reed has argued lost revenue should count as an allowable expense, so far the U.S. Treasury Department has refused to support that interpretation.
Ferland said budget officials from the Raimondo administration and the legislature are now exploring “creative” ways to use the Coronavirus Relief Fund money and potentially shift some expenses from state general revenue to federal funding. Under the CARES Act, the state must give back any portion of the $1.25 billion it has not spent by Dec. 31.
One effect the $1.25 billion has already had, according to Ferland, is easing the state’s cash flow concerns. Due to a provision in the CARES Act, the Trump administration was required to deposit the money in states’ accounts by late April, giving them an enormous cash cushion. (State leaders had been concerned enough about that problem in March that they convened the obscure Disaster Emergency Funding Board to approve up to $300 million in short-term borrowing.)
The $1.25 billion is just one, though by far the largest, of the pots of federal money flowing into Rhode Island due to the crisis. An analysis by Target 12 shows over $1.9 billion in federal funding has been announced for Rhode Island since March 4, and that figure excludes $726 million in tax rebate checks to individuals as well as hundreds of millions more in extra unemployment benefits.
Ferland ticked off a long list of fresh federal appropriations, from $122 million for education to a more than doubling of the annual Community Services Block Grant. A major source of state budget relief on her list is a temporary increase in the federal share of funding for Medicaid, the health insurance program for low-income Americans, which Ferland suggested could save the state about $64 million in this fiscal year and potentially more depending how long the crisis continues.
Multiple lawmakers who spoke after Ferland’s presentation raised concerns about the effect of the crisis on municipal budgets, echoing fears among city and town leaders that they could be left holding the bag as they argue they were during the Great Recession. Rhode Island is among the top 10 states where local communities are expected to lose the most revenue nationwide, according to an analysis released Thursday by the National League of Cities.
“Cities and towns are facing the likelihood of less state aid, unfunded state mandates, lower tax-collection ratios driven by taxpayers that are strapped, and lower revenues from meals and beverage tax, hotel tax, and others,” Brian Daniels, executive director of the Rhode Island League of Cities and Towns, said in a statement. “Yet core municipal services need to continue, like public safety, education, and utilities.”
Rhode Island leaders at all levels are closely monitoring news out of Washington, where Democrats are pressing Republicans to enact a fifth spending bill that would include no-strings-attached budget relief for state and local governments. Reed has proposed $600 billion in federal funding to make up for revenue shortfalls, though some GOP leaders have sounded cool to the idea of such a policy.
Meanwhile, Democrats in the U.S. House are expected on Friday to approve their own new spending bill, the HEROES Act, which Congressman David Cicilline’s office says would provide roughly $3.6 billion to Rhode Island’s state government in 2020 and 2021, plus an additional $1.6 billion to municipal governments statewide. (Senate Republicans have said the bill is a nonstarter with them.)
There were also questions about the mechanics of the budget process going forward.
State Rep. Gregg Amore, D-East Providence, asked whether Gov. Gina Raimondo would be submitting an entirely new budget plan for 2020-21 since her original proposal, submitted in January, will need to be radically altered. Raimondo has not committed to doing so, though she has said she’s in regular conversations with legislative leaders.
“We’ve got our work cut out for us,” Abney said at the close of the hearing. “It’s doable. It is going to get done. But we’re going to need the perspectives of everybody to make that happen.”
Ted Nesi (firstname.lastname@example.org) 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