PROVIDENCE, R.I. (WPRI) — Barely a month ago, Rhode Island leaders were painting a grim picture of the state’s budget outlook, with a leading think tank warning the deficit could top $500 million.

But that was before Democrats took control in Washington.

President Biden and congressional leaders are moving full speed ahead on a massive $1.9 trillion coronavirus relief package that would direct $350 billion in aid to state and local governments nationwide. Other provisions of the bill include $1,400 stimulus checks for most adults, extended unemployment benefits and more money for coronavirus costs.

Rhode Island U.S. Sen. Jack Reed, a senior member of the Appropriations Committee, estimates that if the Biden bill passes in its current form it would direct $1.1 billion into Rhode Island’s state coffers — more than double the estimated 2021-22 deficit — and send an additional $594 million on top of that to some municipal governments.

“Different states have different needs, but every community has been hit by COVID and this federal funding will allow state and local governments to target assistance where it can be most effective to save lives, jobs, and businesses,” Reed, a Democrat, said in a recent statement.

It’s too soon for Rhode Island leaders to be confident their near-term budget woes are over. While the Biden bill is set to clear the House of Representatives next week, it still faces hurdles in the Senate and could be changed before it reaches the president’s desk.

And critics, including some Republican senators, have argued the aid to states and municipalities is unnecessarily generous. “Democrats need to return to reality, remember their obligation to the American taxpayer, and stop using American tax dollars to backfill their friends’ mismanaged pensions and state budgets,” U.S. Sen. Rick Scott, R-Florida, said in a statement last week.

Nevertheless, it appears increasingly likely that the final version of the bill will include a substantial amount of funding for state and local governments, transforming Rhode Island’s budget picture for the new fiscal year that begins July 1.

Michael DiBiase, president and CEO of the Rhode Island Public Expenditure Council, indicated Tuesday night he thinks his group’s $500 million deficit estimate from last month is no longer operative.

“The new COVID relief bill very likely to be passed soon by Congress is expected to have so much funding for RI that there will no longer be a deficit problem for FY 22,” DiBiase tweeted. “The challenge for policymakers will be to use this one-time funding for strategic one-time investments and avoid adding to our structural problem of spending more than we take in.”

“It is a once-in-a-generation opportunity for RI,” he added.

Tax hike, marijuana legalization on the agenda

Rhode Island’s state budget has ballooned in the wake of the pandemic.

The budget that lawmakers originally enacted for 2019-20 totaled $9.97 billion, up from $9.4 billion the year before. And at the start of 2020, just before the public health crisis began, Raimondo put forward a plan for the 2020-21 fiscal year which would have increased spending to $10.2 billion.

Subsequently, however, Congress sent a surge of federal money to deal with COVID-19, notably with expanded unemployment benefits and $1.25 billion for coronavirus-related costs. That pushed the final state budgets for those two years to $11.8 billion in 2019-20 and $12.7 billion in 2020-21.

Put another way, Rhode Island’s state budget grew by 36% — or $3.3 billion — over the last two years. (Spending out of the General Fund, which includes much of the revenue generated at the state level, only went up by 6%, or $229 million.)

Now the budget proposal for the 2020-21 fiscal year is being put together by Democratic Lt. Gov. Dan McKee, who is poised to take over as governor as soon as next week once the U.S. Senate confirms Raimondo as Biden’s appointee to lead the Commerce Department.

The General Assembly has set a March 11 deadline for McKee to submit his budget plan, after which the House and Senate Finance Committees will begin holding hearings on the proposal. Lawmakers usually pass a final budget bill around June.

In a joint statement to 12 News, House Speaker Joe Shekarchi and Senate President Dominick Ruggerio indicated they are closely monitoring the discussions on Capitol Hill.

“One thing we have learned in this crisis is that nothing is certain, and we need to continue to explore all options for enacting a balanced budget with or without additional relief,” the two Democrats said.

But, they continued, “We are cautiously optimistic that the next stimulus contains assistance that would allow us the breathing room to make long term decisions that put Rhode Island on the path for a robust and sustainable recovery.”

However, even an enormous one-time infusion of federal cash will not solve the perennial gap between Rhode Island’s revenue and expenses for the long term. The most recent five-year budget forecast, issued just prior to the pandemic in January 2020, projected that the budget deficit would increase to $154 million by the 2024-25 fiscal year.

A growing number of Democratic state lawmakers have suggested the state should explore raising income taxes on higher-income Rhode Islanders to close that long-term gap, but McKee has indicated he is wary of that approach.

“You don’t want to try to cure a problem that doesn’t exist,” McKee said on WPRI 12’s Newsmakers in December. “Let’s find out where we are right now. It’s far better not to be taxing people than tax people, in terms of a state or a municipal leader. So let’s find out what the deficit is before we jump to any conclusions on what the remedy might be.”

Another policy to generate additional revenue does look on track to win Assembly approval before long: legalization of recreational marijuana, which McKee supports. Senate Majority Leader Michael McCaffrey said last week he expects Senate leaders to unveil a legalization bill shortly, and they have previously indicated they may act on the proposal before the final budget passes.