PROVIDENCE – Rhode Island faces annual deficits that could balloon to as much as 16 percent of general state revenue over the next three years absent major changes in tax-and-spending policies, according to a report released Wednesday by the Rhode Island Public Expenditure Council.
The business-backed fiscal watchdog group projects a state budget deficit of $60.6 million for the current fiscal year, which ends June 30, equal to 2.1 percent of General Fund revenue.
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In fact, the red ink has already begun to flow. In July and August, the first two months of the current fiscal year, state tax collections ran 3.3 percent below the already-lowered projections on which lawmakers based the budget that Gov. Donald L. Carcieri signed in late June.
And that’s on top of the $61.8 million deficit the state was left with when revenue came in below expectations last year, the second year in a row the state ended the year with a shortfall.
The state rainy day fund would dwindle to just $18.3 million if lawmakers tap it to cover last year’s deficit. “This would leave the state with almost no cushion if the revenues should fall any further,” the study noted.
Looking ahead, RIPEC forecasts annual deficits of $244 million, or 8.3 percent of general revenue, in the year ending June 30, 2011, and $484 million, or 16.2 percent of general revenue, the year after that. All told, the cumulative three-year deficit could total $850.6 million in fiscal 2012 if the prior-year deficits are not dealt with.
The reason is simple: the report projects annual expenditures growing 16 percent to $3.8 billion by fiscal 2012, while general revenue is only expected to increase 2.3 percent to about $3.1 billion. (The full state budget is much larger – $7.81 billion, up 13 percent, this fiscal year – because some of the money comes from other sources, including the federal government.)
The 2012 fiscal year is expected to be particularly difficult because that is when federal support for the state budget from the economic stimulus law President Barack Obama signed in February will run out.
RIPEC warned Carcieri and leaders in the General Assembly that “[i]mmediate action is required to address the current and out-year deficits.” The governor – who is still working out how to achieve $68 million in unspecified savings legislators mandated in their budget blueprint for this year – may need to submit a supplemental budget in January that cuts appropriations further, RIPEC added.
A clearer picture of Rhode Island’s fiscal situation will emerge later this fall when the state gets forecasts from economists and other analysts at its biannual Revenue and Caseload Estimating Conference in November.
If there is any consolation for Rhode Island, it is that the state is far from alone. At least 48 states either have addressed or still need to address shortfalls in their budgets for the current fiscal year, and at least 36 states already expect deficits for fiscal 2011, according to the Center on Budget and Policy Priorities, a Washington-based research and advocacy group.
Additional information is available at RIPEC.com.
