Pawtucket Mayor Donald R. Grebien never thought he’d have to close down his city on Fridays to save money, but in the absence of a state budget and the rise in financial uncertainty, it has come to that.
Starting the week of Oct. 19, several hundred public employees started working four days a week, with most city services unavailable on Fridays. Because the city is participating in the state’s WorkShare program, workers will collect unemployment benefits for the one day a week out of work.
Grebien said the drastic action – which the city estimated will save about $500,000 through December and will prevent layoffs – was driven largely by a reduction in state aid this year under a decision by Gov. Gina M. Raimondo’s administration to dole out local aid in smaller amounts.
That’s because the state doesn’t have an approved budget yet, now four months into fiscal 2021. To make matters worse, Grebien said, the state has withheld a payment to Pawtucket in lieu of taxes for the largely vacant Memorial Hospital property.
“We are definitely concerned about the impact of the state budget,” Grebien said recently. “We get told, ‘Prepare for the worst and hope for the best.’ But we can’t budget like that.”
In a typical year, the governor unveils a tax-and-spending proposal in January that reflects the policies, projects and initiatives the administration endorses for the coming fiscal year. In the months that follow, legislative leaders closely examine that proposal, often tinkering with line items and spitting out their own budget plan for approval before the new fiscal year starts on July 1.
But the effects of COVID-19 and lingering questions about federal aid for the coronavirus crisis have placed that process in disarray and have left the state without a budget for months.
Now communities, social-service advocates, nonprofits and other groups counting on state appropriations are feeling the effects.
Pawtucket’s predicament is being played out in other cities and towns grappling with pandemic-related losses, according to North Providence Mayor Charles A. Lombardi, who is also president of the Rhode Island League of Cities and Towns.
Without a new spending plan, the state is only paying a portion of the expected aid to municipalities, just when those communities need it the most, Lombardi said. “The wells are running dry,” he said.
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TAKING NO CHANCES: A sign on a table game at Twin River Casino Hotel warns patrons they must follow public health guidelines. The casino closed for three months early in the pandemic and has yet to return to full capacity. / PBN PHOTO/PAMELA BHATIA[/caption]
WAITING GAME
So where is the state budget?
The budget process started on schedule in the spring but was knocked off track by the COVID-19 pandemic. The House and Senate finance committees have met frequently to discuss aspects of the state budget and proposals introduced by Raimondo. But no final votes have been taken.
Deliberations are now expected to resume in November, according to state leaders, but at the same time, Raimondo has held back on releasing a revised budget proposal as the administration waits to see if the federal government will release more stimulus money to the states.
As of late October, that prospect looked dim. Although the Trump administration has negotiated with U.S. House leaders on a new aid package, U.S. Senate Republicans have so far not agreed.
Meanwhile, Rhode Island is one of just four states in the country that haven’t approved a full-year budget for fiscal 2021, according to the National Association of State Budget Officers. Under state law, Rhode Island is operating under the parameters of the previous year’s budget.
Rhode Island received a total of $1.25 billion in federal stimulus through the Coronavirus Aid, Relief, and Economic Security Act in the spring, but state officials have limited flexibility on how to spend it. The relief money is intended to cover expenses related to the pandemic, not backfill state revenue lost to pandemic-related shutdowns or business slowdowns.
But Raimondo has held on to large portions of the federal funds, hoping to gain more flexibility and avoid cuts to personnel and services.
Her original $9.9 billion budget plan, presented in January, is in the process of multiple revisions, she said. She told reporters recently that she is preparing plans that would reflect more federal help and flexibility on using the CARES Act money, as well as plans that would cover the worst scenario: no more help or flexibility.
“Rhode Island needs a stimulus,” she said Oct. 7 at a pandemic briefing. “If we don’t get a stimulus, it’s going to be awful. Layoffs like we’ve never seen before in public service. Cuts to health care. Cuts to education. Horrible choices that no one, including myself, wants to make.”
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FINISHING TOUCHES: Ron Tremper, center, leads volunteers in laying down sod at a Habitat for Humanity build in South Kingstown. The South County Habitat for Humanity and other housing advocates are concerned that Gov. Gina M. Raimondo’s proposals to finance the creation of additional affordable housing will vanish because of the coronavirus crisis. / PBN PHOTO/MICHAEL SALERNO[/caption]
CRATER AHEAD?
The deliberations on a new budget are expected to follow the semiannual revenue and social-service caseload estimating conference that ends in early November. The budget talks will also follow a general election in which both R.I. House Speaker Nicholas A. Mattiello and R.I. Senate President Dominick J. Ruggerio are running for reelection.
The legislative leaders, as well as budget, revenue and workforce-development officials in the Raimondo administration declined requests to be interviewed by Providence Business News.
How much of a deficit is the state facing? The shortfall could add up to hundreds of millions of dollars.
The good news for state officials is that the forecast doesn’t appear to be as dire as it seemed in May, when analysts last sat down to try to estimate future state revenue and expenses for social, human and health services.
At that time, the local economy was only beginning to reopen after a lengthy COVID-19 shutdown, and revenue from taxes and fees had tumbled, making forecasts difficult.
State officials predicted a nearly $800 million deficit between fiscal 2020 and 2021, driven largely by drops in state lottery revenue, as well as income and sales taxes. That crater included a $280.9 million shortfall in fiscal 2020.
But by June 30, a preliminary closing statement by the state auditor revealed general revenue was 3.6% higher than expected in May, by $141.8 million. Expenses were $46.1 million less, mostly because state departments were told to cut spending.
The most recent update of state revenue – covering the first three months of the current fiscal year – show an economy that is regaining its footing. But it’s still well below projections made last November, before the pandemic.
For July through September, the state general revenue was $104.5 million ahead of the May expectations, up by 12.1%, according to a statement from the state’s revenue director, Mark Furcolo. Sales and use taxes were up by $45.6 million over the May expectations.
Personal income taxes, meanwhile, were up by $42.5 million through August, compared with the May estimates.
What that portends for the November budget deliberations is unclear.
Other crucial numbers haven’t been upbeat. One of the state’s biggest revenue sources – the gambling revenue from slot machines and table games in the state’s two casinos – is down by about one-third to a half of this fiscal year in part because the casino hasn’t yet returned to full capacity after being closed for nearly three months in the spring.
Social-distance requirements have meant that fewer than half of the 4,100 video slot machines at Twin River Casino Hotel in Lincoln are operating during the week, a casino spokeswoman said. More are available on weekends. And it’s the same at the Tiverton Casino Hotel, where about half of the 1,000 slot machines are open.
As a result, slot-machine profits at both casinos have plummeted. In the most recent R.I. Lottery report, net video lottery income declined from $121 million in the first quarter of fiscal 2020 to $80 million in the same period this year. Table games saw a net revenue decline of 47%, to $15.4 million.
Adding to the difficulties, the two-week quarantine imposed on Massachusetts residents who visit the Rhode Island casinos and then return to the Bay State, has hurt attendance, said Marc Crisafulli, executive vice president, strategic development and government affairs for Twin River Worldwide Holdings Inc., and president of Twin River Casino Hotel and Tiverton Casino Hotel, which are owned by TRWH. He estimated the loss in attendance at 50% or more.
Crisafulli said he doesn’t have enough traffic to reopen the hotels and many of the restaurants.
“If you look at the past few months, [casino revenue is down] 40%-50%,” Crisafulli said. “If things continue to open up and things improve, you’ll do better, but you’re already a quarter into the year.”
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MISSING THE JACKPOT: State revenue from video slot machines at Rhode Island’s casinos, including Twin River Casino Hotel, above, has plummeted because casino attendance is down during the pandemic and social distancing has forced the closure of many of the slots. / PBN PHOTO/
PAMELA BHATIA[/caption]
‘GOING TO BE PAIN’
Absent additional federal aid, or a tax increase, economists and political observers say the state will have to make cuts in services and programs, if not personnel.
Up to this point, Raimondo has not laid off or furloughed state employees, explaining when asked by reporters that job cuts could add to the unemployment problem. She has not said whether she will consider a tax increase.
Without additional flexibility, the $1.25 billion initially received by the state from the federal government is tied to the coronavirus response and must be committed by Dec. 31. But the funds can be used now to cover some state salaries that otherwise would come from the general fund, including at the R.I. State Police and the R.I. Department of Health, for state employees who are working on pandemic-related matters, according to budget officials.
Contact tracers, for example, are state employees who were redeployed this spring for that purpose.
University of Rhode Island economist Leonard Lardaro said income taxes and other state revenue will undoubtably slide in an economic downturn, even as the need for government assistance rises. Add to that the state’s over-reliance on some of the industries hard hit in the pandemic, such as hospitality, and leaders are left with a lot of bad options.
“Balancing the budget in a weak economy is inherently destabilizing,” he said. “Cut government spending or raise taxes – or both.”
Gary Sasse, founding director of the Hassenfeld Institute for Public Leadership at Bryant University, said the fiscal 2021 budget should have been approved already. The delay gives state leaders less time to react if they do not get any more help.
Given the K-shaped economic recovery – in which the wealthiest have recovered quickly and the lowest-paid continue to suffer – Rhode Island should make cuts that are socially equitable, said Sasse, who was director of the R.I. Department of Administration under former Gov. Donald L. Carcieri.
Education and health care services make up about two-thirds of the state’s spending. State officials should preserve spending in education and social services, then reduce every other department by 15%, he said.
If there’s still a gap, the state should increase income taxes paid by the wealthiest 1% to bring in more revenue, he said.
“There is going to be pain,” Sasse said. “You can’t ignore equity in making these cuts.”
DISCOURAGED
Already, advocates for social services, health care and housing are worried their programs will be targeted for cuts.
Because the General Assembly ended its session abruptly, the governor’s requested $269 million in bond initiatives were not placed on the Nov. 3 election ballot.
A special election will now be required, or these issues – including environmental improvements and housing investments – will have to wait until 2022.
Affordable-housing advocates say the year has been a loss.
Before the pandemic, Raimondo made affordable housing a top priority in her budget plan, seeking a $50 million bond for housing creation and, for the first time, a dedicated funding stream to expand housing across the state. The governor proposed a 0.92% fee on luxury real estate and commercial sales above $500,000.
Although real estate groups were opposed, housing advocates were encouraged.
Brenda Clement, the director of HousingWorks RI at Roger Williams University, said the pandemic has only exacerbated the need for affordable housing for Rhode Islanders with modest incomes. She and others are still pushing for the fee to be included in the final 2021 budget.
“My argument is that even in COVID, the luxury-home market is strong and going well,” Clement said. “And the amount of money we’re talking about, that would be added on to those properties, is so miniscule. It doesn’t slow or prevent that market from happening.”
Colin Penney, executive director of South County Habitat for Humanity, said the nonprofit has received funds from the housing bonds in the past, providing about 40% of the cost of home construction. This month, the organization finished its latest home, in South Kingstown.
The loss of that option in the year ahead means the organization will probably only be able to build two more homes in the next 18 months, instead of six, he said. It’s a critical need, particularly in Washington County. Community donations can’t cover the difference, he said.
“We’re fortunate to have a lot of great community organizations, individuals and corporations who support Habitat,” Penney said. “But everyone is hurting right now.”
In Pawtucket, the city is trying to dull the pain.
More than 200 city workers represented by unions agreed to take part in the state’s WorkShare program, even though it will mean a cut in pay. Only public-safety employees are exempt.
Joe Morais, a project manager in the city’s Department of Public Works, has been here before. He was laid off from his city job during the Great Recession. This time, the pain has been minor, just one day a week on unemployment.
“The city has to do what it has to do to manage a budget,” he said.
Lombardi argues that state leaders should release the aid to cities and towns as it was approved under the fiscal 2020 budget, not hold some back.
Not all cities and towns are in Pawtucket’s situation, operating four days a week, but Lombardi said it may come to that. “I see it heading in that direction if we continue to operate the way we are,” he said.
Mary MacDonald is a PBN staff writer. Contact her at Macdonald@PBN.com.
