The human and financial costs of federal funding cuts are coming into focus for Rhode Island – and it’s not a pretty picture.
Tens of thousands of vulnerable residents stand to lose access to public health benefits, food assistance, or both. State costs to carry out these major program overhauls are projected to rise as tax revenue shrinks. And hundreds of millions of dollars in frozen federal funding for higher education, public health and scientific research, and energy programs may never be revived.
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“Trump’s fiscal policies are nothing more than a shell game that shifts staggering federal costs onto states that simply can’t absorb them,” Gov. Daniel J. McKee said in an Oct. 30 statement. “My administration will use our limited state resources to try and protect the most vulnerable, but no state can backfill an entire federal program, and the President and Congressional Republicans now own the devastating consequences of these choices.”
McKee’s comments came alongside a trio of state-commissioned reports released the same day. The documents together span almost 300 pages of findings from state agency leaders and policy experts, who have spent the last three months sorting through the ramifications of the massive federal reconciliation package known as the One Big Beautiful Bill Act.
Much of the local impact remains fuzzy, resting on not-yet-released federal guidance and actions by Congress.
“The federal funding landscape has changed quickly and often since January 2025,” the first report by a panel headed by the R.I. Office of Management and Budget, states. “This report attempts to provide a point-in-time summary and analysis for policymakers and the public, but OMB expects additional program-level changes to occur after submission, particularly once Congress has completed action on the appropriations acts for [federal fiscal year] 2026.”
State lawmakers had not even considered a government shutdown when they inserted language into Rhode Island’s fiscal 2026 budget calling for expert analysis on the effects of federal budget cuts.
It’s a surprise with massive repercussions: $29 million in federal food assistance, providing critical aid to 145,000 people in Rhode Island, didn’t come through as scheduled on Nov. 1, although a pair of federal court orders issued Oct. 31 will force the federal administration to tap contingency funds. The state’s $6 million workaround plan will partially fill in the gap in the interim, but half of Supplemental Nutrition Assistance Program recipients won’t have access to monthly grocery money, and even those that do might see lower amounts than normal.
Meanwhile, 3,600 state employees are paid with federal funding. If the shutdown drags on well into November, the state may be unable to cover the $11.5 million biweekly payroll costs for its own workers, compromising jobs and critical state agency operations, the OMB report states. That doesn’t include the $11.2 million in federal grants to state agencies that have already been cut off since the Trump administration took over, with another $123.9 million in federal grants for critical energy investments, scientific research and infrastructure projects still inaccessible due to new strings attached to the money.
Hardly welcome news as the state stares down an estimated $300 million deficit for the upcoming fiscal 2027 year –a calculation which does not account for the massive federal fallout already gripping Rhode Island.
“As state policymakers consider options to address adverse fiscal impacts from federal actions, they must make these decisions in the context of Rhode Island’s underlying budgetary challenges and a more limited ability to raise revenues than our neighbors,” the OMB report states.
House Speaker K. Joseph Shekarchi and Senate President Valarie Lawson emphasized the value of the information collected in the state reports in a joint statement Oct. 31.
“This is the first step in informing us of the challenges ahead as Governor McKee presents his budget in January and we begin the hearing process in our Finance Committees,” they said. “We also have directly engaged with the agencies that provided these reports, and will continue to do so, as we seek a more in-depth look at the magnitude of the issues facing our state with the enactment of H.R. 1.”
Among the biggest hurdles lawmakers must overcome are the changes to Medicaid, both for recipients and for health care providers.
The sweeping government health benefits program covers 310,000 people in the state, or one-third of the population, with a $4.9 billion cost in the state’s fiscal 2026 spending plan, most of which covered by the federal government.
More stringent eligibility requirements will kick 33,500 Rhode Islanders off the program by the end of next year, according to estimates from the R.I. Executive Office of Health and Human Services in a separate report. That includes 24,500 people who will lose coverage due to stricter proof of work requirements – some of whom actually meet the minimum hours for work or volunteering, but would be unable to provide the documentation required on time. Another 9,000 Rhode Island immigrants recognized as legal asylum seekers or granted temporary protections to leave their home countries, will also lose Medicaid coverage under narrower rules around immigrant eligibility.
Fewer state Medicaid participants will cut costs: down $111.3 million in fiscal 2027, including $26.6 million less in state funds, with a combined $333.1 million reduction in fiscal 2028, according to the state projections.
But the savings comes alongside new expenses for the state, including personnel and technology to oversee major shifts in program eligibility and extra recertifications. Meanwhile, stricter caps on state taxes for health care providers will shrink the funds available to shoulder the state’s share of Medicaid costs: down $12.2 million in fiscal 2028, escalating to a $150.9 million loss by fiscal 2032. This in turn hurts hospitals and health care providers by cutting the money available to finance their services for low-income patients.
Cash-strapped health care facilities will take another financial hit under new federal limits to Medicaid payments from managed care organizations, which aim to make up the difference between treating patients with commercial insurance versus those on government health care.
Rhode Island’s fiscal 2026 budget included $325 million in state-directed payments to Medicaid providers, though final signoff from the Centers for Medicare and Medicaid Services is still pending, according to the EOHHS report. State administrators are also awaiting guidance on whether existing payment directives might be shielded from new federal cuts under a “grandfather” clause. Even if the existing rates are extended through fiscal 2028, cuts to health care providers loom: an $32.5 million drop in fiscal 2029, nearly doubling to $61.8 million in fiscal 2030.
The ongoing shutdown has cast a spotlight in the short-term availability of federal food benefits funding. But reopening the government won’t put SNAP back on track for long; major changes to program eligibility have already started, with upcoming penalties for states that fail to rectify program errors.
Much like the stricter Medicaid eligibility rules, stricter guidelines for SNAP beneficiaries that took effect Nov. 1 – less flexibility on the existing work requirement for most adults; exclusions for legal asylum seekers and other immigrant refugees; and getting rid of automatic utilities cost deductions for most recipients – will shrink initial costs: down $27.1 million in the current fiscal year, with another $1.8 million cut in fiscal 2027. More than 9,000 Rhode Islanders will now have to provide proof of work or volunteer hours to continue receiving benefits, while 2,300 legal asylum seekers and refugees will lose benefits entirely, according to state projections.
But the savings may be short-lived. In two years, the federal government will begin penalizing states whose food benefits programs have accuracy problems, forcing them to shoulder a portion of what has historically been an entirely federally funded program.
The way out: an error rate of 6% or below by Oct. 1, 2027 – less than half the 12.3% fiscal 2024 error rate for Rhode Island’s SNAP program. Despite claims of rampant fraud and abuse in the benefits system, most state error rates result from minor clerical errors, including some by the state program administrators, according to an analysis of 2022 data by the left-leaning Center for Budget and Policy Priorities.
Rhode Island’s Department of Human Services, which administers the state’s SNAP program, is already working to reduce its error rates. But if it fails to meet the new accuracy standards two years away, the state could be forced to come up with $100 million to help fund the program in fiscal 2027. Even if it succeeds, the administrative burden of overhauling the massive program, with staff, IT, training and more, will require “significant upfront resources,” the report states.
Across state agencies involved in food benefits administration, the state expects to spend $9.5 million more in fiscal 2027, rising to $13 million the following year. Operational challenges also lie ahead for the state’s health insurance marketplace, where administrators are bracing for the fallout of expiring federal tax credits at the end of the year. As premiums rise – expected to double, on average, for the 41,000 residents who buy insurance through the state marketplace – nearly one-third of the enrollees are expected to drop their coverage by 2027, according to HealthSource RI.
More uninsured people will drive up demand for costly emergency room services and simultaneously reduce the federal funding for the state marketplace program to the tune of $70 million a year, according to the report.
“This money, instead of primarily flowing to local healthcare providers, will not arrive in Rhode Island at all,” the report states.
Additional declines in the state marketplace are expected under stricter eligibility guidelines that cut off access to discounted rates for those who don’t receive Medicaid, legal immigrants who have been in the country less than five years, refugees and asylum seekers. More than 4,000 Rhode Island immigrants will lose access to discounted premiums starting Jan. 1.
While the federal budget cuts appear to be mostly bad news for Rhode Island, the state budget office in its report makes a single-line reference to the potential for economic opportunities from the changes in Washington.
This is also detailed, to some extent, in a third report by the R.I. Department of Revenue analyzing federal tax changes, which center on aid for businesses. The state tax report does not, however, put dollars to the assumed increase in business investments and economic output from tax savings. It focuses on how federal tax policies would affect state revenues, assuming that the state opts to follow federal tax law.
Absent “decoupling” of state tax code from federal policy – an option lawmakers already provided for in tax year 2025 – state tax rolls would shrink by $79 million under the federal tax changes, with most of the loss in 2026, according to the report. The biggest hit comes under the revival of a tax policy from Trump’s first term in office, which lets businesses expense costs related to research and development activities, with the option to retroactively deduct these costs from 2022 forward. The move is expected to reduce state corporate income tax revenue by $55 million in tax years 2026 and 2027 combined, according to the report.
As federal tax benefits for businesses expand, incentives and standards for renewable energy production, energy-efficiency projects, vehicle emissions and other policies will fall off. There’s little immediate tax impact for Rhode Island, but the absence of federal incentives is expected to reduce clean energy investments, in turn jeopardizing Rhode Island’s decarbonization mandates, the report notes.
Nancy Lavin is a senior staff writer for the Rhode Island Current.
