PROVIDENCE – A key House panel on Friday approved a fiscal 2025 state budget plan by a 13-1 vote with no broad-based tax cuts and increased funding for education and health care.
The $13.9 billion tax-and-spending package approved by the House finance committee is a $271 million increase over Gov. Daniel J. McKee’s proposal. It now moves to the full House for a vote without a Citizens Bank-supported amendment from the governor's office to change the way banks are taxed.
In a prehearing budget briefing, House Speaker K. Joseph Shekarchi said the spending plan is an example of budgeting back to basics. He said the House version “will direct Rhode Island’s resources toward children and education to strengthen the state’s future,” vowing to “create a plan that meets the Rhode Island’s needs for education, students and children first, while addressing our challenges, such as housing and health care.
“We feel the pain of Rhode Islanders. Rising costs across the board have affected everybody,” he added, noting the budget seeks to do “the most good to the people who need it the most.’
The House version increases a proposed housing bond from $100 million to $120 million, fully funds the coming Medicaid reimbursement rate increases by adding another $44 million over McKee’s proposal, and fully restores so-called “core educational aid,” adding another $71 million over the previous year toward K through 12 education.
“We've heard they need that aid as soon as possible and we are going to provide it,” said House Majority Leader Chris Blazejewski, D-Providence.
The House budget also makes changes to the state pension system by giving cost-of-living increases to beneficiaries who retired before 2012 and reduces the percentage threshold from 80% of a fully funded pension to 75% for all other beneficiaries, which Shekarchi called “fair, reasonable sound and balanced.”
Other pension changes include increasing employer contributions from 8.75% to 10%, shifting state public safety workers to the municipal pension system, and increasing the amount a teacher can earn without a reduction in benefits from $18,000 to $25,000.
The House version also increases proposed funding to Rhode Island Public Transit Authority’s budget by $15 million, $5 million more than McKee recommended. Shekarchi said agency leaders have assured him the funding level will allow it to avoid any service cuts.
Included in the budget is funding for the replacement of the Washington Bridge but uses a portion of remaining American Rescue Plan Act money and state capital expenditure funds.
The late request by Citizens Bank to change how banks are taxed was dropped just hours before the committee vote.
Shekarchi said he remains open to exploring alternative solutions to the bank’s concerns.
“I don’t want to be the speaker who loses Citizens Bank,” he said in a statement. “I will roll up my sleeves and get to work with them over the summer so we can prefile legislation that can be vetted early in the year, but right now, we don’t have enough information to know whether this plan is the right move for our state.”
McKee filed the budget amendment to change the state tax code, allowing the use of a “single sales factor apportionment methodology” in determining tax liability, allowing banks to apportion their net income based solely on in-state receipts rather than a weighted three-factor formula applying payroll, property and a percentage of sales.
Citizens had proposed the change to a formula that wouldn’t penalize the bank for having most of its operation in Rhode Island.
Citizens is the largest bank in Rhode Island by deposits and has more than 4,300 employees in the state, according to Providence Business News’ 2024 Book of Lists.
Twenty-six states have passed similar legislation, with Massachusetts scheduled to join that list on Jan. 1.
Citizens in a statement said it was disappointed in the decision and still hopes lawmakers will approve the tax change in this legislative session.
“This decision will make it difficult for the state to compete on a level playing field with Massachusetts and other states and is not in the best interest of Rhode Islanders," said Rory Sheehan, Citizens’ head of enterprise communications. “We urge the Rhode Island General Assembly to address the issue before the end of the session. We are committed to working diligently to achieve a positive outcome.”
Figures from the May Revenue Estimating Conference projected a nearly $243 million surplus over the current fiscal year budget, with state revenue for fiscal 2025 exceeding earlier projections by nearly $60 million.
However, the Rhode Island Public Expenditure Council had urged the General Assembly to show fiscal restraint as the state faces looming deficits in future years that could exceed a quarter-billion dollars by 2027, according to its analysis released earlier this month.
The budget includes 15,725 full-time state government positions, representing the highest level of authorized positions since 2008.
According to RIPEC, other fiscal challenges include the growth in Medicaid spending, which has increased 9% on average since 2019 and now encompasses close to one-third of all general revenue expenditures.
The House budget plan does not include a proposed cut to the corporate minimum tax from $400 to $350 or a proposed cut to the state sales tax from 7% to 6.5%.
Also left out was a proposed bond for a state archive building.
The budget plan does include:
- A $10 million arts and cultural facilities bond.
- Adding .25 to the cigarette tax
- Raising the exemption for taxable retirement income from $20,000 to $50,000, with double the eligibility amount for joint filers.
- Eliminating six fees, including the $50 R.I. Division of Taxation fee for estate tax filers; the $25 fee for nonprofits seeking a sales tax exemption certificate and the real estate brokers fee.
The full House is scheduled to vote on the state budget June 7 before it goes to the Senate.
(REWRITES throughout with budget vote, comment.)
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
