PROVIDENCE – Gov. Daniel J. McKee on Thursday released his $13.68 billion spending proposal for the next fiscal year that prioritizes housing development and funding for both education and health care.
The proposal, which is a decrease of $335 million from fiscal 2024, includes $5.5 billion in general fund expenditures; 45% of all expenditures are for the R.I. Department of Health and Human Services, totaling $6.1 billion.
The roughly 200-page document was transferred to lawmakers on Thursday.
“The Team Rhode Island budget that I'm sending to the General Assembly today prioritizes programs and initiatives that will help raise the incomes of our fellow Rhode Islanders,” McKee said. “By using available resources in a targeted and strategic manner, we will continue to make progress on our RI 2030 goals while putting Rhode Islanders to work in good-paying jobs on projects that will pay dividends for decades to come.”
The administration's fiscal year 2025 proposal comes in with approximately a $900,000 surplus. During a briefing on Thursday, Brian Daniels, director of the R.I. Office of Management and Budget, said he asked all state agencies to limit budget requests to under 2.6% over the previous year in order to close a potential deficit.
“We have a balanced budget with a small cushion to spare,” he said. "There has been general inflation throughout government and through the economy [and] we are trying to make sure we are living within our revenues.”
However, future deficits are looming, according to state projections, which show a $244 million gap in fiscal year 2026, up from the $73 million previously forecast.
During the November 2023 Consensus Revenue Estimating Conference by economists from S&P Global Market Intelligence, state officials were told that "Rhode Island’s economic momentum is slowing as the pandemic recovery matures, while inflation, tight labor markets, and a constrained housing market are expected to temper growth from the levels seen over the last two years."
McKee is also proposing $345 million in bond initiatives to be put to voters in November, reflecting a long-term “growth strategy,” said Daniels, including $60 million for a State Archive and History Center to display Rhode Island’s historical documents; $80 million for a new life science school at the University of Rhode Island; $55 million for a cybersecurity bond to grow Rhode Island College’s Institute for Cybersecurity and Emerging Technologies; $50 million for the green economy; and an additional $100 million bond for housing construction.
The proposal seeks to retire $170.1 million in debt in fiscal year 2025.
On taxes, McKee's proposal recommends raising the exemption for taxable retirement income from $20,000 to $50,000, with double the eligibility amount for joint filers. The administration says this would cost $3 million in fiscal year 2025, but reduce the taxes of at least 10,000 taxpayers, with an average tax savings of about $500.
McKee is also proposing a reduction in the corporate minimum tax from $400 to $350, decreasing corporate tax revenue between $2.3 million and $4.7 million, and the elimination of 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.
In line with Massachusetts and Connecticut, the proposed budget allows 20-year carry forwards of losses, an increase from the five years in current law; and a provision allowing cannabis businesses to deduct ordinary business expenses; and changing the pass-through entity tax credit to 90%.
On education, the proposal asks for a general revenue increase of $19.2 million in the school funding formula and recommends phasing in $220 million in Medicaid provider rate increases over three fiscal years, beginning with $20.4 million in general revenue and $31.3 million in federal funds in fiscal year 2025.
Daniels said phasing in the increases over one or two years "was not something that we could accommodate in the budget.”
There are also proposed changes to boost revenue collection by $10.4 million in the next fiscal year, allowing the R.I. Division of Taxation to expand the top 100 delinquent taxpayer list to include taxpayers who owe more than $50,000; a new 80% tax on e-cigarettes; and increasing the cigarette tax from $4.25 a pack to $4.50 a pack.
A sales tax cut was not included in the proposal, which includes language stating that if the fiscal outlook improves in May, the administration would explore sales tax relief, though no specific “triggers” were included.
Senate President Dominick J. Ruggerio in a statement Thursday said the Senate Finance Committee will conduct “a rigorous review of all aspects of the proposed budget through their public hearing process. “
“At this early stage, I am pleased that the budget proposal reflects some of the Senate’s top priorities,” he said. “The Senate will continue working with all partners and stakeholders to adopt a budget that meets the needs of all Rhode Islanders.”
House Speaker K. Joseph Shekarchi said lawmakers “look forward to working collaboratively with the Senate and Governor McKee over the next several months.”
“With the federal pandemic funds having been allocated, we must live within our means and carefully scrutinize all spending requests,” he said.
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com
