PROVIDENCE – Seeking to “right-size” state government, Gov. Daniel J. McKee on Thursday released his $14.2 billion spending proposal for the next fiscal year, attempting to bring rising costs to fund operations more in line with the lagging year-out revenues needed to pay for them.
The total budget proposal is an increase of $252.8 million over the current budget. Of this total, $5.743 billion is from general revenues.
The budget also includes new taxes to increase revenues, combined with reductions or consolidations in state office space, and initiatives to increase tax compliance.
During a briefing on Thursday, Brian Daniels, director of the R.I. Office of Management and Budget, said steps must be taken to close the deficit. State projections show a $250 million budget deficit in fiscal year 2026, with spending expected to increase 3.7% on average over the next five years and revenues expected to grow by 2.5%.
Characterizing the tax and spending plan as one that “bends the cost curve,” state fiscal managers were instructed to find ways to control expenditures rather than search for new revenue sources, he said.
“The solution was not necessarily bottom-line cuts,” he said. “This mismatch [between revenues and expenditures] was the reason for the structural imbalance we are facing.”
Though McKee’s budget is clear of “broad-based” tax increases as promised during his State of the State address, the proposal is not free of new taxes.
The proposal includes an $150 fee to register electric vehicles and $75 for plug in-hybrids, which would bring in $1.7 million in fiscal year 2026 and increase to $5.3 million in fiscal year 2027.
The executive summary states that
“While the administration encourages the adoption of alternatives to gas-powered vehicles, it understands that all vehicles – regardless of their power source – impact our roads and bridges and should contribute to their upkeep.
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There is also a proposed 5% tax on the short-term rental of entire homes, which currently only applies to single rooms or hotels, projected to generate $2.1 million over the last six months of fiscal year 2026 and $4.7 million in fiscal year 2027.
If enacted, the proposed budget would also increase the real estate conveyance tax paid for properties more than $800,000 to 1.25%, up from the .92% assessed currently, generating an additional $2.3 million in 2026 and $3.4 million in fiscal year 2027.
The truck tolls are also returning, though the administration did not provide an estimated start date. But the plan assumes $10 million in partial revenue in fiscal 2026 and $40 million for the first full year in 2027.
There would be a 10% tax on digital advertising for companies with more than $1 billion in annual revenues, such as Google and Facebook, subject to all sales done in Rhode Island, which would generate $9.5 million in fiscal year 2026 and $19.6 million in fiscal year 2027.
To address the shortage of pediatricians and primary care doctors, McKee is proposing $400,000 to create a Health Professional Loan Repayment Program for those who commit to practicing in Rhode Island for at least two years. And including primary care provider rates as part of the Office of the Health Insurance Commissioner’s biennial review.
Cost-savings were also identified among the various leases now being paid to house state agencies, such as the $75,000 paid annually by the Executive Office of R.I. Commerce Corp. and the $200,000 to house the R.I. Commission on Human Rights.
Using R.I. Capital Plan funding to eliminate interest payments, the state would purchase the Citizens Bank building in East Providence to create a new facility for 800 employees. Daniels said negotiations with the bank are ongoing but that the administration is budgeting $31 million for the purchase price, as well as architectural, engineering and construction costs to prepare the space for the move.
The budget would also bring both the R.I. Department of Environmental Management and the R.I. Office of Energy Resources under one roof – saving at least $2.6 million in rent payments annually – move the Executive Office of Commerce to the R.I. Commerce Corp. headquarters; and move the R.I. Department of Human Services out of the Pastore Campus in Cranston.
All told, the office space consolidation would break even in five years, said Daniels.
Other cost-saving measures include increasing staff resources dedicated to addressing waste, fraud and abuse, funding four new positions within the Executive Office of Health and Human Services and two within the Office of Internal audit, saving an estimated $2.43 million.
Asked how a proposal being characterized as one they claim trims unnecessary expenditures can come in higher than the current budget, Cordega said as much as two-thirds of the state budget is driven by federal entitlement mandates outside of its power.
“So much of our budget is driven by grants, benefits, and entitlements. That is one of the challenges,” he said. “If someone signs up for these programs, they are entitled to the programs. So, it was incumbent upon us to look at things more under our control.”
Other items included in the proposal:
- Consolidate the Adult Correctional Institution's minimum and medium security prisons, with an estimated saving of $6 million over two years
- Extending the number of years that eligible businesses can use the Research
and Development Expense Tax Credit from seven to 15
- Ending the occupation fees paid by businesses to municipalities that operate out of private residences
- Increase Medicaid rates for nursing homes and hospitals by 2.3%
- Increase the per-pack cigarette tax by 50 cents
- Reduction of contracted services
- Allowing the R.I. Division of Taxation to match data with financial institutions to increase compliance, projected to collect an additional $3 million in fiscal 2026 and $8 million in fiscal 2027
- Make the RhodeRestore initiative permanent
(UPDATE: Clarifies purchase plan for Citizen's Bank Building in 16th paragraph)
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
