State budget officials are projecting that the government will enter the new year facing a fiscal 2027 budget deficit of $101 million.
For Rhode Island legislators, that’s considered good news.
An increase in estimated tax revenue and lower expenses for public assistance programs have slashed the state’s projected shortfall in half compared with the $237 million deficit that was looming just a few months ago, the R.I. Office of Management and Budget reported in December.
Now for the bad news.
Budget analysts are warning that Rhode Island’s structural financial problems haven’t gone away and could be exacerbated by deteriorating economic conditions and unprecedented federal funding uncertainty in Washington, D.C., that could leave thousands of state residents without health care and social services coverage.
Officials also cautioned that the state is still expected to spend tens of millions of dollars on new administrative, personnel and information technology costs, and they noted that the R.I. Office of Health Insurance Commissioner is seeking hikes in the rates the state pays to medical and social service providers.
With that sobering outlook, lawmakers are opening the 2026 legislative session on Jan. 6, preparing to debate budget priorities and tax policy, and whether additional steps are needed to address chronic shortages in housing and health care providers. Other recurring issues – state-sanctioned gambling, energy costs and public education funding – are also expected to resurface.
As usual, one of the most crucial challenges for legislators will be assembling a budget for fiscal 2027, which begins July 1.
Gov. Daniel J. McKee is scheduled to submit his multibillion-dollar budget proposal later this month, a thick document that lays out his administration’s priorities for the coming year.
Energy costs are likely to be a focal point. In November, after Rhode Island Energy proposed a base distribution rate increase, McKee argued that a $150 million ratepayer relief settlement the utility withdrew following opposition should be reconsidered by the R.I. Public Utilities Commission.
“Let me be clear,” he said. “The budget I will submit in January will deliver millions of dollars of permanent, meaningful energy savings for families and businesses across our state.”
How much of McKee’s proposal will survive legislative scrutiny by the end of June is an annual guessing game, but the gubernatorial race is sure to be a wildcard in the process this year.
The relationship between McKee and House Speaker K. Joseph Shekarchi – both Democrats – has largely been cooperative since McKee assumed office in March 2021, following Gina M. Raimondo’s appointment as U.S. commerce secretary. But John Marion, executive director of Common Cause Rhode Island, said that effort to get along may be tested this session, particularly with Shekarchi still flirting with the idea of throwing his hat into the ring for governor.
In late December, Shekarchi told Providence Business News that he has not ruled out a gubernatorial run and will make a decision in early 2026.
Lingering tensions between the executive and legislative branches over the handling of the Washington Bridge closure and reconstruction could add to the discord.
Meanwhile, it remains to be seen how the two chambers will interact under a new Senate president after several years of relative collegiality.
“While it appears that the relationship with the House and Senate is still quite good since the leadership transition in the Senate, Speaker Shekarchi’s potential candidacy may influence this dynamic,” Marion said.
The approaching elections may influence the legislative session in other ways, too.
Marion noted that election years often see more – and earlier – good-government legislation. Lawmakers, he said, want to campaign on public-interest measures and “aim to pass good government legislation before the campaign season heats up.”
For his part, Shekarchi told PBN that he remains focused on addressing the housing crisis and he intends to continue to act as a counterweight to the more progressive elements within his party, favoring a more pragmatic, incremental approach to policymaking and budget writing.
As for addressing the projected shortfall, Shekarchi repeated his favorite noncommittal refrain: “Everything is on the table.”
This is one area where Shekarchi aligns with Senate President Valerie J. Lawson, who was sworn in last April after the death of Dominick J. Ruggerio and now embarks on her first full session in charge. She also says everything is on the table this session, with plenty of question marks hanging over legislators.
Health care funding is one looming concern. Lawmakers are bracing for potential cuts to Medicaid and Affordable Care Act subsidies set to end, which could leave thousands of Rhode Islanders uninsured or facing higher costs.
Other proposals may include regulating pharmacy benefit managers, offering debt-relief incentives to recruit health care workers, and eliminating additional prior authorization requirements for services ordered by primary care providers.
Senate leaders are considering a workforce innovation center at the Community College of Rhode Island funded through a bond, along with a constitutional amendment guaranteeing K–12 education.
Meanwhile, a network of political action committees called the League of Rhode Island Businesses is trying to emerge as a new political force, vowing to back candidates in the fall who support “responsible governance and fiscal balance” this session, including eliminating the estate tax, providing retirement tax relief and enhancing competitiveness.
Marion questioned the group’s political alignment.
“They may endorse some Democrats, but it appears so far the money behind the effort is mostly from Republicans,” he said.
What matters are likely to draw attention in the business community over the next six months? Here are a few likely candidates:
[caption id="attachment_513016" align="aligncenter" width="1200"]
FUTURE PLANS: Senate President Valerie J. Lawson, right, talks in her Statehouse office about her vision for the 2026 General Assembly session, starting Jan. 6. With her is Senate Majority Leader Frank A. Ciccone III.
PBN PHOTO/MICHAEL SALERNO[/caption]
HOUSING
In recent years, the General Assembly has directed millions of dollars and a lot of attention in the form of policy changes toward the creation of more affordable housing, but the shortage persists.
Expect more action at the Statehouse this session, including the potential revival of controversial legislation that two years ago sparked heated debate between developers and urbanists looking to lower housing construction costs and firefighters worried about safety.
The proposed measure would have made it legal to build apartment houses up to six stories tall with one stairwell instead of two. Developers testified that such a move would make it easier to build more housing units, but fire officials argued that it would make it more difficult for occupants to escape a fire.
In the 2024 session, the measure passed the House but died in the Senate.
Now Shekarchi said legislation to ease staircase requirements for new housing could be back on the table for 2026. And so could bills to ease zoning laws restricting the number of residential units on particular lots.
There has been some pushback on the local front on some of the changes that have already been enacted.
At a December meeting of the Special Legislative Commission to Study Housing Affordability, Ashley Sweet, immediate past president of the Rhode Island Chapter of the American Planning Association, said city and town planners feel overwhelmed by the volume of new laws.
Many, she said, believe the state is “making changes faster than we can understand them.”
“The concern about overtaxing infrastructure is a real concern,” Sweet said. “We are now hearing there is reduction in the confidence in the public process.
“I’ve almost convinced myself it might be better to go in reverse order. To write the regulation at the local level to make it behave the way you want it to,” she said. “We are doing it at the enabling level and it’s coming down, and the clarity is not there.”
[caption id="attachment_513018" align="alignleft" width="387"]
A FACTOR: John Marion, executive director of Common Cause Rhode Island, says the fall elections will likely influence what happens in the 2026 legislative session.
PBN FILE PHOTO/MICHAEL SALERNO[/caption]
HOSPITALS
The state’s troubled hospitals are expected to be a major focus of Senate leadership.
The most pressing matter, according to Lawson: Keeping struggling Roger Williams Medical Center in Providence and Our Lady of Fatima Hospital in North Providence open.
But the leaders of both chambers don’t appear to be in agreement about how the state should handle the situation.
Both are major safety-net health providers in Rhode Island, and both are owned by Prospect Medical Holdings, which declared bankruptcy a year ago. Meanwhile, The Centurion Foundation, an Atlanta-based nonprofit, has been trying to purchase the hospitals and has struggled for months to secure the financing.
Lawson has suggested the state may need to acquire the hospitals outright to ensure continued operations.
“It is a focus of ours to have quality, affordable, accessible health care,” she said. “And those hospitals are woven into that.”
Shekarchi said discussions of state takeovers are premature.
“People are still waiting in emergency rooms for six to 10 hours,” he said. “But the role of state government is very minimal at this point. There might be a time where the state will have to step in and prop these systems up so they don’t close.”
[caption id="attachment_513017" align="alignright" width="366"]
BIG DECISION: House Speaker K. Joseph Shekarchi is still mulling over the idea of running for governor in the fall.
PBN FILE PHOTO/ELIZABETH GRAHAM[/caption]
MORE HEALTH CARE
Beyond the hospitals, legislators will get their fill of other health care issues in the 2026 session.
A special legislative commission spent more than a year exploring if it makes sense to establish a new medical school at the University of Rhode Island to solve the shortage of doctors locally by offering a more affordable alternative to the Warren Alpert Medical School at Brown University.
The idea to create the commission was championed by Ruggerio before his death last year. The commission was expected to issue a report and its final recommendations to the General Assembly by Jan. 2.
So far, Shekarchi has been noncommittal to the idea, noting that establishing a state medical school would take a lot of state dollars with no immediate effect. But in December, Lawson was already looking ahead, saying she hopes a new medical school could open by 2030.
Lawson is also looking to restart an effort to enact new regulations on pharmacy benefit managers – or PBMs – to help lower prescription drug costs, similar to regulations adopted in other states.
The tricky part: CVS Caremark, owned by Woonsocket-based CVS Health Corp., is one of the nation’s largest PBMs.
Last year, Lawson was among several senators who sponsored legislation that would have required more reporting and government oversight of PBMs, as well as banning “spread pricing,” a practice in which a PBM can charge a health insurer more for a prescription than it reimburses a pharmacy.
Both measures passed the Senate but fizzled in the House.
Senate leadership has also signaled it wants to build on legislation passed last year that prohibited health insurers from requiring prior authorization for care by a primary care provider, extending the protections to areas such as mental health. Some lawmakers have argued that prior authorizations can delay care and burden doctors with more paperwork.
Meanwhile, Economic Progress Institute Executive Director Weayonnoh Nelson-Davies said the federal legislation known as the “big beautiful bill” has “created conditions that exacerbate existing crises.”
Her organization is advocating state action to provide health care subsidies to roughly 50,000 Rhode Islanders expected to lose coverage and to replace food assistance for 14,000 residents at risk of losing Supplemental Nutrition Assistance Program benefits.
WEALTH TAXES
During last year’s attempt by some legislators to pass a so-called “millionaire’s tax,” the Rhode Island Public Expenditure Council released a policy brief arguing that by targeting the state’s highest earners, the state “would risk negative long-term consequences for state revenues and the economy, threatening business growth, philanthropic activity, and other tax payments associated with the state’s higher income taxpayers.”
The 3% surtax on those who earn above $625,000 a year would have brought in $190 million annually for the state, according to EPI’s analysis. Ultimately, the measure did not advance.
This time around, Lawson has backed higher taxes on the wealthy while Shekarchi has remained publicly noncommittal.
He has signaled that he’s keeping an open mind to income tax increases and has raised concerns about McKee’s proposal to eliminate taxes on Social Security income, which currently applies to residents earning more than $107,000 annually. The EPI estimates the change could cost the state $50 million per year.
SPORTS BETTING
New Senate Majority Leader Frank A. Ciccone III is intent on resuming his push to expand sports betting.
The R.I. Lottery is courting new sportsbook partners, including national heavyweights DraftKings and FanDuel, in a move that could reshape the state’s mobile sports betting market when its current contract expires in November.
In August, the Lottery received interest from eight firms seeking to enter the Ocean State’s market, which has been dominated by International Game Technology PLC’s RI Sportsbook app since online sports-betting launched in 2019.
Ciccone, who serves on the Permanent Commission for the State Lottery, said welcoming companies such as DraftKings could help generate more revenue. He said he routinely hears complaints from constituents who cross into Massachusetts to place bets unavailable in Rhode Island.
“I had a friend call me recently who was trying to collect $20 and was stuck,” Ciccone said. “He thought he crashed it.”
Last year, the Senate approved legislation that would have allowed other vendors to do business in the state, but it stalled in the House.
A Spectrum Gaming Group study commissioned by the Lottery has recommended that the state open its market to four to six online sports-wagering providers to raise revenue.
But it also cautioned that there would be limited interest from vendors because of the state’s 51% take of the revenue. Spectrum recommended lowering that rate and allowing online betting servers to be hosted outside of the state’s two casinos, where a company would have to pay a 17% hosting fee to Bally’s Corp. That would require a statewide vote to amend the state constitution, Spectrum said.
But Shekarchi has said he would only support expansion if legislation requires all new operators to pay the existing 51% tax rate.
