Call it an outsized example of finding spare change between the couch cushions.
Extra revenue and lower expenses for Medicaid services and government agencies have shrunk Rhode Island’s projected fiscal 2027 deficit by more than half, according to new estimates published by the R.I. Office of Management and Budget on Dec. 17.
The Most Undervalued Asset in Business: The Right Connection
By Emilio DiSpirito IV License Partner | Private Office Advisor Engel & Volkers Oceanside www.DiSpiritoteam.com…
Learn More
Budget crunchers now expect a $101 million deficit now forecast for the fiscal year that starts July 1, versus the $237 million gap projected six months ago.
What changed?
The improved outlook reflects a variety of increases in revenue and decreased expenses. Among them: nearly $54 million in increased tax revenue for fiscal 2026 and fiscal 2027 combined, based on new estimates adopted at the biannual November Revenue and Caseload Estimating Conference. The same weeklong review of the government ledger also cut state expenses for medical and cash assistance programs for low-income residents, along with support for people with disabilities, by more than $56 million.
This is primarily because of federal budget cuts under H.R. 1 which will kick 33,500 Rhode Islanders off of Medicaid by the end of next year due to stricter eligibility rules, according to estimates from the R.I. Executive Office of Health and Human Services.
Add in an extra $20 million more from fiscal 2025, identified as surplus in audited closing statements completed in October, and a $10 million drop in expected government spending for fiscal 2026, and the state’s financial future is looking up, even after transferring an extra $4.2 million to the reserve fund.
But, the rosy picture might be fleeting.
“While the November updates improve the fiscal picture for FY 2027, Rhode Island’s structural budget challenges persist,” the report states. “Economic conditions and federal budget uncertainty present additional risks. Delays in Congressional appropriations, recent federal shutdown activity, and continued review of federal grant programs heighten the possibility of further impacts on State revenues and expenditures.”
Indeed, overhauls to federal programs like Medicaid, the Supplemental Nutrition Assistance Program and the Affordable Care Act, alongside bigger business tax breaks, are expected to have major financial impacts for Rhode Island through the end of the decade, according to a series of state reports published in October.
Many of the changes don’t take effect for several years. However, the wallet strain starts now.
But state budget analysts predict spending “tens of millions” in new administrative, personnel, and IT costs starting in fiscal 2027 as they work to comply with new federal mandates to reduce SNAP error rate.
Meanwhile, year-end expiration of federal subsidies under the Affordable Care Act are expected to reduce participation in the state health exchange by 13,000 people, in turn shrinking the revenue used to support HealthSource RI’s operations.
At the same time, the R.I. Office of the Health Insurance Commissioner called for multiyear hikes to Medicaid reimbursement rates for medical and social service providers to account for inflation, which could add “significant increases” for the state through fiscal 2028, according to the budget report.
Together, federal changes and state Medicaid rates could grow the projected fiscal 2027 deficit by $55 million to $70 million, according to budget analysts.
“These items will be incorporated into the deficit forecast through the upcoming budget process as more information becomes available,” the report states.
The financial forecast will form the basis for Gov. Daniel J. McKee’s proposed fiscal 2027 budget, expected to be unveiled publicly in mid-January. Lawmakers will then spend the next six months reshaping the tax and spending plan before a final version is approved in time for July 1.
“While the reduced deficit projection is a positive development, the challenge remains the same: Providing relief to Rhode Islanders amid persistent inflation and protecting access to critical healthcare supports despite changes at the federal level,” Olivia DaRocha, a spokesperson for McKee’s office, said in an emailed response Friday. “The Governor continues to work closely with the Office of Management and Budget to develop a balanced budget that meets these goals.”
Larry Berman and Greg Pare, spokespeople for House Speaker K. Joseph Shekarchi and Senate President Valarie Lawson, respectively, said the revisions don’t affect how legislative leaders will approach the 2026 legislative session.
“The report identifies tens of millions of dollars not yet reflected in the total,” they said in a joint emailed statement. “Rhode Islanders are facing many challenges, some stemming directly from actions at the federal level. State government will be under pressure to address these challenges while also addressing its own ongoing budget shortfalls, some of which are also related to federal legislation.”
Nancy Lavin is a staff writer for the Rhode Island Current.
