Chicken Little and the elephant in the room: Is the revenue sky really falling?
As we approach the end of the 2017 General Assembly, there remain looming fiscal questions that will require the right balance of prudence and courage, and an understanding of the political and economic forces in which Rhode Island finds itself.
With the release of each monthly revenue update, the fate of some of the more ambitious budget proposals advanced by the governor and legislative leaders seem less certain. The May Revenue Estimating Conference revealed a revenue shortfall of about $60.1 million for the current fiscal year, and a shortfall of $39.5 million for fiscal 2018.
While those projected shortfalls are significant, and appropriately give our elected officials pause as they consider this year’s budget proposals, it is important to keep these figures in perspective. They represent revisions of just 1.6 percent and 1 percent, respectively, of previous revenue projections.
It’s important to recognize that Rhode Island is far from unique in facing fiscal challenges. The Center on Budget and Policy Priorities noted in a paper released at the end of March that “all told, two-thirds of the states are facing or have addressed revenue shortfalls this year, next year, or both.”
In neighboring Connecticut, they are facing a $394 million revenue shortfall this year (2.2 percent of general-fund revenue), followed by a 12.8 percent shortfall in fiscal 2018. Massachusetts has a $462 million revenue shortfall this year (1.8 percent of general-fund revenue).
One of the most troubling dimensions of the situation in which we find ourselves is that the revenue shortfalls we’re seeing in the Ocean State are not the result of a weaker-than-anticipated economy. In fact, the economy has fared noticeably better than predicted by the consensus economic forecast adopted during the November Revenue Estimating Conference.
It is this disconnect between an economy faring better than expected and state revenue faring weaker than expected, that has economists and forecasters stymied. This situation further highlights the need to modernize our tax system, to ensure that as our economy grows, the revenue we need to make the investments that lead to continued (and shared) prosperity grow in lockstep.
Of course, there’s a large elephant in the room in these state-level discussions of our fiscal health. While shortfalls in general revenue totaling $100 million cause considerable angst, the portion of Rhode Island’s budget dependent on federal revenue, accounting for nearly one-third of our total budget ($3 billion in fiscal 2017), is very much in jeopardy in the years going forward. The president’s budget proposal would decimate the safety net that helps thousands of Rhode Islanders make ends meet, including slashing funding for Medicaid.
With these new sources of uncertainty weighing on this year’s budget process, it is more important than ever that the people crafting Rhode Island’s fiscal 2018 budget ground those difficult choices in our collective values and aspirations. All Rhode Islanders share a vision of what the Ocean State should strive for: great schools for our children, vibrant communities and prosperous families.
We must deploy all the tools at our disposal to make sure we have the revenue needed to make progress toward our shared vision, by overcoming the challenging realities of projected shortfalls and looming federal cuts.
Douglas Hall is director of economic and fiscal policy at the Providence-based Economic Progress Institute.
