PROVIDENCE – Spending is relatively restrained following a period of extraordinary growth, however expenditures rely on a new "millionaires tax," The R.I. Public Expenditure Council concluded Thursday in its analysis of. Gov. Daniel J. McKee’s $14.86 billion fiscal 2027 budget proposal.
“With federal aid and state revenue growing at a relatively stable rate, state policymakers should consider the risks to the state’s competitiveness that would result from imposing a 50% tax increase on high-earning individuals and businesses,” said Michael DiBiase, RIPEC's CEO and president. "Instead, the state should be scrutinizing the return on investment of the extraordinary increase in state tax dollars and spending that have accumulated over the past several years."
Last April, RIPEC published a policy brief finding that a sharp increase in taxes on the state’s higher earners would risk negative long-term consequences for state revenue and the economy
If enacted, the governor's proposed millionaires tax rate of 8.99% on income exceeding $1 million would be the eighth highest top income tax rate among U.S. states and “would essentially match” the 9% rate in Massachusetts for the highest rate in New England.
Under McKee's proposal, state general revenue spending is projected to grow by 2.5% over the current budget. In comparison, the current budget authorized a 10.9% increase in state general revenue spending over the past two years.
Spending from all sources in the governor's spending plan would rise by 3.6%, driven by a surge in federal aid, which is expected to increase by 7.8% over the level in the current enacted budget.
“Gov. McKee deserves credit for a spending plan that moderates the rate of state spending growth after a period in which expenditures have been growing at a relatively high rate,” DiBiase said. “However, while there have been major changes in federal programs like Medicaid and SNAP, expenditures from federal sources continue to expand substantially under the governor’s proposal.”
Estimated out-year deficits have been reduced over the next two fiscal years but grow faster in later years, rising to $537 million in fiscal 2031. These deficits are driven by the use of one-time surplus revenue and projected expenditures outpacing state revenue, according to RIPEC.
General revenue is projected to grow by 8.7% over the next four years, while expenditures are expected to increase 16%, mostly due to growth in assistance and grants spending, primarily in health and human services.
The lower growth in federal Medicaid spending is expected to be lower than the accelerated rate of growth seen in the last several years, primarily due to eligibility changes included in H.R. 1.
But state spending on Medicaid is still increasing at about the same pace as state spending overall in the proposed budget, according to RIPEC's analysis.
As for the proposed bond package totaling $600 million, which would be the largest in the state’s history, DiBiase said the level of borrowing “deserves scrutiny by the General Assembly” because it follows several years where the state has reduced its debt burden in relation to personal income and general revenue.
“The governor’s proposed bond package would appear to reverse this trend,” he said.
Christopher Allen is a PBN staff writer. You may contact him at Allen@PBN.com.
