RIPEC report warns of increasing general revenue spending trend

PROVIDENCE – The Rhode Island Public Expenditure Council is warning state policymakers about an increasing trend in general revenue spending, while calling for the avoidance of spending one-time federal COVID-19 relief dollars on recurring expenditures.

RIPEC released an analysis of Gov. Daniel J. McKee’s proposed $12.8 billion fiscal year 2023 budget to Providence Business News on Wednesday, noting that the governor’s proposal is 34% larger than the enacted 2019 state budget. The RIPEC report is the sixth in a series that presents analysis of the state’s finances since onset of the pandemic.

The report said that while the budget increase is primarily driven by an infusion of federal funds, proposed general revenue spending of $4.7 billion represents an increase of 4% over fiscal 2022. It also noted that the state’s average annual increase in general revenue spending of 5.3% between 2019 and 2023 is markedly higher than the 3.5% annual growth rate averaged from 2014 to 2019.

“Rhode Island’s state budget situation has been dramatically affected by the COVID-19 pandemic over the past three fiscal years,” said Michael DiBiase, President and CEO of RIPEC. “With higher than-anticipated revenue projections and unprecedented levels of federal funds available, the state should avoid spending one-time funds on recurring expenditures and minimize the structural deficit going forward.”

- Advertisement -

DiBiase said RIPEC urges the state’s policymakers to tackle longstanding issues like the embattled Eleanor Slater Hospital and K-12 educational system and increase the rainy-day fund. RIPEC also said the state needs to temper general revenue spending going forward, as it is likely unsustainable.

RIPEC offered the following recommendations for policymakers to chew over:

  • Avoid spending beyond available revenues and minimize the structural deficit going forward
  • Spend one-time federal funding on one-time items and prioritize investments that produce long-term savings or could stimulate economic growth
  • Focus on directing $646 million in federal funding for K-12 education to improve student outcomes
  • Resolve spending issues associated with Eleanor Slater Hospital, as it represents the most troubling spending issue in the state budget
  • Consider increasing the rainy-day fund and R.I. Capital Plan Fund
  • Seek to improve the state’s business tax climate, which was ranked 40th nationally by the Tax Foundation, and resist efforts to increase taxes

The report said proposed expenditures from the $1.24 billion in American Rescue Plan Act funds between 2022 and 2027 included in McKee’s proposed fiscal 2023 budget are one-time investments well-suited for one-time allocations.

The council warned some proposed ARPA spending items that have already been approved by the General Assembly which might require general revenue commitments in future budget years are not included in McKee’s 2023 proposal.

On Jan. 4, the R.I. General Assembly approved allocation of $12.5 million in ARPA funding to fund pay increases to 1,500 direct care workers providing services for the Department of Children, Youth and Families, and $11 million for stabilization grants and performance bonuses for Early Intervention providers. Neither item is included in McKee’s proposed 2023 budget, but they could prove difficult to reverse going forward, the report said.

RIPEC noted that the budget includes a projected deficit for fiscal 2024 of $215 million, and although more recent revenue projections suggest the deficit will be smaller, the gap is likely to be significant with a potential increase if one-time spending items require further general revenue commitments.

A concern is that roughly $118 million of the projected general revenue surplus of $618 million is proposed to fund continuing expenditures, which could lead to a potential structural deficit in future years.

RIPEC’s report said the budget calls for the surplus to fund several initiatives, including $210 million allocated for the R.I. Capital Plan Fund for deferred maintenance of buildings and facilities.

Combined with other RICAP funding, the surplus would fund construction of a new Zambarano medical hospital in Burrillville at a cost of $108 million, as well as upgrades to the Cranston-based Pastore Campus at $121 million, the Statehouse at $45 million, and state-run group homes at $13 million.

RIPEC is a nonpartisan, nonprofit research organization that provides economic analysis of public finance policy in Rhode Island.

Cassius Shuman is a PBN staff writer. Contact him at Shuman@PBN.com. You may also follow him on Twitter @CassiusShuman.