The future looked encouraging for Karen Santilli just a few months ago.
In mid-January, Gov. Gina M. Raimondo released a $10.2 billion fiscal 2021 budget plan that was stocked with new programs fed by a healthy economy, including a proposal to a create a permanent funding source for affordable housing – an initiative Santilli has been fighting for as director of Crossroads Rhode Island.
But now, after two months of an economic shutdown to fend off the coronavirus pandemic that has cost the state hundreds of millions in revenue, the housing initiative and much more in Raimondo’s budget proposal are in doubt.
Despite that, Santilli isn’t about to let it go.
The pandemic has made housing more critical than ever, she argued recently. “More than ever before, people who haven’t traditionally talked about housing, they’re talking about housing,” she said.
Santilli is just one of many advocates for organizations and communities who are preparing to make a stand for their cause in the coming weeks as Raimondo and state lawmakers begin the grim task of hacking their way through one of the most difficult budget dilemmas in recent Rhode Island history.
For these advocates, it may not be a lost cause, but it isn’t promising.
Raimondo has predicted the budget process will be “brutal.”
And while she’s held off handing out pink slips to state employees so far because she doesn’t want to add to the state’s skyrocketing unemployment claims, the governor has said it may be impossible to avoid furloughs.
“It’s going to be their hardest budget, by far, [that] any of us have had to manage through,” she told reporters earlier this month. “Everything is on the table.”
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WIELDING A KNIFE: State Sen. William J. Conley Jr., chairman of the Senate Finance Committee, will be a key decision-maker during the state budget process. He says state leaders must avoid making cuts with “a bushwhacker’s machete.” / PBN PHOTO/MICHAEL SALERNO[/caption]
HOW BAD IS IT?
The full extent of the financial damage to the state will not be known for months.
State budget officials completed their estimate of the state’s finances on May 8. But because the payment deadline for both federal and state income taxes has been extended until July 15, the true size of the revenue loss can’t be calculated until the summer.
But officials estimate Rhode Island could lose nearly $800 million in revenue between the current fiscal year, which ends June 30, and next fiscal year. The estimate assumes that Rhode Island won’t be able to open its casinos – which provide about $30 million a month – until June at the earliest.
Another wild card: federal government aid.
Although the state has already received $1.25 billion in federal funds for COVID-19-related expenses, the money cannot be used to backfill holes in the state’s budget.
Raimondo, on a call with reporters and the state’s congressional delegation in late April, said the funds can be used for direct and indirect spending related to COVID-19. That would include money for acquiring medical supplies and equipment, to create and staff hospital facilities, additional funds for nursing homes and for temporary supplemental pay for those workers. Education aid, small-business support and worker retraining should be able to be sourced through the funds, Raimondo said.
“A billion-and-a-quarter dollars is a lot of money to help the people of Rhode Island get through this,” she said.
Hospitals should be able to receive funding from the state’s share of the federal stimulus, to offset their significant losses due to the lack of nonessential surgeries, as well as additional funds for public safety needs borne by cities and towns.
But the flexibility has limits.
U.S. Sen. Jack Reed, D-R.I., who was a negotiator on the package, told reporters he tried unsuccessfully to persuade U.S. Treasury Secretary Steven Mnuchin to allow states to use some of the federal stimulus to compensate for lost revenue. “I’ve had direct arguments with him, on the phone with him, that he’s wrong. But he’s the secretary of the treasury and he’s maintaining that,” Reed said.
With so many question marks, Raimondo has been hesitant to get specific about her budget plans.
“Here’s the problem: We’re not going to have any clarity until probably Memorial Day or the first week of June, from the federal government on what the next stimulus is going to look like,” Raimondo said. “We need to figure it out.”
SPEAKING OUT
Some groups with funding on the line aren’t waiting.
The United Way of Rhode Island banded with Crossroads Rhode Island, Housing Works RI at Roger Williams University and others for a “digital press conference” earlier this month in show of solidarity for “housing investments” to remain in the state budget.
And the Rhode Island League of Cities and Towns issued a news release outlining priorities in the state budget for communities, including a “continued commitment” for the state to maintain levels of municipal and education aid.
At the same time, local leaders have been trying to apply their own pressure.
Cranston Mayor Allan W. Fung said he remembers the state making drastic cuts to aid during the Great Recession a decade ago.
“We can’t go back to doing that again,” he told PBN.
He has already released a Cranston budget proposal that cuts 15 unfilled jobs and anticipates 20% less in local hotel taxes. The state is in tough shape but can’t short-change cities and towns, Fung said.
“As city and town leaders, we need to safeguard a lot of the vital services and protect our local taxpayers,” he added.
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GOING DOWN: The Rhode Island Revenue Estimating Conference recently revised its November estimates of state revenue for this fiscal year and the next one, which begins July 1. Because of the coronavirus crisis, budget officials expect significant decreases in the three biggest sources of revenue: personal income taxes, sales and use taxes and lottery revenue. The estimated shortfall is nearly $800 million.
SOURCE: Rhode Island Revenue Estimating Conference[/caption]
NO NEW TAXES?
House Speaker Nicholas A. Mattiello, D-Cranston, has already asked Raimondo to start from scratch and cobble together an entirely new budget proposal for next fiscal year.
“The platform on which the original budget was based is no longer in existence,” he said.
Mattiello did not respond to an interview request from PBN, but he’s also let it be known what he won’t want to see in the new plan:
In an interview with Laurie White, president of the Greater Providence Chamber of Commerce, Mattiello said he would oppose any increase in personal income taxes to generate additional funds for the budget.
And he said he would not support an end to the phaseout of the automobile excise tax, which he promised supporters in his 2018 reelection.
While he’s concerned about the immediate spending issues, he said he’s more worried about the greater economy.
“I’m concerned with every business that’s struggling because of this virus,” Mattiello said. “You can’t ask someone who’s struggling to pay more just because you need more. I think you leave the taxation pretty much where it is. We cannot tax our way out of this as a state.”
At the same time, the crisis hasn’t swayed him to support legalizing recreational marijuana, and he doesn’t think the state should be running its own marijuana retail stores. “We really shouldn’t create new programs for a little while,” he said. “Get back to basics and build out from there.”
Through a spokesman, Senate President Dominick J. Ruggerio, D-Providence, declined a request for an interview.
But in a talk with White, he said it’s possible that lawmakers wait to approve a new budget beyond July 1 to get a clearer idea of the federal relief the state could receive. “What we really should be doing right now is focusing on getting people back to work. That will help,” he said.
When asked what will happen if the federal government doesn’t provide additional help and the budget can’t be balanced, Ruggerio said, “We would have to make some very difficult choices. Furloughs, that might be a choice. We just don’t know at this time. This is uncharted waters.”
LOOKING AHEAD
Michael DiBiase, CEO and president of the Rhode Island Public Expenditure Council, said he understands the immediate concern for people affected by the pandemic and the business closures, but the state must also keep its eye on the future.
“One of the points we tried to make is people should be thinking more about investment and not just showing the holes,” he said, referring to a recent RIPEC report on the crisis. “How can we use this federal money … to help the state reposition? Obviously, you need to take care of the people who are hurting. But is there an opportunity to do some other things?”
If the state can get the strings untied on the federal stimulus of $1.25 billion, that will go a long way, said DiBiase, a former director of the R.I. Department of Administration.
The federal funds also include money for education, which doesn’t have as many restrictions. “We received a windfall amount,” DiBiase said. “It’s nearly three times what we would have received if it was on a per-capita basis.”
As part of the state’s budget preparation this month, economists reported on both the state and federal landscape, through March, just as the coronavirus pandemic was hitting and unemployment claims were rising fast.
“What are the implications? The short answer to that is Rhode Island has plunged into recession,” said economist Michael Lynch of IHS Markit Ltd.
His analysis projected as much as 16% unemployment by June, with a rebound starting late this year.
Despite what is expected to be a gradual easing of crowd-size limits by the state – which Raimondo has said could begin this summer – Lynch said consumers are probably going to be cautious about reentering stores.
“Businesses, also, if they have the option to reopen, are cautious about doing so until they know if they can expect customers and income that will make their business worthwhile,” Lynch said.
University of Rhode Island economist Leonard Lardaro found that report too optimistic.
He released his own analysis the following week, which put the unemployment rate at around 20%.
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‘It’s going to be their hardest budget, by far, [that] any of us have had to manage through. Everything is on the table.’
GOV. GINA M. RAIMONDO / PBN FILE PHOTO/MICHAEL SALERNO[/caption]State officials who are crafting a new budget must start from scratch, he suggested.
“They have an almost impossible task; to forecast six months to two years out is virtually impossible,” he said. “There is so much we don’t know and can’t know.”
In the short term, Lardaro said, the state should end its phaseout of the car tax. That would immediately recapture at least $100 million this year, the amount provided for car-tax relief in Raimondo’s budget.
“End it now,” he said. “You save a whole bunch of money. [Mattiello] feels strongly about it. But maybe, just maybe, the realities of the budget will force us out of that.”
‘SURGEON’S SCALPEL’
State Sen. William J. Conley Jr., D-East Providence, chairman of the Senate Finance Committee, knows the difficult job ahead.
“Out of necessity we are going to need to cut expenditures,” Conley said. “We need to make those cuts with a surgeon’s scalpel, not a bushwhacker’s machete. We can’t essentially pass a budget that inflicts greater harm on the economy. We need to protect those parts of the budget that generate economic activity, promote consumer confidence, help our small businesses recover.”
He said he isn’t sure what the new budget realities mean for initiatives such as the affordable-housing proposal backed by Santilli and other advocates for the homeless.
“There is almost universal agreement we have an affordable-housing challenge in Rhode Island,” Conley said. “It was a crisis before COVID-19. It needs to be addressed … [but] the reality is, we’re starting from scratch on a budget right now. We have to.”
Mary MacDonald is a PBN staff writer. Contact her at Macdonald@PBN.com.
Cut every single cent that goes to illegals. Take care of law-abiding Rhode Islanders.