RIPEC Blames RI’s $300M Deficit on Use of One-Time Revenue for Reoccurring Costs
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RIPEC Blames RI’s $300M Deficit on Use of One-Time Revenue for Reoccurring Costs
The state's projected deficit is now over $300 million.
The RIPEC report is critical of both the governor's and the legislature’s budget strategy. But regardless of the strategy, the final budget passed by the legislature and signed by Governor Dan McKee was propped up by the remaining federal COVID dollars.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe report finds that the primary driver of the projected deficit for FY 2026 is the use of substantial one-time revenues to pay for recurring expenditures in the current FY 2025 budget.
In RIPEC’s May 2024 report on the governor’s proposed FY 2025 budget, the organization warned of the use of one-time revenues as contributing to the sizable structural deficit. But the legislature paid little attention to RIPEC’s warning.
Despite the availability of substantial additional revenues, the funding gap was not substantially improved in the final enacted budget for FY 2025.
RIPEC’s report explores the magnitude and causes of the state’s projected funding gap for FY 2026 and analyzes the major drivers of the deficit. The report finds that the funding gap, identified by the state budget office in October 2024 as having ballooned to nearly $400 million, is now approximately $300 million as a result of projected revenue and expenditure adjustments determined at the state’s November Estimating Conferences.
“While the financial outlook for the FY 2026 budget has improved, the projected funding gap of about $300 million is very problematic, representing more than five percent of the current level of state spending,” said Michael DiBiase, President and CEO of RIPEC. “After years of abundant federal funding and large state surpluses, the governor and General Assembly must now closely evaluate spending to bring expenditures in line with available resources.”
The report finds that the primary driver of the projected deficit for FY 2026 is the use of substantial one-time revenues to pay for recurring expenditures in the current FY 2025 budget. In its May 2024 report on the governor’s proposed FY 2025 budget, RIPEC highlighted the use of one-time revenues as contributing to the sizable structural deficit. Despite the availability of substantial additional revenues, the funding gap was not substantially improved in the final enacted budget for FY 2025.
Human Services Spending Are Growing at Twice the Rate of Resources
RIPEC also found other drivers of the projected deficit, with state spending on health and human services representing the greatest challenge. Spending in this area is projected to grow at rates more than twice the rate of available revenues, with Medicaid, the largest component of spending in this area, projected to increase by about 6.5 percent in FY 2026, despite only a modest expected increase in enrollments. The report found the details underlying the assumptions for projected increases in Medicaid spending to be unclear.
State spending on K-12 education is another major contributor to the projected deficit. Driven almost entirely by inflation factors in the funding formula, K-12 expenditures are projected to grow in FY 2026 by 4.6 percent, significantly exceeding the projected growth rate of general revenues (2.5 percent). Despite the continuing generous growth in state K-12 education aid, RIPEC found that the allocation of funding has become less equitable over time, with urban core districts receiving a smaller proportion of additional state funding over the past four years.
Spending on state personnel is also a significant contributor to the projected budget deficit for FY 2026 as a result of COLA increases beginning in FY 2025 that were not funded in the FY 2025 budget. While a driver of the deficit in the short term, personnel expenditures are not projected to exceed the rate of revenue growth in the future, although such projections do not include the financial impact of future collective bargaining agreements.
“The large budget deficit projected for the FY 2026 budget represents a spending problem—state revenues are increasing roughly at the rate of inflation,” said DiBiase. “Faced with fiscal constraint for the first time in several years, policymakers should now focus on evaluating the effectiveness of program expenditures.”
RIPEC’s report noted the state uses elements of evidence-based decision-making throughout its budget process and that the state approach has been highlighted by national studies as a positive example of performance-based budgeting. However, it is unclear to what extent these elements inform funding decisions.
Based on the report’s findings, RIPEC has made the following recommendations:
• The Assembly should curtail spending growth and limit the use of one-time revenues to pay for recurring expenditures.
• Policymakers should focus on better managing the growth of health and human services spending.
• Policymakers should pursue comprehensive school funding formula reform to make spending more sustainable and equitable.
• Expenditures on personnel should be closely monitored to ensure that spending does not contribute to future deficits.
• Policymakers should focus on evaluating programs, including through more robust and transparent performance management.