Let the jockeying begin: Revenue review identifies $58M more in state surplus funds

The conclusion of the state's Revenue & Caseload Estimating Conference found revenue projections for the fiscal year that ends June 30, 2024, were $47.7 million more than originally estimated and $9.7 million above expectations for fiscal 2025. (Getty image)

An extra $58 million is hardly pocket change.

But in the context of a proposed $13.7 billion fiscal 2025 state budget and a rapidly rising sticker price for the demolition and rebuild of the Interstate-195 westbound Washington Bridge, the surplus cash expected to pad out state coffers isn’t exactly a game changer.

Or at least, that’s how House Speaker K. Joseph Shekarchi, the puppet master on Smith Hill spending plans, viewed it.

The conclusion of the twice-a-year Revenue & Caseload Estimating Conference on Friday, May 10, showed revenue projections exceeding prior estimates for this year and next: up $47.7 million for the fiscal year that ends June 30, with an extra $9.7 million above expectations for fiscal 2025.

“I’m pleased that we are not facing a drop-off in revenues like other states,” Shekarchi said in an emailed statement on Monday. “However, these modest revisions need to be viewed within the context of the major budget proposals that are pending before us, as well as the many priorities not reflected in the Governor’s current proposal.”

Indeed, national economists and state business policy leaders warned that the end of pandemic-era federal aid and slowdown in state revenue growth will force tough choices in the years ahead, with a projected $244 million structural deficit in fiscal 2026. Meanwhile, the wish list of state spending items gets longer by the day: the state’s share of the Washington Bridge and relief for the businesses whose operations have been hurt by the limited access; the financially beleaguered state public transit system; and the worsening housing shortage and homelessness crisis. 

Both McKee and Senate President Dominick Ruggerio have suggested trimming the state sales tax as a way to make Rhode Island more competitive with its New England neighbors.

On May 2, Ruggerio introduced a bill calling for a .5-percentage point cut to the state sales tax, from 7% to 6.5%. The bill was referred to the Senate Finance Committee, a hearing for which had not been scheduled as of Monday.

“This is a concept the Senate President has long supported,” Greg Paré, a Senate spokesperson, said in an email Monday.

These modest revisions need to be viewed within the context of the major budget proposals that are pending before us, as well as the many priorities not reflected in the Governor’s current proposal.

– House Speaker K. Joseph Shekarchi

 McKee’s fiscal 2025 budget proposal does not include any reductions in state sales tax — instead it’s listed as a wish list item in case there’s extra money — but he unsuccessfully floated a .15-percentage point reduction last year.

Cutting the sales tax by half a percent translates to $120 million a year in forgone revenue, according to calculations from the Rhode Island Public Expenditure Council. 

Ruggerio also stressed the importance of balancing “competing priorities” when asked about the latest revenue estimates.

“I am encouraged by the caseload and revenue estimates, particularly in light of the challenges many other states are facing,” Ruggerio said in an emailed response. “The Senate Finance Committee has been reviewing all aspects of the budget, as well as other legislative priorities that have a fiscal impact.”

As for McKee:

“This forecast presents us with an important opportunity to strategically invest the additional revenue to address our current fiscal responsibilities rather than creating new programs that cause out-year budget deficits,” Olivia DaRocha, a spokesperson for the governor’s office, said in an email Monday.

The $5.37 billion in state revenue expected for fiscal 2024 under the latest estimates reflects higher income from state business utility, banking and insurance taxes, up $88 million compared with a year ago. However, this was partially offset by a $68.7 million downgrade to expected personal income tax revenue.

Sales and use taxes beat prior estimates by $11.4 million, while lottery revenue will now be $8 million less than expected.

Looking ahead to fiscal 2025, state budget analysts expect $5.46 billion in revenue, a $9.7 million boost over prior calculations. That again includes stronger business corporation tax revenue, up $30.7 million, and a $19.5 million boost from sales and use taxes. However, personal income tax revenue is again expected to come in lower than previously expected, down $53.6 million over prior expectations.

The Rhode Island House is expected to unveil its own version of a fiscal 2025 spending plan in the coming weeks, with a final budget approved by both chambers and the governor no later than June 30.

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