Taveras: Providence ended 2013 fiscal year with $1.6M surplus

January 13th, 2014 at 5:47 pm by under Nesi's Notes

By Dan McGowan

PROVIDENCE, R.I. (WPRI) – Providence is still living “paycheck to paycheck,” but Rhode Island’s capital city ended the 2012-13 fiscal year with a small surplus, according to the city’s annual audit released Monday.

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Moody’s criticizes Providence (and Taft-Carter) for $15M deficit

January 18th, 2013 at 12:12 pm by under Nesi's Notes, On the Main Site

Moody’s Investors Service is criticizing Providence leaders – and, implicitly, Superior Court Judge Sarah Taft-Carter – for running a $15 million operating deficit during the 2011-12 fiscal year, but softened its criticism based on other steps the Taveras administration has taken.

“The shortfall is credit negative as the city’s financial position has weakened considerably over the past four years,” Moody’s analyst Vito Galluccio wrote in a note to investors. “However, its balanced budget for [fiscal] 2013 indicates some progress toward restoring fiscal stability.”

Galluccio cited two big drivers of the $15 million operating deficit: Taft-Carter’s mathematically flawed ruling last year that the city didn’t need to move its retirees to Medicare, and various types of tax revenue failing to meet the city’s projections. The deficit would have been even larger if the city hadn’t shorted its 2012 contribution to the Providence pension fund by $5.4 million, he said.

“The 2012 results follow several years of operating deficits that have left the city in a precarious financial position,” Galluccio said. He blamed the fiscal crisis on a $125 million reduction in state aid during former Mayor David Cicilline’s second term and “rapidly growing expenditures related to employee salaries and benefits.”


A roundup of RI leaders’ reactions to Chafee’s budget speech

January 17th, 2013 at 5:00 am by under Nesi's Notes, On the Main Site

​By Dan McGowan and Ted Nesi

PROVIDENCE, R.I. (WPRI) – The reaction to Gov. Lincoln Chafee’s budget proposal Wednesday night was very different from the response to his first two. Here’s a roundup of reactions from Fox, Paiva Weed, Raimondo, Taveras, Fung, Melo, DaPonte, Newberry and Tanzi.

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• Related: Chafee seeks lower corporate tax rate, more school funding (Jan. 16)

Analysis: ‘Read my lips, no new taxes,’ Chafee says in budget

January 16th, 2013 at 7:01 pm by under Nesi's Notes, On the Main Site

• Overview: No tax hikes in Chafee budget

In March 2011, a newly inaugurated Gov. Lincoln Chafee proposed an ambitious restructuring of Rhode Island’s sales tax to boost revenue. House Speaker Gordon Fox killed the idea just a month later amid a huge outcry.

Last year Chafee tried a different tack, proposing an increase in the meals tax and trying to win support by earmarking the money for education. But the dining industry protested, putting signs on restaurant tables from Woonsocket to Westerly, and lawmakers ignored the governor’s big idea on revenue once again.

Chafee may be stubborn, but he’s not insane: his first two budgets taught him that proposing high-profile tax hikes is political suicide. So the message in Chafee’s proposed 2013-14 budget is unequivocal: read my lips, no new taxes.

“Governor Chafee’s revenue plan was very simple – taxpayers have already shouldered enough of the cost of government, and the delicate recovery we are in today should not be derailed by any tax increases,” the budget document declares. “Therefore, Governor Chafee’s FY 2014 Proposed Budget ​does not​ include ​any​ increases in taxes, fees or charges.” (They underlined it in the original.)


Slideshow: RI’s budget outlook for 2013 and the years ahead

December 13th, 2012 at 5:00 am by under Nesi's Notes, On the Main Site

Sharon Reynolds Ferland, the R.I. House of Representatives’ fiscal advisor, had good news and bad news for the House Finance Committee in her presentation on Wednesday.

The good news: an increase in revenue has offset persistent overspending by state departments by enough that the 2013-14 budget deficit is now forecast to be $69 million, down from $130 million. That means fewer tough choices for lawmakers this spring.

The bad news: Rhode Island’s state budget is still structurally unbalanced, meaning the forecast is for deficits every year going forward. The General Assembly has committed to spending more than it has committed to raising from taxation and fees.

It’s worth keeping that in mind when you read headlines saying Rhode Island is projected to finish this fiscal year on June 30 with a $47 million surplus. The surplus is real, but it’s also spoken-for – the money is being used to get the deficit down to $69 million for 2013-14.

If you really want to understand the situation, here’s the entire PowerPoint:

• Related: Sasse knocks lawmakers for papering over unbalanced budget (June 15)

An earlier version of this story misstated the impact of the surplus on the 2013-14 deficit.

RI finished 2011-12 fiscal year with surprise $21.7M surplus

September 4th, 2012 at 3:51 pm by under Nesi's Notes, On the Main Site

When is a surplus not a surplus? When lawmakers already spent it.

Rhode Island finished its 2011-12 fiscal year with a $115.5 million surplus, State Controller Marc Leonetti told lawmakers in a letter [pdf] last week. But before reduction-ravaged state agencies start popping champagne corks, they should take a closer look at the numbers.

The budget lawmakers adopted in June included a projected $93.9 million surplus, so they already allocated that extra cash to various programs in this year’s spending plan. The additional surplus revealed last week – that is, the amount of money lawmakers weren’t expecting and thus didn’t already spend – is a lower $21.7 million.

The budget surplus is a good sign as far as it signals a stronger-than-expected economy is producing more tax revenue and the tax-and-spending blueprint isn’t out of whack. But considering Rhode Island’s large projected deficits in future years, an extra $21.7 million isn’t a game-changer.

Update: Another way to look at it – the $21.7 million surplus will cover less than 15% of the $148.9 million deficit already projected for next year (2013-14). There’s still a $127.2 million deficit projected for next year even with this additional money.

Sasse knocks lawmakers for papering over unbalanced budget

June 15th, 2012 at 9:56 am by under Nesi's Notes, On the Main Site

There was much self-congratuling at the General Assembly over the last week and a half as lawmakers praised each other for balancing Rhode Island’s 2012-13 state budget without imposing all the new meals and sales taxes Governor Chafee proposed.

Not so fast, says veteran policymaker Gary Sasse. Democratic legislative leaders not only opened up bigger deficits down the road than Chafee – they also used a one-time fix to make the numbers work, which means there’s already a $148.9 million deficit projected for 2013-14.

“A structurally balanced budget is achieved when current expenditures do not exceed current revenues, [meaning] revenues generated in the budget year,” Sasse told WPRI.com in an email. “The FY 2013 budget adopted by the General Assembly is balanced by the use of a nonrecurring $93.9 million free opening surplus.”

Lawmakers’ budget spends $8.1 billion, about $156 million more than Governor Chafee proposed back in February. He later suggested using the $93.9 million one-time surplus for “one-time expenses” such as moving state offices and promoting economic development, but lawmakers didn’t go for it.


Happy Budget Day, Rhode Island – prepare for big deficits

June 7th, 2012 at 12:56 pm by under Nesi's Notes

The big day is here. The Rhode Island House of Representatives will take up the finance committee’s $8.1 billion tax-and-spending plan for 2012-13 this afternoon, with the debate scheduled to start at 2 p.m. – a likely story – and expected to continue for hours.

Most of the buzz is about whether Speaker Fox will be able to beat back attempts to add a tax hike on upper-income Rhode Islanders to the budget proposal. Legislative leaders and Governor Chafee have made clear all along they won’t support that, but many rank-and-file Democrats are queasy about voting against a populist measure with strong labor backing.

I’ll have live coverage of the budget debate on my Twitter feed (@tednesi) this afternoon and evening, and I’ll post a full article wrapping up what lawmakers do after the day’s events are done. And, of course, we’ll have live coverage on WPRI 12 at 5 p.m., 6 p.m. and 11 p.m., as well as on Fox Providence at 10 p.m.

If you really want to wonk out, dive into the budget analysis briefings written up by the House Fiscal Office [pdf] and the Senate Fiscal Office [pdf]. This chart from the Senate staff, for example, shows Democratic lawmakers are leaving yawning future deficits:

Update: Well, it was a nice idea anyway. I’ve been pulled off budget coverage to tackle all today’s 38 Studios developments, so no budget coverage from this corner tonight.

• Related: Budget on autopilot gives Rhode Island permanent deficits (June 13)

(photo: Ted Nesi/WPRI)

More school money, no meals tax hike in House Dems’ budget

May 31st, 2012 at 10:38 pm by under Nesi's Notes

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Legislative leaders unveiled a state budget proposal late Thursday night that would send $33 million more to school districts and raise some taxes but would not increase the restaurant tax as proposed by Governor Chafee.

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Update: Lots of random trivia about the budget on my Twitter feed. Which boards and commissions will keep paying their members? Who will be the new Chancellor of Education? Will Central Falls’ pension system get moved to MERS? Find out here.

Analysis: PBS, dental work axed in technocrat Chafee’s budget

January 31st, 2012 at 7:04 pm by under Nesi's Notes, On the Main Site

In 2011, Governor Chafee proposed a state budget that was big and bold. It flopped with lawmakers.

Lesson learned: Chafee’s 2012-13 budget is less big and bold, more modest and managerial. Beyond targeted spending on his top priorities – notably more than $38 million for education – his vision is a relatively austere $7.9 billion tax-and-spending plan for a state that’s spent five long years in the economic doldrums.

Last year’s budget debate left Chafee looking ineffective and out of touch with the mood on and off Smith Hill. This is a humbler document after a year atop state government. The governor still thinks broadening and lowering the sales tax is a good idea, for example. But lawmakers aren’t interested, and he left it out. There’s no combined reporting or other major shift in business taxation.

The initial focus will likely be on Chafee’s $93 million in tax and fee increases. While far less sweeping than his doomed sales tax overhaul, there’s still plenty for critics to seize on: a two-cent rise in the meals tax to pay for the education increase will draw howls, as will the expansion of the tax base to cover pricey clothes, limo rides, small cigars, bed-and-breakfasts and vacation homes.


Well, would you look at that? The RI budget is still balanced

January 3rd, 2012 at 6:00 am by under Nesi's Notes, On the Main Site

State lawmakers return to the State House at 4 p.m. Tuesday to kick off the 2012 legislative session. The AP’s David Klepper offered a solid rundown Monday of the big issues on the table.

One headache lawmakers aren’t facing – to their great relief – is a round of midyear budget cuts and tax increases. That’s because, for the second year in a row, the amount of money coming into the state treasury is working out about as they expected last spring when they passed the $7.7 billion budget for 2011-12.

Rhode Island’s state government took in $1.13 billion in revenue from July 1 to Nov. 30, which is $43 million more than the number-crunchers had projected. That gives the state a surplus of 4% for the fiscal year’s first five months. Personal income tax, the state’s top source of revenue, has come in 5.6% above expectations, while sales tax revenue has been basically on target. That’s mainly because the economy hasn’t veered off track.

Rewriting the budget halfway through the fiscal year, by passing what insiders refer to as “a supplemental,” was a painful perennial problem during Governor Carcieri’s second term. The most memorable fight was in 2010, when the House and Senate passed competing supplementals – a rare public dispute between the two chambers that took place shortly after Gordon Fox succeeded Bill Murphy as House speaker.

So far, though, Governor Chafee hasn’t had to sign a supplemental: the last budget passed under Carcieri (which he didn’t sign or veto) stayed balanced, and it looks like this year’s will, too. But that just means the new administration has only had to do one round of cuts and hikes, rather than two: this year’s budget closed a $331 million shortfall and next year’s is facing a $120 million gap.

And of course, each year’s shortfall is on top of the previous year’s. When you add it all up, Rhode Island lawmakers have closed a whopping $2.3 billion in budget deficits since 2007-08, the Center on Budget and Policy Priorities estimates.

Budget on autopilot gives Rhode Island permanent deficits

June 13th, 2011 at 7:00 am by under Nesi's Notes

Why is Rhode Island’s state budget always out of whack?

That’s what I was wondering last week after taking a look at RIPEC’s latest study, which expressed concern about whether the state can afford some of the new policies in Governor Chafee’s budget proposal. But these are the numbers that really stuck out to me:

The General Assembly hasn’t even passed the budget for 2011-12 yet, let alone the one for four years from now, yet already we’re on course to spend $411 million more than we take in by the time 2015-16 rolls around.*

Put another way, revenue is supposed to grow from $3.2 billion to $3.4 billion, but spending is supposed to grow from $3.2 billion to $3.9 billion. That’s a problem.

But it also paints a different picture of how we wind up with chronic budget shortfalls – instead of lawmakers heading up to the Statehouse and adding new spending like drunken sailors, the main culprit is the fact that key cost drivers, like health care and employee pay, are on autopilot.

“It’s the social services and the cost of employees,” RIPEC’s John Simmons told me. “Pensions, health care, wage adjustments – they’re all rising faster than general revenue.”

Start with social services – notably Rhode Island’s Medicaid programs (RIte Care, Rhody Health Partners, Connect Care Choice, etc.). Like everything else in America that touches the medical sector, Medicaid costs are rising far faster annually than inflation and tax revenue. As Simmons points out, there’s no way 2% increases in revenue can keep up with 10% increases in health care costs, and medical programs make up around one-third of the state budget.

Rising medical costs hit us on the personnel side, too – the cost of providing health insurance for state employees and retirees rises steeply each year, just as it does for private-sector workers. On top of that, collective-bargaining contracts include a variety of mandatory wage increases and other payments like longevity bonuses that can outpace tax revenue even when it’s going up.

And then there’s the rapidly escalating cost of contributions to the state pension fund, which are calculated by the state’s actuaries based on a formula that doesn’t take into account how much the state can afford. (Note too that the chart above does not include the new, higher pension contributions required starting in 2012-13 after the Retirement Board’s big vote in April.)

Another recent RIPEC study compared the 2001-02 state budget with next year’s and broke down what accounted for the increase in spending, which rose from $5.2 billion in 2001-02 to $7.7 billion in 2011-12. Here’s what they found:

Nearly 70% of the increase in spending went toward social services (“grants and benefits”) and personnel costs. Local aid actually decreased.

“This is where you get into the problem of these built-in costs – things happen without changing it,” Simmons said. “It’s on autopilot.”

Another way to look at it is that many of these costs are determined separately from the annual budget process – state lawmakers decide who and what RIte Care should cover, but they don’t get to decide how much hospitals and doctors will charge us to do so. Employee compensation is decided in union talks that deal with multiple years, not based on what the House Finance Committee thinks the state can afford to pay each June. Nor is this just a problem for Rhode Island – Massachusetts, Connecticut and other states face the same pressures.

“We believe that the legislature, the governor, somebody has to step back at some point and say, wait a minute, this is no longer sustainable,” Simmons said. “We’re always in a structural problem that has to be reexamined. What do we really want to provide?”

* Update: A reader inside state government rightly pointed out to me that the numbers in the chart above, which came from RIPEC’s report, are a bit out of date. They use the projections included in Governor Chafee’s March budget proposal, which in turn are based on forecasts made at last November’s estimating conference.

New forecasts were done last month, and those would improve the picture a bit. For example, revenue would be about $68 million higher in 2015-16, which would narrow the projected deficit for that fiscal year. The Budget Office tells me they’ll do a full update of the figures after the actual budget is enacted.

Chafee’s budget shrinks Carcieri’s long-term deficits

March 9th, 2011 at 10:01 am by under General Talk

Governor Chafee’s budget proposal wouldn’t eliminate the state’s deficits over the next five years, but it would shrink them substantially compared with Governor Carcieri’s policies.

Carcieri’s final budget proposal in February 2010 forecast years of red ink for Rhode Island’s state government, with the expected budget deficit growing from $362 million in 2011-12 to $536 million in 2014-15.

The cost cuts and tax increases Chafee unveiled Tuesday wouldn’t eliminate those long-term deficits, but it would make them much smaller. The administration forecasts deficits of $126 million in 2012-13 and $411.4 million in 2015-16.

Here’s a comparison of Carcieri’s February 2010 deficit forecasts with Chafee’s new ones (the small operating deficit for next year will be offset by a $16 million surplus leftover from this year):

These forecasts are, of course, just that – forecasts. They “reflect policy assumptions as well as economic and demographic forecasts,” as the budget document puts it.

Chafee’s aides say they have more ideas for cutting expenses and raising revenue down the road. “This is the beginning of the attack on the structural deficit,” Administration Department Director Richard Licht told me yesterday. “We have to go further.”

But the easiest way to eliminate the deficit isn’t through tinkering with revenue and expenditures – it’s through healthy economic growth. A growing economy simultaneously boosts tax revenue as employment increases and profits rise while easing demand for social safety-net programs like jobless benefits.

“All of our challenges are made easier by a growing economy,” Chafee said in his speech last night. “If we demonstrate fiscal discipline, our economy will prosper. … I firmly believe that the reason the nation is in its current economic state is that we lost our discipline and let our deficits soar.”

Rhode Island’s deficits – big and getting bigger

November 10th, 2010 at 4:58 pm by under General Talk

In the last weeks of the election campaign, I noticed media outlets citing a wide variety of estimates for Rhode Island’s budget deficit in fiscal 2012, which starts next July 1 and will be the first state budget overseen by Gov.-elect Lincoln Chafee and the new General Assembly.

We’re supposed to get new official estimates later today when the Revenue Estimating Conference finishes up its work and delivers its latest semiannual update on Rhode Island’s finances, House spokesman Larry Berman told me earlier.

In the meantime, the nonpartisan Rhode Island Public Expenditure Council – RIPEC – released its own report last week [pdf] estimating how big the state’s deficits will be through 2015 under current policies. The answer: pretty big.

RIPEC offered two estimates depending on how fast tax revenue grows over the coming years. The more pessimistic one – meaning the one that foresees lower revenue – uses numbers from the governor’s office, while the more optimistic one uses figures from the House Fiscal Office.

Either way, RIPEC thinks the state’s budget shortfall will amount to about $365 million in 2011-12. For context, the state takes in about $3 billion in tax revenue each year (the General Fund); the rest of the money in the $7.8 billion budget comes from the federal government.

So a $365 million deficit next year amounts to about 12% of General Fund revenue and 5% of the total budget. Even if Chafee’s 1% sales tax proposal passes, his campaign said it would only bring in around $100 million a year, so there would still be a sizable hole to plug.

From there, RIPEC’s forecasts just get worse. Even under the more optimistic scenario, it projects a shortfall of more than $400 million in 2014-15. Here’s a chart (which includes a small projected shortfall of $17 million for this year, too):

This is why it’s called a structural deficit – the shortfall is built into the structure of the state’s finances. The Carcieri administration doesn’t dispute the problem, either, as PBN’s Bill Hamilton and I reported back in February. “Frankly, the problem is so huge right now, it’s very difficult to resolve,” Rosemary Booth Gallogly, the state budget officer, said at the time.