Assembly Relies on Rainy Day Fund, Federal Pandemic Funding to Balance FY 2020 Supplemental Budget

PROVIDENCE, RI – A new Rhode Island Public Expenditure Council report released today examines the measures taken by the Rhode Island General Assembly to pass a balanced supplemental budget for fiscal year (FY) 2020, which ended June 30, 2020. Specifically, the report looks at how the legislature solved for a general revenue deficit caused by COVID-19 economic fallout largely by transferring $120.0 million from the state’s rainy day fund and “swapping” $97.3 million in general fund sources with federal funding. The report, “Rhode Island’s FY 2020 Supplemental Budget: The General Assembly Takes the First Step in Responding to Pandemic Fallout,” is the third in a series of RIPEC reports on how the COVID-19 crisis is impacting the fiscal stability and economic security of the state. 

“Passing a balanced budget for fiscal year 2021 will be a greater challenge since general revenue shortfalls are estimated to be twice as large,” said RIPEC President and CEO Michael DiBiase. “Spending on capital projects, which are funded indirectly from the rainy day fund, will be severely squeezed, and persistent overspending issues, if not resolved, could be problematic. These challenges, however, present an opportunity to policymakers “to move beyond the practice of filling budget gaps and instead begin the difficult but essential process of restructuring state finances with the goal of sustainability for FY 2021 and beyond.”   

According to the RIPEC report, the FY 2020 supplemental budget departs greatly from the budget enacted by the General Assembly last June, with total spending from all sources increasing by $1.8 billion, or 18.0 percent, while general revenue expenditures decreased by $118.9 million (2.9 percent). These changes can be somewhat misleading, however. Nearly $1.4 billion in additional expenditures consist of federally funded unemployment insurance benefits paid to Rhode Islanders in connection with the pandemic, as well as $200 million in additional direct expenditures funded by the federal government to respond to COVID-19. By and large, reductions in general revenue expenditures do not reflect reduced spending, but a change in the source of funding from general revenue to federal funding. The state did achieve some modest savings, but these were largely negated by overspending, most notably at Eleanor Slater Hospital and within the Department of Children, Youth and Families.  

In addition to $97.3 million in federal swaps and $120.0 million in a rainy day fund transfer, the supplemental budget solved for the FY 2020 deficit by “scooping” $24.9 million from state funds and quasi-public agencies. The legislature also approved $6.5 million in savings from adjusting for net changes for expenditures. The rainy day fund transfer leaves $77.6 million in the fund. The state is statutorily—but not constitutionally—required to make up the amount of a transfer in the next fiscal year by appropriating from the general fund to the Capital Plan Fund an amount equal to the transfer. Nearly $35 million ($34.7 million) in federal swaps were used to pay for state personnel utilized in the pandemic. More than half of the swaps were used to solve the budget gap related to education spending, with federal funds used to replace $41.7 million in K-12 spending and $15.0 million in higher education expenses. While not part of solving the budget gap, the supplemental budget appropriated $50.0 million in federal funding to local education agencies to be used for expenditures incurred due to the pandemic.

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