RIPEC’s publication “How Rhode Island Compares, National and State Fiscal and Economic Trends” examines the current state and national fiscal condition and compares Rhode Island to the other states. It also provides an overview of some economic indicators, including unemployment, personal income, energy and housing. To put the data in a historic context, the appendix includes data on various revenue and expenditure categories, based on the United States Census Bureau, Government Finance, FY 2006 and FY 1996 data.
While Congress has reacted to the recent financial turmoil by putting together a bailout package with the intention of stabilizing the economy, the events on Wall Street has had, and will continue to have, an impact on state and local economies and governments. As the Center on Budget and Policy Priorities recently reported, new shortfalls have opened up in the budgets of at least 15 states with initial estimates of these mid-year gaps totaling $5.9 billion. This new round of shortfalls is in addition to the budget gaps of $48 billion that had to be closed in 29 states in their FY 2009 budgets, adopted a few months ago.
Rhode Island is a state that has been particularly hard-hit by the current economic downturn. The housing crisis and the rate of foreclosures had a negative impact on Rhode Island’s economy. Rhode Islanders’ use of sub-prime mortgages caused the state to have the highest number of foreclosures in New England. In addition, the unemployment rate in Rhode Island of 8.5 percent in August of 2008 is the second highest in the country. Increasing the fiscal strain on states are expenditure pressures such as increasing demands for programs such as Medicaid and states deal with looming long-term issues such as funding pensions, demographic shifts, and maintenance and repair of infrastructure.
Data released by the House Fiscal Advisory Staff show that revenues in the first quarter of FY 2009 are $33.1 million below House Fiscal Staff estimates for that period, almost half of which is due to lower-than-expected personal income tax collections. Coupled with the preliminary $33.7 million closing deficit for FY 2008 and an estimated $10.0 million settlement payment for the Station nightclub settlement, the state already faces an estimated $76.8 million current-year shortfall.
Rhode Island continues to face difficult policy choices. Economic data show that the state currently is in a recession. As a result, declining tax revenues and increasing public need will continue to put additional pressure on state and local finances. RIPEC believes that the path the state takes to address these issues is of critical importance in order to establish the basic functions of state and local government in a realistic and affordable manner.