In FY 2009, local governments budgeted $3,189.1 million to support education and municipal services, including police, fire and public works. Since FY 2004, the increase in local government expenditures has outpaced the growth in the State general fund budget, CPI and personal income in almost every year. The majority of this expenditure growth has been to support education spending, which account for the largest share of local spending.In the short-term, RIPEC recommends that municipal governments address the spending side as they work to meet their current projected shortfalls. The first step should be for local governments to review what services local governments provide and what they can realistically afford. The next step is to continue the discussions with labor unions to determine personnel cost-control measures and how to implement changes over time that are designed to meet the future cost pressures. Reviewing purchasing and how funds are committed through joint efforts, as well as consolidation of services needs to be accomplished.
Municipalities allocated 10.8 percent of their budgets (excluding education) to cover pension costs in FY 2009. To reduce risk, control the rate of growth in pension expenditures, and to improve the local funding status RIPEC recommends that local governments undertake a review of the current pension system funding and structure. Similar to the House of Representatives study committee on pensions, municipal governments need to review the current pension system and, where necessary, seek General Assembly approval of pension changes. For those who are not part of the State Municipal Employees’ Retirement System (MERS) municipalities should seriously consider merging their self-administered plans into the MERS. Any mergers will not happen quickly; however, they can be phased-in over time to address local needs and capabilities.
RIPEC supports the Governor’s efforts to provide various local tools to limit growth in personnel spending. It will be important to review and understand the impact of the various budget articles originally contained in the Governor’s supplemental FY 2009 budget submission. RIPEC notes that this is an extraordinary time to examine the structure of local government and use the proposed budget articles to reconstruct many of the ways services are provided.
Like most New England states, the largest component of Rhode Island’s local government revenue is the property tax which accounts for more than 61 per cent of total revenues estimated in FY 2009. The Governor’s Tax Working Group made a series of recommendations to reform local tax assessment practices. Limiting the spread between tax rates for businesses and tax rates for residential properties is one such recommendation that may be more important now as the real estate market has shifted to lowered residential values with more stable business values. In addition, there should be a review of exemptions, credits and other reductions of tax liability to be more needs-based.
Fundamental fiscal reforms are needed if local government in Rhode Island is to sustain necessary services, provide affordable educational and health care opportunities, and maintain credit worthiness. Budgets must be realistically balanced and out-year projected deficits eliminated in order for local government to have the resources to invest in initiatives that will provide the services the people of Rhode Island expect. Long-term sustainability of the level of governmental spending, as illustrated in the budget forecast prepared by RIPEC, cannot be achieved without fundamental changes in how local government provides services and the cost of providing those services.
