The State of Rhode Island has, for many years, faced an annual structural budget deficit with repeated out-year projected deficits. These deficits have inhibited the state’s ability to make strategic long-term budget decisions needed to stimulate economic growth, support a predictable basic services system and to provide funding for long-term investments. State budgets with projected out-year deficits have become a common event in Rhode Island’s fiscal landscape. This year is no exception. The State Budget Office projects out-year deficits ranging from $155.7 million in FY 2011 to $482.3 million in FY 2014.
The Governor’s proposed FY 2010 state budget only partially changes the way the state has previously approached balancing the budget. While there have been some structural changes, the proposed budget relies heavily on federal stimulus funds to balance both FY 2009 and FY 2010. While the use of these funds is understandable given the fiscal restraints faced by the state, they should not be used to avoid the state’s responsibility to create needed structural change for state and local governments. Rather, they heighten the need to develop a plan which will allow Rhode Island to regain firm fiscal footing. To do otherwise has the potential to increase demand for state and local services, thus worsening the state’s structural imbalance.
Unless there is substantial growth in income and wealth in this state over the next few years – something we think is unlikely – the state can no longer sustain the level of government services and spending that has developed over the last few decades. Moreover, given the fact that Rhode Island is already one of the most heavily taxed states in the country and not competitive with our closest neighbors, there is no way we can – or should – address this deficit with new or increased taxes.
Years of excess growth in spending over recurring revenues must be limited and the state has to take a new approach to stay within revenue limits without using broad-based taxes or one-time revenues to balance the budget. To this end, RIPEC is calling for a two-step approach to address the state’s structural deficit. The first step is to manage the current fiscal situation. Second, the state needs to develop a “Road Map to Recovery” that includes a strategy to help the state bridge the revenue-expenditure gap that will likely arise in FY 2011 and FY 2012 when American Recovery and Reinvestment Act (ARRA) funds are no longer available. RIPEC believes this two-step approach is necessary to guarantee that resources will be available to support programs that will make Rhode Island a more prosperous state in the long-term.