Updated state revenue forecast: $80M ray of sunshine
The state's precarious financial situation is looking slightly more sturdy.
An extra $60.7 million is now expected to flow into state coffers by June 30 under new estimates adopted by state budget crunchers Friday. The rosy conclusion to the biannual Revenue and Caseload Estimating Conference also projected $19.3 million more revenue for fiscal 2026.
The combined $80 million projected revenue increase for this year and next shaves nearly one-third off the expected $250 million budget deficit. Which leaves lawmakers with a $170 million spending gap to close — not insignificant, especially against the backdrop of potentially devastating federal funding cuts and warnings of a 'recession-adjacent' economic slowdown.
Indeed, House Speaker K. Joseph Shekarchi's reaction to the updated revenue numbers Friday was not exactly celebratory. 'The revenue results preview the effects of the weakening US economy linked to turmoil in Washington, DC,' Shekarchi, a Warwick Democrat, said in a statement. 'Any short-term positive news is overshadowed by the magnitude of that uncertainty and the many related or unsolved budget issues.'
Senate President Valarie Lawson, an East Providence Democrat, and Senate Finance Chairman Lou DiPalma, a Middletown Democrat, also referenced the uncertainty of federal funding in a joint statement reacting to the updated state revenue estimates.
'We remain committed to passing a balanced, responsible budget in time for the state's new fiscal year, which begins on July 1, and if subsequent developments in Washington necessitate additional action, we will be prepared to address that at the appropriate time,' they said Friday.
Yet the latest state forecasts suggest revenue is rising across a wide array of tax sources. Personal income taxes, which account for one-third of the state's $5.6 billion annual revenue forecast, are now expected to come in $37.1 million higher by June 30, with an extra $10.1 million in fiscal 2026. The state is also poised to bring in more money through lottery taxes (up $15.4 million over the next two years combined) along with taxes on public utilities, insurance companies, and cigarettes.
These gains will be partially offset by less-than-expected income from sales and use taxes, trimmed by $22 million in fiscal 2025, and down another $37.1 million in fiscal 2026. The state also won't be generating as much revenue from taxes on bank income; the expected $12.3 million fiscal 2025 revenue from financial institutions taxes is one-third of the $39.5 million forecast six months ago.
In response to state budget analysts, the Rhode Island Division of Taxation said it initially thought additional taxes paid in 2023 reflected an increased tax liability for 2024, when in fact the elevated 2023 returns were the result of overpayments.
How much of the loss in expected bank tax revenue reflects a change to state tax code enacted by lawmakers in June at the request of Citizens Bank was not immediately available. The controversial tax rewrite, which took effect Jan. 1, was expected to reduce fiscal 2025 revenue by $7 million, rising to $15 million for the full fiscal 2026 year, based on the lower tax bill for Citizens.
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