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Yahoo
12-05-2025
- Business
- Yahoo
Updated state revenue forecast: $80M ray of sunshine
State budget analysts now expect an extra $60.3 million in revenue to flow into state coffers by June 30, with a $19.3 million revenue boost in fiscal year 2026. (Photo by Christopher Shea/Rhode Island Current) 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. SUBSCRIBE: GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX
Yahoo
29-04-2025
- Business
- Yahoo
‘Recession-adjacent' economic slowdown facing Rhode Island as tariffs roil markets
From left, Kumael Bilgrami, an associate economist with Moody's Analytics, and Emily Mandel, senior economist for Moody's, told state budget crunchers to expect slower job growth and higher prices in the aftermath of President Donald Trump's tariffs during a State House presentation on Tuesday, April 29, 2025. (Screenshot/Capitol TV) Emily Mandel, a senior economist for Moody's Analytics, opened her presentation to Rhode Island state budget crunchers Tuesday with a caveat: 'You will probably be very tired of hearing the word 'tariff' by the end of this.' Mandel's comments came during the Rhode Island's biannual Revenue and Caseload Estimating Conference at the Rhode Island State House. The twice-a-year conference updating state revenue and spending forecasts aims to help lawmakers shape the state's fiscal 2026 budget, which will take effect July 1. But Rhode Island's financial future looks fuzzier than ever as question marks hang over federal funding to state governments and the fallout from the international trade war. 'Recession risks remain very high, and it's evolving day by day,' Mandel said. 'It will feel somewhat recession-adjacent.' The average tariff rate of 21%, based on the existing 145% reciprocal tariffs with China and 10% tariff on goods from all other countries, is the highest the United States has seen since 1909. 'It's not unprecedented, but it's unprecedented over the last century,' Mandel said. The country, and by extension Rhode Island, will see job growth and wages stagnate as consumer and business costs surge as tariff consequences take hold this summer. Assuming Trump backs off the tariff policies — still a major if — economic recovery is expected by 2027, according to Moody's latest forecast. Meanwhile, cuts to federal funding, including for Medicaid, threaten to devastate Rhode Island, which relies on an outsized share of federal funding in its spending relative to other states, according to analysis from Pew Charitable Trusts. And, preserving the state's declining population will become even more challenging as residents flee for less destinations in the South and mid-Atlantic, as well as cheaper New England states like Maine and New Hampshire. Moody's analysts did not name specific income tax policies, such as a millionaire's tax, as an influence on out-of-state migration. However, they noted that neighboring Massachusetts, which began an extra 4% tax on income over $1 million in 2023, has lost some residents to Rhode Island in recent years. Legislation introduced in both chambers of the Rhode Island State House calls for a 3% surtax on the top 1% of state earners, setting off the perennial debate over what could be a new state revenue source, or a deterrent to wealthy residents. Will rich Rhode Islanders flee because of a millionaires tax? Don't believe it, advocates say. A new report published Monday by The Institute for Policy Studies, a progressive D.C. think tank, showed the amount of top earners who live in Massachusetts, as well as their collective wealth, has increased since voters passed the 'Fair Share Amendment' in 2022. Yet the greater Boston metropolitan area has also seen wage growth slow over the last year far more rapidly than the national average, or in the Providence area, according to federal labor data. Kumael Bilgrami, associate economist with Moody's, blamed Boston's weak job growth performance on its high cost of living, including housing. Rhode Island, too, is facing a critical housing shortage that has driven up costs for buyers and renters. The housing crisis is not likely to ease anytime soon; tariffs have sent building material costs skyrocketing, suppressing demand for residential permits, while stricter federal immigration policies make it harder for the construction industry to keep and retain its foreign-born workforce, Bilgrami said. Yet despite its reputation as a 'first in, last out' state when it comes to economic recessions and downturns, Rhode Island has a few advantages over the rest of the country. Chief among them is the state's labor market, which has continued to enjoy strong employment growth relative to national and regional averages. The 515,600 jobs recorded in Rhode Island in March 2025 is the highest on record, according to Rhode Island Department of Labor and Training data. While the unemployment rate has ticked up to 4.8% as of March, and is expected to hit 5% by the end of 2025, Rhode Island continues to outperform the country and neighboring states, Massachusetts and Connecticut. Another advantage for the state's job market is its diversity of industries, which offers some 'insulation' from the consequences of tariffs, Bilgrami said. Rhode Island boasts an outsized share of finance, education and health care jobs relative to its total labor market, which will be shielded from tariff policies more than other industries like manufacturing. 'We think health care is going to remain relatively stable,' Mandel said. Job growth forecast for Rhode Island through fiscal 2030 remains relatively unchanged from the last Revenue Estimating Conference in November. Moody's has revised its projections for state employment upwards slightly since November. Also consistent with November forecasts are the state's 'housing starts,' or increases in its housing supply, which remain low through the end of the decade, but not much worse now than six months previously. The forecast does not account for slashing up to $880 billion in federal Medicaid spending nationwide, which would have dramatic consequences in Rhode Island, where federal funds supply more than half of the state's annual Medicaid budget. The updated financial projections also don't consider other federal funding cuts beyond the firing of 400,000 federal workers, most of whom are not based out of Rhode Island. The May Revenue and Caseload Estimating Conference continues through May 9, when budget crunchers will update the amount of budget surplus, or deficit, expected heading into fiscal 2026, and beyond. SUBSCRIBE: GET THE MORNING HEADLINES DELIVERED TO YOUR INBOX
