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- Rhode Island House Democratic leaders unveiled a $15.2 billion state budget for the upcoming fiscal year.
- The budget includes a new tax on income over $1 million, which will be phased in over three years.
- It also establishes a new office of inspector general to monitor state agencies.
- The plan expands a child tax credit but scales back a proposed elimination of the Social Security income tax.
- Several of the governor’s proposals, including a gas tax cut and a cigarette tax hike, were rejected in the House budget.
An income tax hike on Rhode Island’s millionaires and the creation of an office of inspector general headline the $15.2 billion annual state budget unveiled by House Democratic leaders on Friday, May 29.
The tax-and-spending plan for the fiscal year beginning July 1 is around $300 million larger than the budget Gov. Dan McKee proposed in January. And it is $900 million larger, or 6.2%, than the current fiscal year budget passed last June.
House Speaker Christopher Blazejewski, shepherding his first budget since taking over the House in early May, decided to proceed with the 3% surcharge on income over $1 million despite Rhode Island’s $233 million mid-year surplus created by bumper tax collections.
But to soften the blow on the state’s business elite, the House budget would phase the tax hike in over three years − 1 percentage point added per year until 2029 − instead of raising it all at once in 2027.
“It’s a way to avoid shocks,” Blazejewski said of the phased-in approach. “There’s a lot of people that are very certain about what would happen with a millionaire tax. Some say it will be an enormous source of revenue for the state and will help support many good programs. Other people say that it could cause issues of people leaving the state. By adding revenue slowly over time, you just may get a better sense one way or the other.”
He added that the later years are when the state expects to lose federal funding under the budget passed by Congress last summer and will really need the extra money.
The 3% surcharge on income over $1 million is projected to raise $142 million annually when fully implemented in 2029, but the House phase-in plan would start with $22 million in the year starting July 1.
That’s $22 million more than the Greater Providence Chamber of Commerce thinks high earners should be taxed, but less than union leaders and progressive advocates had hoped to charge high earners.
“The end result is as we feared – an unnecessary tax on Rhode Islanders, now simply over a three year period versus one,” Chamber President Laurie White wrote in an email. “Sadly, in a year of budget surplus, this is an extremely tone-deaf budget for Rhode Islanders.”
The Revenue for Rhode Islanders Coalition had pushed for the surcharge to apply to income over $640,000, which was estimated to raise $203 million per year.
The budget bill was passed by the House Finance Committee immediately after its unveiling Friday night and is slated for a vote by the full House of Representatives on June 5.
Budget highlights
The House budget includes several of McKee’s election-year priorities, although in some cases substantially modified.
“At a first glance, I'm encouraged to see meaningful progress on many Affordability for All priorities I proposed this year, including Rhode Island's first Child Tax Credit, relief from the state tax on Social Security for early retirees, support for 20,000 Rhode Islanders at risk of losing health coverage due to actions by the Trump administration,” McKee said in a statement.
- Social security. McKee had proposed eliminating all taxation of Social Security payments, including income above the $104,000 that is already exempt for single filers, over three years. The House budget includes one year of the phase-out, the smallest portion, worth $3.5 million. The full phase-out was estimated to cost $60.1 million.
- Child tax credit. Available to all families regardless of income. The House budget expands McKee’s $29.7 million tax credit proposal to around $46 million and would be worth $330 per child.
- Rhode Island Public Transit Authority. McKee proposed an additional $13.8 million to close the state bus system’s budget deficit. The House budget adds another $5 million.
- Newport Birthing Center. The budget includes $1.6 million to keep the Noreen Drexel Birthing Center at Newport Hospital open and includes language to make it harder for hospital executives to close the facility in the future.
- Health insurance tax. A $4-per-month fee on health insurance enrollees, which McKee said was made illegal in the federal budget, is eliminated from the budget. It would have raised $22 million.
The budget gets rid of several proposals in the governor’s January budget.
- Gas tax cut. McKee had proposed rolling the recent 2-cent-per gallon increase in the state gas tax back to 38 cents per gallon. The House budget keeps it at 40 cents.
- Cigarettes. McKee proposed hiking the tax on cigarettes from $4.50 to $5.25 per pack. The House budget keeps the tax at $4.50 per pack.
- Line-item veto: For years governors have sought the ability to cut specific items out of the General Assembly’s budget without vetoing the whole thing. Again, lawmakers have maintained control. “We think, given the way things are, that the best way is to continue to do it under the current proposal,” Blazejewski said.
Energy
The House keeps some of McKee’s proposals to lower utility bills, but not all of them.
It does not extend the state’s target to offset all the electricity it uses with renewable sources from the current 2033 to 2050.
But it does allow large-scale hydropower electricity and nuclear power to qualify under the Renewable Energy Standard, which Majority Leader Katherine Kazarian said should relieve some of the burden of the program on ratepayers.
The budget also keeps McKee’s changes to the virtual net metering program used to fund solar projects.
Other items in the budget include:
- University of Rhode Island Medical School. The Senate wants to build a new medical school to relieve the shortage of primary care doctors. The budget includes $5 million to continue planning the project this year and $7 million next year. “The budget as passed by the House Finance Committee addresses many priorities of the members of the Senate,” Senate President Valarie Lawson said. “I am particularly proud of the strong investments we are making to improve our health care system and to support Rhode Islanders in need.”
- Medicaid. The budget includes $115.7 million to raise Medicaid reimbursement rates – to levels recommended by the state’s health insurance commissioner – for “home and community-based services designed to enable people with physical disabilities to stay in their homes” and other services provided to people with developmental disabilities. House Fiscal Advisor Sharon Reynolds said the increases vary. “For some people it’s 10% or 12%. For others, it’s 2%. It really depends on the service.”
- RI Department of Transportation audit. The demise of the westbound Washington Bridge, the lack of accountability for it and other recent infrastructure problems prompted lawmakers to call for an examination of what’s happening. “We have just had too many high-profile failures,” Blazejewski said.
Inspector General
Creating the office of inspector general that politicians on both sides of the aisle have called for was Blazejewski’s first initiative as speaker.
The budget includes $2.6 million for the inspector general and authorization to hire 12 staffers.
Critics have questioned why Blazejewski’s inspector general proposal excludes the General Assembly from the new office’s oversight.
“We didn’t want constitutional issues to stand in the way of the inspector general,” Blazejewski said. “I know that isn’t a perfect answer, but you have separation of powers for a reason. If you allow the executive office to run roughshod over the legislature and judiciary, you no longer have three branches of government.”
Bond referendums
The budget proposes asking voters to approve $600 million in new borrowing in November, the same amount McKee asked for.
- $275 million for higher education facilities, with $165 million of that for an “integrated health building” at URI
- $120 million for housing, including $10 million available for public housing development
- $100 million for economic development projects
- $50 million for construction of a state archives building with $5 million for historic preservation grants
- $55 million for the “green economy,” including $25 million for local resiliency projects and $3 million each for agricultural land preservation and open space preservation
This story has been updated with new information.
