RIPEC releases comments on governor’s proposed fiscal 2016 budget

RIPEC released comments on the governor's proposed fiscal 2016 budget.
RIPEC released comments on the governor's proposed fiscal 2016 budget.

PROVIDENCE – The Rhode Island Public Expenditure Council has released its take on Gov. Gina M. Raimondo’s proposed fiscal 2016 budget, and said that expected surplus funds can be utilized to improve the state’s economic climate and enhance its economic development.

RIPEC notes in its report that the recent revenue and expenditure estimates adopted at a conference suggest that the state may have “significantly more funds available” in fiscal 2015 and 2016 than was anticipated when the budget proposal was submitted.

For example, the state is expected to have $123.7 million more in funds available in fiscal 2015 ($106.8 million from greater revenue, $16.9 million from expenditure reductions) and $50 million in funds available in fiscal 2016 ($36.6 million from greater revenue, $13.4 million from expenditure reductions).

“RIPEC believes that the state should utilize an investment-based budget process that seeks to maximize the return on investment when allocating resources. With regards to the surplus funds that are expected to be available to the state, we recommend that two specific areas be prioritized for investment.
First, the projected surplus should be used to fund one-time expenses that contribute to economic development in Rhode Island while prioritizing return on investment. Second, the surplus should be used to reduce the state’s projected structural deficit in the outer years,” the report states.
To address the structural deficit, policymakers also should focus on two of the largest cost drivers in the budget: Medicaid and personnel, the report states.
“Rhode Island’s economy has shown some recent signs of recovery but continues to demonstrate lingering weakness from the impact of the Great Recession. With this in mind, the budget process offers policymakers an opportunity to improve the state’s business climate and adopt policies that will enhance Rhode Island’s economic competitiveness,” RIPEC states.
RIPEC said that the availability of revenue greater than initial estimates means that the state “has greater flexibility to make vital investments that will promote economic growth.”

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“This funding allows for the possibility of making meaningful investments in infrastructure, education or other economic development initiatives. It also makes it possible for the state to establish economic development programs, such as those proposed by the governor, that will provide policymakers with the tools needed to attract and retain businesses,” RIPEC said.
RIPEC noted that Raimondo has proposed several reforms to the state’s Medicaid program to curb rising costs.
“While these reforms are undoubtedly necessary, consideration should also be given to the capacity of state government to implement these reforms as well as the ability of health care providers to absorb the proposed expenditure reductions. The state’s readiness to assist health care providers identify potential areas of savings that can be partially recouped through a new incentive program will be an essential component of Medicaid reform. The state must be ready and able to assist providers as the health care system transitions from a fee-for-service model to alternative payment methods,” RIPEC said.
RIPEC said policymakers should also examine the state personnel system, specifically, the classification system that determines whether state positions are subject to civil service merit requirements or appointment by the governor.
RIPEC said policymakers also need to be mindful of the effect that the recent state employee pension settlement will have on the structural deficit. It said that an analysis of the proposed settlement by the state’s actuaries indicates that the total employer contribution (split between the state and municipalities) will increase by $31.6 million in fiscal 2017.

A review of the past 10 years of inflation-adjusted expenditure categories showed that the state’s total expenditures have increased 9.9 percent, driven mainly by the grants and benefits expenditure category, which increased 21.7 percent over the past 10 years, and general operations expenditures, which increased 5.5 percent during the same time period.
Capital expenditures and debt service combined also resulted in expenditure growth, increasing 18 percent and 10.9 percent, respectively. But local aid expenditures decreased 14.1 percent on an inflation-adjusted basis since fiscal 2006.
“These trends suggest that grants and benefits, and the state’s general operations budget should, therefore, be the focus of cost containment efforts,” RIPEC said.

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