Facing a roughly $200 million budget deficit between the end of Fiscal Year 2019 on June 30 and Fiscal Year 2020, Governor Gina Raimondo’s new budget plan, released this past Thursday, looks to stabilize the near future through legalized recreational marijuana revenue, new taxes and fees and one-time transfers from other state agencies in a budgetary hole-plugging method known infamously as “scoops.”
The prospective $9.9 billion budget also includes a proposed expansion of the Rhode Island Promise scholarship, an increase in the minimum wage to $11.10 an hour, a $10 million investment to bolster universal Pre-K programs in the state, individual and employer mandates for healthcare, an expansion of legal gambling to mobile phones and a change in the formula for the car tax phase out championed by Speaker Nicholas Mattiello.
Of importance to local communities is a reduction of $6 million in Payments in Lieu of Tax Exempt Properties aid from the state. These payments compensate communities for businesses that operate without paying property tax due to being housed within tax-exempt establishments such as hospitals or universities.
The budget plan assumes legislative action will commence in the months ahead to allow communities to tax these formerly-exempt businesses, but it was not immediately clear how many of these types of businesses are located in each municipality that would be affected. Cranston would lose $632,426 in PILOT funding aid and Warwick would lose $177,537. Johnston would not be affected by the PILOT change.
State Management and Budget Director Jonathan Womer said in response to media inquiries regarding the PILOT change that the $6 million reduction was a “ballpark” figure generated from a rough count of such businesses in the state, and that a majority of such businesses were situated in Providence.
Though it was not exactly a secret, the budget plan officially drove home Raimondo’s intention to push for the legalization and taxation of recreational marijuana in the state – and at an accelerated, some might say ambitious, pace.
Currently, marijuana is decriminalized and available for medicinal purposes in Rhode Island, but with her budget proposal plan, Raimondo is setting an expectation that the state will have its own law passed, regulations approved and establishments licensed and operating (the plan would allow for six “retail-only compassion centers” – with the state receiving $6.5 million from legal marijuana sales – by June 30, 2020. The calculations ramp up to $21.9 in revenue million by June 30, 2021. Both figures are vital to closing large budgetary gaps in each year’s budget.
Tasked with overseeing the 21, adult-use marijuana market would be a new Office of Cannabis Regulation under the authority of the Department of Business Regulation, which would establish severe penalties for those selling to minors, cap the potency of marijuana products to recreational users and limit the amount of marijuana sold and the frequency of buyers’ allowable visits.
The plan proposes a tax system that would, in theory, enable its enforcement to be self-sustaining, with 15 percent of proceeds earmarked for municipalities and 25 percent to public health, public safety, regulation and enforcement expenditures. The plan calls for an investment to the Department of Public Safety that would allow for “drug recognition training.”
For context, Massachusetts voters approved a ballot initiative approving recreational cannabis use during the November 2016 election. The first two recreational dispensaries only just recently opened to customers and their tax dollars this past November, two years later. However, in Massachusetts’ case the effort to legalize was not coming from the governor’s office, so it will be interesting to see if things can move quicker in Rhode Island.
Citing a recent study from the Department of Environmental Management, Rhode Island’s parks and beaches attract the most visitors per acre than any other state, however the state also spends the third least amount on its public places of interest per visitor in the country.
To combat this, the budget plan calls for a $1.5 million infusion for six full-time equivalents and general park maintenance – a small start to what was identified as $50 million infrastructure costs needed due to aging facilities and deferred maintenance. The proposal also would create a new business development office consisting of two FTEs for the parks department to “actively solicit park sponsorships, partnerships and donations.”
The budget proposal also left more than a few questioned unanswered regarding how the state will raise $2.1 million by altering fee structures through DEM, meaning there are likely changes coming to how much it will cost to park and camp at state beaches and campgrounds throughout Rhode Island. According to chief public affairs officer Michael Healey, everything is on the table but all fee structure changes have to go through a public hearing process prior to their rejection or approval by the general assembly.
The single largest increase to funding in the FY2020 budget was a $30 million increase to the state formula for funding aid to municipalities. Additionally, there will be a $2.25 million increase to bolster English Language Learners (ELLs) and $600,000 to help provide teachers training to “address their students’ mental health needs.”
Also of note is $290,000 that will go “to help ensure no student goes hungry” by creating a requirement that schools serve federally subsidized meals to eligible students, requires public schools to adopt breakfast programs and provides work study funding for near-SNAP eligible students and launches a pilot, need-based program for SNAP eligible students.
The two investments that will likely generate the most buzz involve the $10 million investment to expand Pre-K education in the state and a $5.3 million investment to expand Rhode Island Promise to include free tuition for full time students at the Community College of Rhode Island and two years of Rhode Island College.
The increase to Rhode Island Promise comprises $2 million to expand the CCRI component and $3.2 to implement the RIC expansion, bringing the total Rhode Island Promise expense to $13.2 million for the upcoming budget year.
The new budget plan looks to install an individual insurance mandate that would impose a penalty on Rhode Islanders who are without health insurance by January of 2020. The penalty, which was introduced as part of the Affordable Care Act by President Obama and recently repealed by President Trump and the Republican-majority Congress in 2017, would amount to $695 a year per uninsured person or 2.5 percent of total household income, whichever amounts to more.
Acting secretary of health and human services Lisa Vura-Weis said that healthy adults are more likely to forego securing insurance coverage, meaning insurance companies assume more risk due to there being a higher amount of people who need to utilize their insurance, which results in higher rates for everyone. The hope is that with healthier people added to the insurance pool, it will stabilize risk to insurers and, as a result, keep premium low.
Larger companies will face pressure under the new proposal as well, as the budget calls to enforce a 10 percent penalty on employers with 300 or more employees – based on the employee’s total wages and capped at a maximum of $1,500 for the year – for every employee that utilizes Medicaid rather than a company-offered healthcare plan. The measure would reportedly raise $15.6 million next fiscal year.
l The car tax phase-out was adjusted in order to save $16.3 million in next year’s budget by reducing the amount subsidized by the state next year in return for higher payments in later years. The phase-out completion remains to be in FY2024 under the proposed change.
l Sports betting will continue to grow under the new proposal, with $3 million in new revenue projected through the allowed creation of online sports betting accounts at Twin Rivers two locations. Betting could then be done remotely from anywhere within the state’s borders.
l The unspecified budget note of the day must go to the $10 million in savings included that will be found by an “Efficiency Commission,” which will be tasked with finding the large sum through an examination of the efficiency of state employee positions, excess properties and other unspecified means to be included in a recommendation report by the end of April.
l One-time transfers from other state agencies – known as scoops – amounted to about $24 million over the next two years.
l Increases to taxes include: A 25 cent increase to $4.50 for cigarette tax (revenue projected at $2.3 million); state hotel tax increase from 5 to 6 percent (revenue projected at $4.5 million); a 10 percent surcharge on already-taxed guns and ammunition (revenue projected at $1.1 million); and a 40 percent surcharge on e-cigarette and vaping products wholesale, expected to bring in $469,000.
l The proposal would extend the 7 percent state sales tax to a host of new areas, including: streaming music and video services like Spotify and Netflix; lobbyists; hunting, trapping and shooting; interior designers; third party sellers on e-commerce sites like Amazon that sell a certain amount of products to people in Rhode Island; and “commercial building services.”