Fiscal 2023 revenue projections reduced by $61M
Cuts signal greater inflationary headwinds on the horizon
Economic forecasts are looking ahead to less state revenue than previously estimated. (Photo by Janine L. Weisman)
State lawmakers won’t have quite as much financial cushion when shaping next year’s budget as they originally thought.
New revenue updates adopted by state budget analysts at the conclusion of the Revenue and Caseload Estimating Conference on Wednesday shave off about $61.2 million in revenue for fiscal 2023. The updated $5.2 billion income for the year that ends June 30 represents 1.2% less than what budget analysts predicted in year-end revenue last fall.
That’s hardly a game changer, especially considering the windfall of federal stimulus money fueling a $600 million surplus for the year ahead.
So Gov. Daniel J. McKee, whose preliminary fiscal 2024 budget was based on slightly higher projections from November, does not appear worried.
“The state is still projected to have an approximately $600 million surplus in fiscal year 2023 because of our administration’s prudent financial decisions,” McKee said in an emailed statement.
“The slight decrease in projected general revenues that came out of the Revenue Estimating Conference was not unexpected, but it also does not significantly change our financial landscape in the short term. That is why our approach to the budget was to limit new costs and allocate one-time federal dollars on one-time expenses.”
House Speaker K. Joseph Shekarchi also described the changes as not unexpected. The House of Representatives will review and revise McKee’s spending plan over the next month and a half using the updated revenue estimates.
“As always, the House will work with our partners in government to align expectations and resources while prioritizing long-term stability for the state and its residents,” Shekarchi said in an emailed statement.
Shekarchi, too, stressed the importance of not using one-time surplus funds for ongoing programs or tax-cuts, stating that the updated estimates “reaffirm the need for that caution.”
Indeed, the days of nine-figure surpluses are numbered.
The $1.1 billion in American Rescue Plan Act funds allotted to Rhode Island can only be used to boost the budget through the end of December 2024. And the biggest source of state tax revenue – from personal income taxes – are expected to flatline around $1.8 million in fiscal 2024, according to updated revenue projections.
Proceed with caution
Meanwhile, the expected $1.6 million in sales and use tax revenue in fiscal 2024 marks only a slight uptick – 1.8% – over estimates for the current fiscal year.
That’s troubling to Michael DiBiase, executive director for Rhode Island Public Expenditure Council.
“The big story going forward is that if you look to 2024, there’s not much growth at all,” DiBiase said. “Given that inflation is [projected to be] running at 4%, it’s a very tight economic forecast.”
Given that inflation is running at 4%, it’s a very tight economic forecast.
– Michael DiBiase, executive director for Rhode Island Public Expenditure Council
State revenue projections for the year ahead appear gloomier than what forecasters with S&P Global Market Intelligence indicated. In a presentation to state budget analysts earlier this month, S&P consultants shared positive updates to the state’s jobs count and unemployment rate in the year ahead, followed by a period of slow growth.
DiBiase noted that the state’s new estimates likely err more towards conservative than S&P predicted.
Either way, “the state government is facing inflationary forces in a flat revenue environment,” DiBiase said.
Inflation combined with stock market volatility have already descended upon the Ocean State to some degree, evidenced by downward revision in fiscal 2023 personal income and insurance tax revenue. However, this has not deterred consumer spending, at least yet, with new estimates adding $4 million to what the state expects to collect in sales and use taxes this year.
Other positive changes to expectations for fiscal 2023 included an extra $15.5 million in lottery revenue and $10.6 million more in business tax income.
This story was updated to clarify Michael DiBiase’s statement about the expected inflation rate.
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