Rhode Island State in Fiscal Peril

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State and Local Finance Presentation

March 11, 2010

Rhode Island Project Team

Catherine Bendowitz

Libby Pearson

Megan Milliken

The Ocean State Under Water

Rhode Island in Fiscal Peril



Agenda

Bendowitz, Pearson, and MillikenState of RI Presentation

Background Revenue Expenditures

Overview:

• How RhodeIsland has cometo be a “state infiscal peril”

Wrap-Up

Recommendation:

• Lower sales taxwhile broadentaxable goods andservices

Recommendation:

• Reduceintergovernmentalgrants

• Reform prisons

• Cut educationspending

• Cut unnecessaryprograms

• Futurerecommendations

• Summary of analysis andestimated savings





Fiscal Overview



FY2011 Budget

Budget gap before adoption: $400 - $427MTotal budget: $7,510M



Historical Context



From PEW; Black line is RI; middle line is

US; top line is CA

Prior

FinancialDecisions

2007Recession

Loss of Industries

Current Deficit



By the Numbers: Part 1



UnemploymentRhode Island 12.9%Massachusetts 9.4%Connecticut 8.9%

MA

C T

RIForeclosure RatesRhode Island 1.50%Massachusetts .90%Connecticut .94%

Per capita personal incomeRhode Island 41,368Massachusetts 51,254Connecticut 56,272

Percent below federal poverty lineRhode Island 15.4%Massachusetts 15.4%Connecticut 13.1%

Percent of adults with BA or moreRhode Island 29.8%Massachusetts 37.9%Connecticut 34.7%

Human Capital

Economics

Percent of adults with HS DiplomaRhode Island 83.0%Massachusetts 88.4%Connecticut 88.2%



By the Numbers: Part 2



State sales tax ratesRhode Island 7.0%Massachusetts 6.25%Connecticut 6.0%

Income tax rate in top bracketRhode Island 9.9% or 7% before deductionsMassachusetts 5.3%Connecticut 6.5%

MA

C T

RICorporate income tax ratesRhode Island 7.5%

Massachusetts 9.5%Connecticut 7.5%

Property tax as a percent of incomeRhode Island 5.36%Massachusetts 3.76%Connecticut 4.64%

Taxes



Political Context



• Republican Governor Donald L. Carcieri prefers to limitspending and curtail taxes

• Democratic legislature prefers increasing spending

• Passing and changing legislation requires a supermajority



Current Revenue Reforms



FY10 revenue increases:

• Number of new and/or increased fees (such as business regulationfees, expungement fees, coastal resources management council fees)• Increased cigarette tax• Capital gains taxed as ordinary income

• Increased gas tax

Proposed FY11 revenue increases:

• Elimination of the Enterprise Zone Tax Credit• Elimination of the Motion Picture Tax Credit

• Number of new and/or increased fees related to motor vehicles (suchas a new road test fee, increased dealer fees)• Increase in police accident reporting fees• Reinstating hospital licensing fees



Current Conditions



Total revenue: $7,512.9 million Total general revenues: $2,926.7 million



Our Recommendations



1. Lower sales tax to 6%1. Efficiency gain $3.6 - $11.6M2. Revenue loss $84 - $99.3M

• Tax more goods $65.2 - $70.4M• Clothing

• Non-prescription drugs• Boats• Newspapers

1. Tax feasibly taxed services $326.9 - $353.4M• For example, car washing, health clubs, dating services, pet grooming

Total increase in revenue $308.2 - $324.4M



Current Expenditure Reforms



FY10 expenditure decreases:• Lowered pension payments by increasing retirement age to 62

• Decreased funds to group homes• Eliminated funds for professional development• Elimination of the Worksite Wellness program• Reduced funding to the Slater Fund

Proposed FY11 expenditure decreases:

• Cuts across state agencies, including pension reform, employeeconcessions, and lower FTE counts.• Eliminating state reimbursement to cities and towns for the loss of revenue caused by state legislation eliminating local taxes on thevalue of motor vehicles.• Cutting state funding for K-12 education by more than 3 percent andhigher education by nearly 6 percent below enacted FY10 levels.• Reduced funds for affordable housing, eliminated health insurancefor home-based child care providers, restricted TANF cash assistancefor children, and cut support to localities by $10 million.



Current conditions


Background

Total expenditure: $7,513 million

ExpendituresRevenue



Our recommendations



1. Cut Intergovernmental Aid1. Distressed Communities $10.4M2. Reduce State Aid to Local Libraries $2.1M

2. Reform Corrections1. New England Inmate Share Program $36.6M2. Or Cut Funding by 20% $28.9M

3. Cut Education Spending1. Nix student transportation $15.6M2. Sell Rhode Island College $88.9M3. Stall enactment of COLA for

educator pensions $2M1. Cut Unnecessary Programs

1. Walkable Communities Initiative $.013M

2. Airport Impact Aid $1MTotal decrease in expenditures $148.6 - $158.2M



Intergovernmental Aid



Distressed Communities Relief Fund $10.4 million

Background :• Provides state assistance tocommunities with the highestproperty tax burdens relative towealth of taxpayers

Recommendation:• Cutting the program will save$10,400,000



Intergovernmental Aid


Background

Reduce State Aid to Local Libraries $2.1 million

Background :• Title 29-6-2A requires a 20% statecost-share for local libraries• For FY11, $8.7 million is proposedfor local library funding• Title 29-6-2A expires on June 30th

Recommendation:•State should lower cost-share to15%• Saves $2,193,349

Revenue Expenditures



Prison Reform


Background

1a. New England Inmate Share Program $36.6 million

Background :• RI spends $158.6 million• $52,875 per prisoner • National average between $18,000and $31,000• 3,000 total prisoners

Recommendation:• Connecticut spends $41,982 per prisoner • No projected growth in prisonpopulation

• “New England Inmate ShareProgram”• Estimated up-front cost of $1 million




Prison Reform


Background

1b. 20% Reduction to prison funding $28.9 million

Recommendation:• Cut state funding by 20%• Reduces yearly cost per prisoner to$42,300




Prison Reform


Background

2. Reform Probation + $2.89 million

Background :• 21,000 people or 3% of thepopulation is on probation• Probation officers have a caseloadof 240-250 offenders apiece• High recidivism rates

• 32% within 1 year of release• 46% within 2 years of release

Recommendation:• Reduce caseloads to 130 offendersper caseworker • Hire 80 more probation officers

• Median salary of $35,000• Total program cost of $2,800,000




Education and Students


Background

Eliminate Student Transportation Fund $15.6 million

Background :• State pays for every student inRhode Island to use buses, trains,and public transportation for free

Recommendation:

• Cut program






Background

Sell Rhode Island College to Private Firm $88.9 million

Background :• Deficit• $61.8 million in revenue fromtuition• Spends $154.7 million (withstimulus funds)

• Low Performance• 4-year graduation rate 14.9%• 6-year graduation rate 44.9%

Recommendation:• Privatize Rhode Island College






Background

Pensions for Educators $2 million

Background :• Cost of Living Adjustment (COLA) set torise by 3% for FY11

Recommendation:• State has decided to not enact the COLAfor other retired state employees’ pensionsfor FY11• We recommend that the state maintain auniform treatment of pensions and notenact the COLA for educator pensions




Unnecessary Programs



Walkable Communities Initiative $.013 millionAirport Impact Aid $ 1 million

Background :The Walkable Communities programencourages Rhode Islanders to walkwith distinctive and attractive signs.

Airport Impact Aid reimburses 23 townsor cities with airports with a specificnumber of landings.

Recommendation: These are notappropriate uses for public money.We recommend the termination of both programs.



Future Reforms



Restrict Medicare Eligibility

Background :• Health and Medicaid/CHIP

Eligibility:• 250% of federal poverty line

for children

• 181% of federal poverty linefor working parents• In 2005 Rhode Island paid

$19,191 per dual eligible• $14,972 was national average Recommendation:

• Medicaid eligibility cannot be adjusteddue to stimulus maintenance of effort• Rhode Island must reevaluate howgenerous it can afford to be in humanservices



Future Reforms



Rhode Island Legacy Program

Background : The Rhode Island Higher Education Assistance Authority’s (RIHEAA)Administers $6.3 million in grants• $250 - $900 per student• Average cost of Rhode Island 4-year

university is $40,455•

Around $500 for 12,000 students

Recommendation:• Fully fund around 158 students• Recipients must work and live in Rhode

Island for three years after graduation



Summary



Our recommendations

Increase in revenue: $308.2 - $324.4M

Decrease in expenditures: $148.6 - $158.2M

Total budget gap reduction: $456.8 - $482.6M

New fiscal position

Original projected deficit: $400 - $427M

Our budget gap reduction: $456.8 - $482.6M

Surplus: $29.8 - $82.6M



Thank you!Questions….

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Rhode Island State in Fiscal Peril