Rhode Island Gov. Donald Carcieri proposed a series of cuts and revenue measures Wednesday to close a $357.4 million budget gap in the current fiscal year. In a televised speech, he said the state faces “extraordinary circumstances.”

Since the $6.92 billion fiscal 2009 budget was enacted on July 1, projected revenues have dropped off by $233.6 million, while Medicaid costs have risen by $68.1 million and other revenue assumptions have changed, mostly to the negative. Despite the gap-closing measures, the proposed modification would increase the current year budget by $62.2 million.

The state has been hit hard by the faltering national economy. Housing prices in Rhode Island fell by 20% in November compared to a year earlier, according to published reports, and in the same month, it had the second-highest unemployment rate in the nation at 9.3%, after Michigan’s 9.6%, according the U.S. Bureau of Labor Statistics.

The governor’s plan was introduced in the Legislature Wednesday after the start of the 2009-2010 session Tuesday.

The gap-closing measures count on $93 million of one-shots, including the sale of three parcels of land for $16 million. The proposal also cuts capital spending by $58.8 million to $236.6 million and cuts aid to municipalities by $66 million, a 6% reduction. To help offset the cuts, he proposed eliminating some state mandates and creating a commission that would make recommendations for consolidating municipal services.

The proposal calls for $68.1 million of cuts to Medicaid spending.

Carcieri assumed the state would receive at least $30 million of federal stimulus funds from the package being developed by President-elect Barack Obama. Carcieri said the state could receive “upwards of $125 million” of federal stimulus funds.

“I have little choice but to include $30 million in federal stimulus dollars into this year’s budget,” he said.

He proposed changes to the state’s pension system that would establish a minimum retirement age of 59 years for all existing state and municipal employees, eliminating cost of living increases to the plan, and replace the state’s defined benefit pension for new public employees with a defined contribution plan.

His plan wouldn’t raise income, business, or sales tax, but would raise taxes on cigarettes to bring in an additional $17.4 million.

Fitch Ratings downgraded the state in October to AA-minus from AA.

“Rhode Island has had budgetary challenges for the last few years,” said Fitch senior director Laura Porter. “Their real estate position is among the worst in the country now.” From a credit perspective, the state’s bright spot is its strong institutional financial controls. “They have shown their ability to resolve these gaps and to take action,” she said. 

 

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