State narrows budget deficit, but still projects huge shortfall

Rhode Island State House

Rhode Island has apparently whittled down its projected budget deficit for the current fiscal year, once thought to be some $800 million, but just how much has been trimmed depends upon with whom you speak.

The state Department of Administration, in response to a query from WhatsUpNewp, said that at the end of September the state “is facing a $708.4 million budget deficit in fiscal year 2021,” said Robert Duski, the department’s public information officer.

That figure is some $400 million more than what Lt. Gov. Dan McKee and Newport Sen. Lou DiPalma, vice chair of the Senate Finance Committee, feel is the actual 2021 deficit projection.

At stake is how the state spends between $410 million and $592 million remaining in federal aid the state received or expects to receive in COVID related federal grants. McKee and DiPalma want more of that money allocated to small businesses.

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Meanwhile, the state Commerce Department expanded a program to provide grants up to $30,000 for individual businesses, while also announcing the development of two additional programs designed to help small businesses and non-profits.

We’ll try to unpack all of this.

Budget Discrepancy

In the Spring the administration of Gov. Gina Raimondo was projecting a budget shortfall for fiscal year 2021 of $800 million, even reported as high as $900 million.

McKee said this week on WBLQ radio (a show hosted by Frank Prosnitz) that the actual deficit was closer to $325 million, and that the governor was holding CARES Act funding hostage, hopeful of using it to help cover the budget shortfall. McKee said his figures were based on information from reliable sources, including Senator DiPalma.

DiPalma told WhatsUpNewp that he believes the budget deficit to be closer to $310 million, with revenues ahead of projections and the gap closing.

Here’s how he explained it: The governor’s projected deficit of $800 million included a $200 million shortfall in fiscal 2020 that was covered by the end of the fiscal year, in part by use of $120 million from the state’s rainy-day fund. DiPalma said that while the rainy-day fund is expected to be reimbursed in the 2021 fiscal year that payment could be delayed because of the ongoing pandemic. In his computation he does not consider paying back the rainy-day fund in fiscal 2021.

Additionally, DiPalma said for fiscal year 2020 the actual revenues were $140 million higher and Medicaid caseloads lower by $40 million than the latest Revenue/Caseload Estimating Conference projection.  Add to that revenues of $104 million that DiPalma said are ahead of fiscal year 2021 projections. When you tabulate all those numbers it reduces the projected deficit to about $316 million. 

The wild card is whether the state would modify the requirement to reimburse the rainy-day fund, like it did in fiscal year 2010.  If so, DiPalma’s projected deficit would rise to $436 million, still considerably less than the administration’s estimate of $708 million.

“They are playing with fire by not using accurate numbers,” McKee warned, referring to the administration.

Confusing perhaps, but budget projections are just that, estimates on future revenue and expenditures are always subject to change.

Small Business Funding

McKee, who has become a champion for small businesses, characterized as “foolish” the way the Raimondo administration has managed the program. Initially, McKee and thousands of small business owners had lobbied for $125 million in grants for small businesses. Instead only $50 million was allotted under a Restore RI grant program. So far more than $11 million has been awarded to 1,400 businesses, in amounts from $1,500 to $15,000, according to the state’s Commerce Department.

McKee said the state has failed to promote the program adequately, and the application process was difficult. 

This week the Commerce Department announced it was doubling the top grant award to $30,000, adding non-profits and daycare as potential grant recipients, and simplifying the process.

McKee is concerned that CARES Act funds must be used by the end of December.

While McKee and DiPalma were fearful the governor was holding funds, hopeful of closing the budget gap, Duski indicated otherwise.

“The State projects that it has between $409.9 million and $592.3 million remaining in federal aid,” Duski said. The reason for the range is that the State has submitted certain expenditures to FEMA for reimbursement and has not been notified of any final decisions on those items.”

Duski agreed that CARES ACT funding can only be used to cover expenses incurred by the end of the year.

“The State is waiting for further guidance from the federal government and any additional federal aid that might be forthcoming,” he said. “While the State intends to use every dollar of federal aid by December 30 to meet the health and safety needs of Rhode Islanders, we are hopeful that the deadline will be extended. This is important because the response to this public health crisis will not end on December 30. The State will need access to funding for testing, contact tracing, supplies and school operations, among many other items for the foreseeable future.”

McKee and DiPalma are hopeful that more money is allotted to small businesses.

Rhode Island Commerce Plans

This week, the Rhode Island Commerce Corporation announced expansion of the Restore Rhode Island Grant Program, a new Coronavirus Relief Fund, and a partnership with the Rhode Island Foundation to provide funds for non-profits and service programs.

  • RESTORE GRANT PROGRAM: The Commerce Department announced this week that it was expanding the program, doubling the maximum grants to small businesses to $30,000, and making non-profit organizations and private childcare facilities eligible for funding. According to the Commerce Corporation, more than 1,400 businesses have already received grants of more than $11 million.
  • CARONAVIRUS RELIEF FUND: These Business Adaption grants will provide up to $50,000 for businesses that have been “significantly impacted” because of the pandemic. These are businesses that Commerce Secretary Stefan Pryor said, “need to change direction or adapt significantly to make it through the crisis.”
  • RI FOUNDATION PARTNERSHIP: Provides support for local non-profits “with direct service programs responding to vulnerable individuals and/or communities.” This program is funded through the CARES Act and provides grants of $15,000 to $75,000.
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Frank Prosnitz brings to WhatsUpNewp several years in journalism, including 10 as editor of the Providence (RI) Business News and 14 years as a reporter and bureau manager at the Providence (RI) Journal. Prosnitz began his journalism career as a sportswriter at the Asbury Park (NJ) Press, moving to The News Tribune (Woodbridge, NJ), before joining the Providence Journal. Prosnitz hosts the Morning Show on WLBQ radio (Westerly), 7 a.m. to 9 a.m. Monday through Friday, and It’s Your Business, also on WBLQ, Monday and Tuesday, 9 a.m. to 10 a.m. Prosnitz has twice won Best in Business Awards from the national Society of American Business Editors and Writers (SABEW), twice was named Media Advocate of the Year by the Small Business Administration, won an investigative reporter’s award from the New England Press Association, and newswriting award from the Rhode Island Press Association.