Governor Dan McKee’s proposed fiscal year 2027 budget moderates state spending growth after years of extraordinary increases, but relies on a new millionaire’s tax that could harm Rhode Island’s economic competitiveness, according to a new analysis from the Rhode Island Public Expenditure Council.
RIPEC released its policy brief Thursday examining highlights from the governor’s spending plan.
Under the proposal, state general revenue spending would grow by 2.5 percent over the current year budget, a notable slowdown compared to the 10.9 percent increase authorized over the past two years. Spending from all sources would increase by 3.6 percent, driven largely by a 7.8 percent surge in federal aid.
However, the budget relies on a proposed millionaire’s tax that would raise the rate on income over $1 million to 8.99 percent — a 50 percent increase that would give Rhode Island the eighth-highest top income tax rate in the nation and essentially match Massachusetts for the highest in New England.
“With federal aid and state revenues growing at a relatively stable rate, state policymakers should consider the risks to the state’s competitiveness that would result from imposing a 50 percent tax increase on high-earning individuals and businesses,” said Michael DiBiase, RIPEC’s president and CEO.
The analysis also flagged concerns about projected budget deficits, which are expected to swell to $537 million by fiscal year 2031. RIPEC attributed the growing shortfall to the use of one-time surplus revenues for recurring expenses and projected expenditures outpacing revenues.
General revenues are projected to grow by 8.7 percent over the next four years, while expenditures are expected to increase at nearly twice that rate — 16 percent — driven largely by health and human services spending.
The governor’s budget also includes a proposed $600 million bond package, which would be the largest in state history and $200 million higher than any previous offering.
“This level of borrowing deserves scrutiny by the General Assembly,” DiBiase said. “After reducing the state’s debt in relation to personal income and general revenues over the past several years, the governor’s proposed bond package would appear to reverse this trend.”
Find RIPEC’s full policy brief, including key takeaways, here.