PROVIDENCE -- Economists are warning that Rhode Island is plunging into recession, facing a sharp, severe decline and a slow, gradual recovery.
Meanwhile, top state and federal officials say that an initial infusion of $1.25 billion in federal funding can’t be used to fill the gaping state budget holes created by the coronavirus epidemic.
Those grim economic and budgetary realities came into sharper focus Wednesday during a pair of back-to-back events.
The day began with what is normally a dry recitation of data at the Revenue and Caseload Estimating Conference -- a twice-a-year analysis by the state budget officer, Senate fiscal adviser and House fiscal adviser. But Wednesday’s session included forecasts charting the palpable economic pain induced by the outbreak.
IHS Markit economist Michael Lynch outlined the “Rhode Island Outlook,” and it was bleak.
“The overall duration of the decline during the downturn will be confined to a short period, but its magnitude will be exceptionally severe,” Lynch said in reviewing a slide presentation during a video conference call with state fiscal officials.
That May 2020 forecast showed the state unemployment shooting up from 3.7 percent in fiscal year 2019 to 15.9 percent in fiscal year 2021, which begins July 1.
Lynch said he expects the “peak-to-trough declines” in employment and real gross state product to “reach well into the double-digits” -- going deeper than the declines seen in the Great Recession.
In the final quarter of the current fiscal year, “both employment and output are projected to contract sharply as the effects of the spread of COVID-19 and the accompanying disease mitigation policies take hold,” the outlook said.
Lynch said the sectors of the economy that will be hit the hardest are those that depend on large gatherings -- such as restaurants, bars, hotels, concert halls, convention venues, and theaters. Those sectors were suffering even before the economy shut down because of changes in consumer behavior, he said.
But the losses will extend to other parts of the economy -- including the financial, health care, and construction sectors, Lynch said. “The cascading effects of such a severe downturn mean that few industries are immune from some damage,” the outlook said.
While the economy is projected to eventually bounce back, “the actual level of complete recovery is far more drawn out than the relative sliver of time it took for the economy to bottom out,” Lynch said.
The forecast calls for the state employment level to begin approaching the pre-pandemic peak late in fiscal year 2023.
The Revenue and Caseload Estimating Conference also heard a forecast for the national economy from James Bohnaker, associate director of IHS Markit.
The global peak of the virus is expected between May and August 2020, but the virus will return in the next couple of years in local pockets of different countries, he said. Early clinical data on a vaccine should be available by August, but a general vaccine for a healthy population must be safe, so it might not be ready until November 2021 at the earliest, he said.
Bohnaker said it’s unlikely the nation will have a “V-shaped” recovery where economic indicators shoot back up once the economy reopens. Rather, it’s mostly likely to be a “U-shape" recovery where certain sectors come back in stages, and much will hinge on how comfortable consumers feel about returning to shops, restaurants, and other businesses, he said.
Later in the morning, during a conference call with reporters, Governor Gina M. Raimondo thanked the state’s federal delegation for helping to secure $1.25 billion as part of the $2 trillion federal coronavirus aid package. She said the money will be used for things such as personal protective equipment, ventilators, hospital beds, and other costs associated with responding to the coronavirus outbreak.
“Governors around the country are trying to fight this fight on a daily basis,” she said. “We need flexibility, and the ability to move quickly.”
But right now, states do not have the flexibility to use that money to fill the budget gaps left by the revenue that has evaporated as states have shut down their economies and residents have been ordered to stay home, she said.
US Senator Jack Reed -- one of 20 members of a bipartisan group of senators that worked on the emergency rescue package -- said he has argued the legislation as written allows states the flexibility to use the money to make up for revenue lost because of the pandemic.
Reed, a Democrat on the Senate Appropriations Committee, said he has made that argument to US Treasury Secretary Steve Mnuchin, but Mnuchin has not provided that flexibility.
Reed noted that 46 senators signed a letter to Mnuchin, saying, “Governors and senators from both sides of the aisle have set aside ideology and urged you to follow the law as written instead of creating more bureaucratic red tape in the middle of a public health emergency and ensuing economic crisis. Of all the regulations that this administration seeks to cut, it should start with this one.”
US Representative David N. Cicilline said House Democrats are focused on providing more support for state and local government as they try to find ways to make up for lost revenue and maintain basic services during the pandemic.
Raimondo said governors were given the discretion to decide how the $1.25 billion is spent, so it won’t “go through the typical appropriation process.” But she said she will seek the input of General Assembly leaders as the state decides how to spend those funds.
Reed agreed that governors have the discretion to spend the money -- and “the responsibility to spend it wisely” and in keeping with the law.
The new Joint Legislative COVID-19 Emergency Spending Task Force is about to hold its first meeting on Thursday to review the Raimondo administration’s spending amid the health crisis.