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McKee administration unveils $13.7 billion budget that would trim sales tax, build housing department

R.I. governor’s budget proposal would fund abortion coverage for state employees and Medicaid recipients

Rhode Island Governor Daniel J. McKee's budget proposal for fiscal year 2024Handout

PROVIDENCE — Governor Daniel J. McKee’s administration on Thursday unveiled a $13.75 billion state budget proposal that trims the sales tax rate, builds a new housing department, and bolsters state aid with the goal of eventually matching the “education levels” of Massachusetts schools.

The proposed budget also makes good on the Democratic governor’s promise to fund abortion coverage for state employees and Medicaid recipients.

Rhode Island Governor Daniel J. McKee's fiscal year 2024 state budget proposalEdward Fitzpatrick

Tax cuts

The budget details nearly $100 million in proposed tax cuts, including a plan to reduce the state’s 7 percent sales tax rate to 6.85 percent, which would save people about $35 million a year.

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“One of things (McKee) is really focusing on is: How do we compare with our neighbors?” state Office of Management and Budget Brian Daniels said during a budget briefing. “This is very important to us from an economic development standpoint but also for Rhode Island families.”

Rhode Island now has the highest state sales tax rate in New England, and it’s tied with Mississippi, Indiana, and Tennessee for the second highest rate in the country. California has the nation’s highest rate at 7.25 percent, while New Hampshire is among five states with no sales tax. The Massachusetts rate is 6.25 percent, and Connecticut’s is 6.35 percent.

Budget documents from Governor Daniel J. McKee's administration provided a comparison of the sales tax rates for New England states.Handout

“One thing that is important to realize is that about one-third of Rhode Islanders live within three miles of the Massachusetts or Connecticut border, so people have options as to where they spend their money,” Daniels said. “It’s not fair for businesses if Rhode Islanders are leaving to go to Massachusetts or Connecticut to save money on sales tax. So we want to be more competitive.”

But even if the General Assembly adopts that proposal, Rhode Island would still have the highest sales tax rate in New England, and it would have the seventh highest rate in the nation.

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In the State of the State address on Tuesday night, McKee proposed an “incremental” approach aimed at eventually matching the Massachusetts rate “if we continue to have discipline in our budgets.”

But the budget proposal contains no schedule for reductions in future years.

“It is going to be contingent upon what our budget outlook is each year, but the goal is that we continue to keep chipping away at this year after year,” Daniels said. “If we were to continue at this pace, for example, going down .15 of a percentage point each year, we would match Massachusetts in five years.”

Daniels said Rhode Island raised its sales tax rate from 6 percent to 7 percent during the state banking crisis in the 1990s but never made good on the promise to reduce the rate once Depositors Economic Protection Corporation (DEPCO) bonds were paid off. “The state got accustomed to that money,” he said. “They didn’t want to give it up.”

In 2011, then-Governor Lincoln D. Chafee proposed broadening and lowering the sales tax, but the General Assembly did not adopt that proposal, Daniels noted.

“What we have seen multiple times in the past is that we made promises that we can’t pay for because it’s really hard to give up the money when you have it,” he said. “So the governor wants to make sure that we are making these decisions in light of that fiscal outlook, that we are doing what we can afford each year.”

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Department of Housing

The budget proposal includes $2.7 million to pay for 21 full-time positions for the newly created state Department of Housing, which would bring the total number of positions in that department to 38.

The department is tasked with overseeing $250 million in spending to address Rhode Island’s housing crisis and to help those experiencing homelessness. On Jan. 11, Joshua D. Saal resigned as housing secretary after months of criticism over the state’s response to housing and homelessness. And on Wednesday, McKee appointed former Rhode Island commerce secretary Stefan Pryor to be the new housing secretary.

Governor Daniel J. McKee's budget proposal includes $2.7 million to add 21 full-time positions to the newly created Department of Housing.Handout

Daniels said the additional staffing “will expand capacity and allow them to do things such as dealing with housing supports and homelessness that are not necessarily coordinated through state agencies right now.”

The proposed budget also includes $30 million to expand shelter capacity and provide expanded services to those experiencing homelessness.

“We have seen recently that in many cases, we don’t necessarily have the capacity that we need, the shelter beds that we need,” Daniels said. “We need to invest in that to make sure that we have at least a temporary solution as we try to find permanent supportive housing for those individuals.”

Education

The budget proposal would increase K-12 education funding by $57.8 million while making changes in the state education formula.

Since the pandemic hit in 2020, public school districts have lost about 7,900 students, and for the last three years, the state budget has held communities harmless for enrollment losses.

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“While the state cannot continue this practice in perpetuity, reverting to the funding formula without any changes would reduce funding to public schools by about $30 million,” the budget document states. “With this in mind, the budget proposal invests an additional $57.8 million in K-12 education and modifies the funding formula to help school districts navigate enrollment shifts, support students with greater educational needs, and improve educational outcomes.”

For example, the budget proposal increases multilingual learner categorical funding by $7.8 million and high-cost special education categorical funding by $4.8 million.

Governor Daniel J. McKee's proposed state budget would increase K-12 education funding by $57.8 million.Handout

McKee’s State of the State address called for developing a plan within the next 100 days to “reach Massachusetts education levels by 2030.” But it remains unclear what measures, such as graduation rates or test scores, would be used to gauge that progress.

At Thursday’s budget briefing, state Education Commissioner Angélica Infante-Green said, “It will be a whole host of things. The governor will be ready to unveil that in a couple of weeks. So there will be a whole systematic way of measuring that.”

She said her office will work with the governor’s office to develop that plan.

“We are always looking to Massachusetts as the North Star. Everybody does, not just us,” Infante-Green said. “They are the highest performing state in the nation. So we are looking to replicate a lot of the things they have done.”

Abortion coverage

The budget proposal includes $592,405 to provide abortion coverage to residents enrolled in Medicaid and another $29,500 to add abortion coverage to the state employee health insurance plan.

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Last year’s legislative session ended a day before the US Supreme Court ended 50 years of constitutional protection for abortion, overturning Roe v. Wade in a 5-to-4 decision. At the time, McKee said he supported the Equality in Abortion Coverage Act, which would have allowed Medicaid coverage of abortions in Rhode Island, but he faced criticism for not including funding in last year’s budget. This year, his administration is putting that funding in the budget proposal.

The proposed fiscal year 2024 budget totals $13.75 billion, representing an increase of $148.6 million over the enacted fiscal year 2023 budget. The 2023 budget has since been revised to $14.1 billion.

House Speaker K. Joseph Shekarchi, a Warwick Democrat, said, “I have been briefed on some of the major proposals in the Governor’s budget and look forward to seeing more details and how we can find common ground on shared priorities. As always, we will rely on a thorough vetting of proposals through the House Finance Committee process. I am confident that effort will yield a final product we can all be proud of.”

Senate Finance Committee Chairman Louis P. DiPalma, a Middletown Democrat, said, “At first glance, I am pleased that many of the initiatives proposed in the Governor’s budget align with Senate priorities, including investment in education, providing tax relief for Rhode Island residents and small businesses, and taking fiscally responsible steps to ensure we are prepared for predicted economic downturns. Over the course of the next several months, the Senate Finance Committee will rigorously review every aspect of the budget proposal through a thorough and transparent public hearing process.”


Edward Fitzpatrick can be reached at edward.fitzpatrick@globe.com. Follow him @FitzProv.