Gary Sasse: Grading the Governor’s Fiscal Stewardship
Wednesday, January 29, 2014
Governor Lincoln Chafee recently submitted his Fiscal Year 2015 State Budget to the General Assembly. This is the final State Budget that the Governor will propose to lawmakers. Chief Executives are often judged on their stewardship of the public purse. Therefore, it is appropriate to ponder the following question. Will Governor Chafee leave Rhode Island in better financial shape than he found it?
Under the best of conditions managing a public budget presents many challenges. Governor Chafee’s job was made more difficult because when he was inaugurated the State was mired in a recession and future budgets were awash in a sea of red ink. His task was also made more arduous by a General Assembly that sometimes seemed indifferent to his leadership.
Past Fiscal Policies
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTIn his first budget, the Governor projected a future deficit in excess of $411 million. The last budget that he is recommending includes an estimated out-year gap of $419 million.
To be fair, forecasted budget gaps may not tell us a complete story of the Governor’s financial stewardship. Since 2011 some positive steps have been taken to strengthen state and local government finances.
Recent State Budgets have provided for the full-funding of the school aid formula. This not only represents an investment in our children, but is an important effort to help stabilize the growth in property taxes.
State general revenues have been made available to moderate tuition costs at Rhode Island’s public colleges and university. This action hopefully will assist middle-class families pay for their children’s education.
The Ocean State’s bad financial habit of borrowing to meet federal highway matching fund requirements has been modified. The Chafee Administration‘s cost containment efforts reduced the need to issue short–term debt for cash flow management. Both of these steps will result in better use of the taxpayer’s hard earned dollar.
The Governor also signed a pension reform bill which, if not significantly eroded by a court ordered mediation process, will improve the State’s bottom line.
Even with these achievements the Ocean State continues to face financial hurdles that are not very different from those which Governor Chafee inherited.
What to Expect in 2015
A sound budget should not depend on non-recurring revenue items to be balanced. Unfortunately, the Governor’s recommended Fiscal Year 2015 State Budget is balanced by using a $68 million non-recurring prior year surplus. Given the uncertainties surrounding Rhode Island’s tepid jobs growth, there is no assurance that future operating surpluses will materialize.
In developing the Fiscal Year 2015 Budget the Governor had to find ways to close a $100 million revenue –expenditure gap as of last November. The House Fiscal Staff reported; “The Governor’s budget appears to have resolved a significant majority of this gap with the prior year surplus in addition to other non-recurring items.” Some might describe this as “kicking the can down the hill” budgeting.
In a speech to the American Trucking Association Ronald Reagan said, “When a business or an individual spends more than it makes it goes bankrupt. When government does it, it sends you the bill.”
The Governor’s budget plan may ignore future costs that the State may need to fund. For example, funds for HealthSourceRI and a collective bargaining agreement with state workers have not been identified in the budget.
A dramatic reduction in Medicaid spending also accounts for large share of the Governor’s budget balancing act. The proposed Fiscal Year 2015 State Budget reduces Medicaid spending by $43 million. Hospitals, nursing homes and certain insurance companies could see their Medicaid payments drastically reduced. It is not immediately clear how this proposal squares with efforts to attract “Meds-Eds” jobs and aggressively encourage Medicaid expansion as part of ObamaCare.
Looking Forward
Financially sustainable budgeting requires that the future implications of current tax and spending decisions be considered. This is why state law mandates the Governor to prepare a five-year financial projection as part of his or her budget request.
The latest five-year financial projection continues to show future state budgets to be significantly unbalanced. The House Fiscal Staff summarized the situation as follows. “The forecast included with the Budget estimates a $151.1 million gap for FY 2016, equating to 4.4 of usable revenue, that grows to $419.3 million in FY2019, 11.5% of usable revenue.”
Under Governor Chafee’s stewardship Rhode Island’s fiscal condition does not appear to have further deteriorated.
Regrettably Governor Chafee’s successor will face the same type of fiscal challenges that he inherited from his predecessor. Significant progress has not been made to solve Rhode Island’s decade old structural budget problem.
At the end of the day the Governor’s recommended Fiscal year 2015 Budget is balanced using a non-recurring surplus and budget gaps in Fiscal Year2019 are forecast to exceed 11% of revenue. As a result future policymakers may find it difficult to finance programs needed to improve Rhode Island’s economic competitiveness.
In the upcoming election voters should demand that all of the candidates outline a program that will significantly close the Ocean State’s expenditure-revenue gap. A good starting point would be to tell voters how they plan to eliminate the structural budget deficit by the end of their first term.
Gary Sasse is Founding Director of the Hassenfeld Institute for Public Leadership at Bryant University. He is the former Executive Director Rhode Island Public Expenditure and Director of the Departments of Administration and Revenue.
Related Slideshow: Is Clay Pell the Next Lincoln Chafee?
Privileged bloodlines, prestigious prep schools, lofty political ambitions. Is Clay Pell the next Lincoln Chafee?
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