Gary Sasse: Grading the Governor’s Fiscal Stewardship
Wednesday, January 29, 2014
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
In 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.
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?
Below is a look at the similarities -- and differences -- between Governor Lincoln Chafee and likely gubernatorial aspirant Clay Pell.
Family Legacy - Chafee
Lincoln Chafee is the son of John Chafee, the former Governor of Rhode Island, U.S. Senator, and Secretary of the Navy, who was a decorated WWII and Korean War Veteran, and posthumously awarded the Presidential Medal of Freedom.
Named in his honor include the USS Chafee (DDG-90), the John H. Chafee Blackstone River Valley National Heritage Corridor and the John H. Chafee National Wildlife Refuge.
Family Legacy - Pell
Grandfather Claiborne Pell was Rhode Island's longest serving Senator, having served six terms from 1961 to 1997, whose legacy includes the Pell Grant, the National Endowment for the Arts, and the National Endowment for the Humanities.
A decorated coast guard lieutenant in WWII and foreign service officer, Pell's Rhode Island legacy includes the Newport Bridge being renamed the Claiborne Pell Bridge, as well as the Pell Center of International Relations and Public Policy established at Salve Regina University.
Money - Chafee
Both Chafees and Senator Pell had to disclose as members of the U.S. Senate personal financial information -- and both a considerable net worth.
The U.S. Senate is known as the U.S. Millionaires Club -- in 2005, while Chafee was still in the Senate, Open Secrets pegged Chafee's wealth at between $40 and $63 million dollars.
Money - Pell
The website Celebrity Net Worth puts wife Michelle Kwan's personal wealth at $8 million.
While Pell's first campaign finance report has yet to be made public, records show Pell gave Democratic challenger Gina Raimondo $250 during her bid for General Treasurer in 2010.
Education - Pell
Early Career -- Chafee
He was Warwick's mayor in 1992 until 1999, when he was appointed to the U.S. Senate in 1999 when his father passed away while in office.
Wife - Chafee
Wife - Pell
A decorated Olympic figure skater and world champion, Michelle Kwan went on to pursue a career in public service, serving as an American Public Diplomacy Envoy as well as on the President's Council on Physical Fitness and Sports -- and was recently inducted into the U.S. Figure Skating Hall of Fame.
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