Rhode Island Raiding Restricted Accounts to Balance Budget

Thursday, June 19, 2014

Stephen Beale, GoLocalProv News Contributor

 The state is siphoning off millions from funds exclusively reserved for education, health care, the environment, and other purposes and diverting the money to the general fund, according to a GoLocalProv review of legislative and budget records.

In the Department of Health, $1.8 million has been skimmed off of a fund for the immunization of infants and children. In the Department of Environmental Management, $264,621 has been drained out of a fund for preventing and responding to oil spills. And the Department of Elementary and Secondary Education has about $400,000 less for helping adults get their GED.

In all, 90 funds, known as restricted receipts accounts, among 19 departments have been affected. All told, an estimated $12 million will be withdrawn from $120.8 million in restricted accounts in the budget for the upcoming fiscal year, according to records provided by the state budget office.

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Critic: money for health, schools shouldn't go to tax cuts

Budget critics say the money should in those accounts should be spent for its intended purpose—rather then poured into the general fund, where it could be repurposed for other uses.

One policy analyst pointed to the Children’s Health Account in the Executive Office of Health and Human Services, which is forking over $1.7 million out of a total $11.7 million to the general fund. “In case the legislature hasn’t noticed, lead remains a public health crisis in this state. How do they justify taking money meant to help children and using it to pay legislative aide salaries?” said Tom Sgouros, a progressive blogger.

The same, he said, goes for the education department’s Restricted E-Rate fund which is meant to be used for technology in library and schools. Out of $1.2 million that, in theory, should be available, $121,023 is going back into the general fund.

“Investing in our children’s health and education would be a far better way to improve our state’s economy than a 2 percent decrease in the corporate tax rate. Sadly, something as sensible as that isn’t on the Speaker’s agenda, so we will continue to rob Peter to pay Paul, and impoverish us all in the process,” Sgouros said.

“I think they’ve bastardized the system,” said Philip Keefe, the president of SEIU Local 580, which has employees at many of the affected state agencies and departments.

Keefe, who said he advocated against the policy to no avail, suspects the state is taking the money to help balance the budget. He says the money should instead be used to hire additional staff at departments like Business Regulation, Labor and Training, and the Public Utilities Commission. He said additional staff at those departments ultimately would allow them to collect more money for the state over the long term from fees, fines, and other revenue generated by their work as auditors, investigators, and regulators.

“It’s just being short-sighted. It’s going to balance the budget this year. What’s going to be five years down the road?” Keefe said. “Why are we just thinking year to year?”

 Cuts to reserved funds dates back to Sundlun era

The 10 percent cut to restricted accounts—known in budget lingo as “indirect cost recovery”—is a longstanding budget practice in Rhode Island that dates back to the administration of Governor Bruce Sundlun in the early to mid-1990s.

In 1991, Sundlun proposed taking $18.6 million from the so-called restricted receipts accounts to help close a $37 million budget deficit—a move for which he had reportedly criticized his predecessor, according to an April 10 report from that year obtained from the Providence Journal archives.

The practice was codified in state law in 1993 and has remained on the books ever since, even though it has been repeatedly tweaked since then.

State officials told GoLocalProv this week that indirect cost recovery reimburses the state government for administrative expenses it incurs in managing the accounts. “The 10 percent is a reimbursement for the overhead services that are funded via the general fund. There are many support services that are provided to the various programs you listed out and those support services are provided from a centralized location,” said Allison Rogers, the Director Policy at the Department of Administration.

Those services include: purchasing and procurement support, facilities management, information technology support, personnel and H.R. support, budget support, accounts payable support, and payroll support, according to a list provided by Rogers.

 Keefe rejects the claim that the state incurs any costs from the restricted receipts accounts, which he suggested are, by definition, self-funded. “That’s a bunch of nonsense,” Keefe said.

As an example, he pointed to the fund the Department of Business Regulation uses to fund audits of insurance companies, banks, credit unions, and other local financial institutions.

Keefe said those audits—done by staff who are members of his union—are paid for by the companies being audited. “Not a single penny comes out of the general fund,” Keefe said.

He says the money should be re-invested back into the department so it can increase its staff, enabling it to become more efficient and effective with its audits and other regulatory activities.

As it is now, Keefe said the department does not have the staff it needs, citing a conversation he had with the president of a credit union who told him that the department’s inability to complete the audit in a timely manner fouled up its financial books. “That’s pathetic. There’s … no excuse for that. There really isn’t,” Keefe said. (He declined to name the credit union.)

Exemptions for some raise question of fairness

State law also makes numerous exemptions for the indirect cost recovery charge, raising a question of fairness.

In next year’s budget—which has passed the General Assembly and now awaits the signature of Governor Chafee—90 accounts are subject to the charge, while 67 are exempt.

A review of the list of what is and is not exempt does not suggest any obvious pattern. Some programs in the Department of Health are exempted—like the accounts for HIV drug rebates and organ transplants—but not those for the immunization of infants, children, and adults. The state’s local share of education aid for the Davies Career and Technical School is exempted, but not the money for school breakfasts and lunches at Davies. The Commission on the Deaf and Hard of Hearing’s sole restricted account will remain untouched, but not the one for the Commission on Disabilities.

“There are no consistent rules regarding which accounts are exempt,” said Thomas Mullaney, the state budget officer. “It is sometimes a matter of who lobbies for an account to be exempt.”

For next year, lawmakers added four accounts to the exemption list: the HIV Care Grant Drug Rebates, donations for the new veterans home construction, the Housing Resources Commission restricted account, and the Job Development Fund.

In the House, state Rep. Donna Walsh, D-Charlestown, led the charge to add the Job Development Fund. That keeps $2 million into a fund that Walsh has said is already strapped for cash because the state has been using much of it to pay back its federal loan for unemployment benefits.

For Walsh, keeping the money in the account is common sense: “It should be used for what it’s designated for,” she said.

To do otherwise, she added, is “just poor policy.” 

Stephen Beale can be reached at [email protected]. Follow him on Twitter @bealenews

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