How to Cover Rhode Island’s Revenue Shortfall

INTRODUCTION

With the economic fallout from the COVID-19 crisis, Rhode Island faces an estimated revenue shortfall of at least $617.7M for FY2021. As policymakers design the state’s FY2021 budget, they will consider this shortfall and means of addressing it. Contrary to claims that cutting spending will prove an absolute necessity, policymakers have options for avoiding destructive cuts — cuts that will disproportionately harm Black and Latinx households, which have been hit hardest by both the public health and financial crises of COVID-19. Furthermore, evidence from the Great Recession a decade ago clearly shows that where states made severe cuts, the economy slowed and emergence from recession took longer.

Despite the size of the estimated revenue shortfall, it is possible to make up for hundreds of millions of dollars without slashing services and pushing more people into unemployment. Ideally, the federal government will come through with additional relief, or with fewer restrictions on aid already provided, yet this outcome remains uncertain.

Federal aid or not, however, we need to think about the longer term and be smart about revenue going forward, so that in FY2022 and beyond we do not face continuing threats of big cuts. Absent a new COVID-19 relief package from Washington, D.C., avoiding harmful state budget cuts remains possible — through revenue raising, revenue preservation, carefully targeted borrowing, and the use of existing federal aid.

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