PROVIDENCE – The economic impact of the COVID-19 pandemic has been projected to cause a massive revenue shortfall for Rhode Island for fiscal 2021.
The R.I. House Fiscal Office projects that the state will contend with a $617.7 million shortfall for the year, which will need to be addressed by the Rhode Island legislature.
In the face of potential cuts to programs and services in the state, the Economic Progress Institute is calling on lawmakers to consider alternative options to fix the state budget, including raising taxes for high-wage earners. The nonprofit has identified several solutions it sees as alternatives to cutting spending for the fiscal year that began July 1 that it believes will fix most, if not all, of the projected revenue shortfall.
“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,” the organization said in its report.
EPI called for an increase in revenue raising, measures for revenue preservation, targeted borrowing, the consideration of potential federal aid and urged lawmakers to consider the lasting impacts of cuts to spending on the future growth and recovery of the state economy, citing the economic slog the state faced after cuts in response to the Great Recession.
The nonprofit’s policy recommendations include:
- An implementation of an increase in personal income tax rate on personal income over $475,000 from 5.99% to 8.99%.
- The consideration of the withdrawal of funds from the state’s Rainy Day Fund.
- The consideration of freezing the car tax phase out at fiscal 2020 levels.
- The consideration of additional targeted borrowing to bolster the budget due to low interest rates.
- The report notes that the potential extension of the federal COVID-19 emergency declaration would result in an increase in federal matching Medicaid funds.
The report also argues that its proposed alternatives to budget cuts would be more effective than budget cuts implemented following the Great Recession that it said hampered the recovery of the Rhode Island economy by setting it back by at least four years.
“It is critical that Rhode Island does not repeat the mistakes of the last downturn. The options presented here could preserve, replace, or bring in hundreds of millions of dollars in revenue, enough to cover much, if not all, of the projected shortfall, even without a new round of federal aid,” the report said. “We need to make investments that keep people working and spending, so that money continues to circulate in the local economy and strengthen and quicken Rhode Island’s emergence from a recession and its recovery.”