Higher-than-expected state revenue has not eased pressure on lawmakers, who now must decide how best to spend the extra $233 million flowing into state coffers over the next two fiscal years.
The boost to the income side of the state ledger came at the conclusion of the biannual Revenue and Caseload Estimating Conference on Friday. State budget analysts now expect an extra $155 million in revenue for the current fiscal year compared to their previous projections in November. Another $79 million in tax revenue and other income is now projected for fiscal 2027, which starts July 1.
The combined $233 million in extra cash provides a cushion as lawmakers hammer out a final fiscal 2027 budget, yet it’s not enough to satisfy the laundry list of policy priorities and programs under threat, including key social services like Medicaid and food assistance gutted by the federal government.
Gov. Dan McKee’s $14.9 billion budget proposal, unveiled in January before the updated revenue estimates, includes $45 million in staff and technology costs to help state administrators implement federal changes to Medicaid and the Supplemental Nutrition Assistance Program, along with nearly $20 million to offset federal cuts to hospitals and people who buy insurance through the state health exchange.
Senate President Valarie Lawson mentioned the federal policy overhauls as a top consideration for the extra cash in a statement Monday.
“It is a positive sign that revenues continue to be strong,” Lawson, an East Providence Democrat, said. “However, we also must consider the need to support Rhode Islanders impacted by federal cuts and recognize that extended high oil prices could negatively impact the economy and state revenues.”
Both Lawson and newly-crowned House Speaker Christopher Blazejewski remained vague in separate statements on the updated revenue projections ahead of the July 1 deadline to pass a fiscal 2027 budget.
McKee has a specific vision in mind, however, urging lawmakers to use the extra funds to enhance his existing proposals to phase out the state tax on Social Security benefits, increase a separate tax credit for low-income families with children, and reduce energy costs.
“As we consider what to do with this additional revenue, we should keep in mind those who worked hard to create it,” McKee said in a statement Monday. “At a time when lowering the cost of living is imperative, we must be focused on returning as much of this surplus back to the people who earned it.”
As we consider what to do with this additional revenue, we should keep in mind those who worked hard to create it. At a time when lowering the cost of living is imperative, we must be focused on returning as much of this surplus back to the people who earned it.
McKee’s existing tax relief propositions have rankled some policy experts and interest groups. The phaseout of the state income tax on Social Security benefits, mirroring policies adopted by 42 other states, disproportionately benefits wealthy retirees, since the state already exempts low and middle-income filers from paying an income tax on their Social Security benefits, the Economic Progress Institute argued. Meanwhile, McKee’s five-year, $1 billion energy savings plan has proven unpopular with labor and environmental groups, who warn the dismantling of state renewable and energy efficiency programs to achieve modest savings for ratepayers comes with longer-term costs, both environmental and economic.
Yet the boost in state revenue projections offers an “encouraging sign” for the state economy, McKee said.
Among the drivers of the extra revenue for both fiscal 2026 and 2027 is higher-than-expected income tax revenue, including more income from paycheck deductions. Personal income taxes, the biggest source of state revenue, are now expected to come in nearly $67 million higher for the current fiscal year, with another $35 million boost in fiscal 2027.
“Higher-than-expected withholding collections indicate that Rhode Islanders are working, wages are rising, and our economy is continuing to grow despite ongoing national uncertainty,” McKee said.
Revenue from business and bank taxes is also looking more positive, with the latter now expected to come in at $22.5 million by June 30 — nearly double the projections from November.
But these gains are partially offset by a drop in expected sales tax revenue, now $2 million less for fiscal 2026 than currently expected. Income from the Rhode Island Lottery is now expected to be $5.2 million less as of June 30, with lower-than-anticipated income from sports betting and the handle at Bally’s Twin River casino in Lincoln.
Bally’s has warned of future losses when a state smoking ban at its casinos takes effect in January. However, fiscal 2027 projections adopted by state budget analysis show little change in gross gaming revenue in Lincoln and Tiverton compared with the current fiscal year.
A spokesperson for Bally’s did not immediately respond to requests for comment on Monday.
This story was originally published by the Rhode Island Current.
