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General Assembly
The State House remains closed to the public at this time. Three Senate Committees are meeting to hold advice and consent hearings for Acting Director Brett Smiley (Thursday, Senate Finance Committee) and Acting Director Kathryn Power (Wednesday, Senate Health and Human Services) as well as some board and commission appointments of the Governor. The Senate Health and Human Services Committee will also hold a hearing on Wednesday at 4:00 p.m. The public will not be permitted to attend. Testimony can be submitted by email. Senate Bill No. 2525 BY Miller, Goldin, Valverde, Satchell, Goodwin ENTITLED, AN ACT RELATING TO STATE AFFAIRS AND GOVERNMENT -- THE RHODE ISLAND HEALTH CARE REFORM ACT OF 2004--HEALTH INSURANCE OVERSIGHT {LC4557/1} (This act would have the health insurance commissioner adopt a uniform set of medical criteria for prior authorization and create required form to be used by a health insurer.) Testimony can be submitted at: [email protected] Division of Taxation Extends Tax Filing Deadlines The RI Division of Taxation announced an extension for certain tax filing deadlines and payments including estimated tax payments, corporate taxes, bank excise taxes and public service corporation taxes. A complete list of filing deadline changes can be found at http://www.tax.ri.gov/Advisory/ADV_2020_11.pdf House Finance Committee Receives 3rd Quarter Update The House Finance Committee met May 20th. Just like the previous week, there was no public testimony at the hearing. The fiscal staff provided an overview of the May 3rd Quarter report. In many ways, more questions were raised than answered. A few new issues arose added roughly $50 million in unaccounted expenditures for the current fiscal year budget and the next budget, bringing the total budget gap to about $900 million for the two-year period. What are the new issues? The biggest one involves the Eleanor Slater Hospital. Between August of 2019, and February 11, 2020, The Hospital was unable to bill Medicare and Medicaid for its patients due to its non-compliance with federal law. The law prohibits state hospitals from having more than 50% of its patients in psychiatric beds. The noncompliance was discovered by the hospital administration and the decision was made to cease billing Medicare and Medicaid until the situation was resolved. Additionally, the hospital had about 100 “forensic” patients which is the term used for individuals sent to the hospital by the courts to undergo psychiatric evaluations to determine ability to stand trial. Medicaid does not pay for forensic patient services. Together these items increased the current fiscal year expenditures by about $35 million. The impact to FY2021 is difficult to estimate but is believed to be at least $30 million. One question that BHDDH could not able to answer was how much the Department will need to spend in order to ensure the hospital does not run afoul of the federal law again. The new Acting Director, Kathryn Power, suggested that the ongoing effort to comply would be handled in house, but then later stated that the agency was in the process of hiring a consultant firm to assist. The Third Quarter Report did reveal some savings for the current fiscal year: $7.9 million between the Department of Administration, Department of Revenue and Department of Business Regulations – mostly from turnover employment, but some in operating savings and debt service savings; DCYF saved $4.6 million through staffing efforts and some placement changes; and $600,000 was saved by not administering the Spring SAT test. Other smaller savings were realized in other agencies. Some expenses were also up. For example, DEM spent $400,000 more than budgeted for mosquito spraying to combat eastern equine encephalitis (EEE). Senate Finance Committee Asks NCSL for Insight Last Thursday, the Senate Finance Committee met to discuss the Coronavirus Relief Funding Sources, and they received insight from Congressman Cicilline and the National Council on State Legislatures (NCSL). So far, the federal government has passed four spending bills to address coronavirus issues:
As of May 18th, the Paycheck Protection Program has yielded 4,341,145 loans in the United States for a total amount of $513.27 billion. In Rhode Island, 15,857 loans were made amounting to $1.86 billion in approved dollars. Another type of loan – the Economic Injury Disaster Loan – is available to agricultural producers only. This loan has a maximum of $2 million, but applicants receive $10,000 as an advance grant just for applying for the loan. If the applicant is ultimately deemed ineligible for the loan, the $10,000 does not have to be repaid. As of May 8th, 10,758 loans were approved in Rhode Island amounting to $36.23 million in approved dollars. Following NCSL, Department of Administration Acting Director Brett Smiley provided a COVID19 update for the Committee. The big takeaway remains the unknown track that the virus will take throughout the summer and into the fall. But the Director did provide estimated expenditure ranges for past and ongoing COVID19 activity through December 30, 2020:
State Agencies Hold Carbon Tax Stakeholder Meeting As directed by the legislature last year, DEM, in conjunction with the RI Office of Energy Resources and the Department of Transportation held a virtual meeting to introduced the consultants hired to conduct a study of potential effects associated with a carbon tax or with a carbon cap and trade program (still a tax). The agencies have hired two companies – Cadmus and Synapse – to perform the work which is slated to be completed by the end of September. According to the consultants, 46 national and 31 subnational jurisdictions have implemented or scheduled carbon pricing initiatives. In the United States, the state of California has a program. 2020 charges per metric ton of carbon range from a low in Japan at $3 to a high of $123 in Sweden. California is currently at $18 per metric ton through its cap and trade program. Started in 2013, it is the broadest cap and trade program in the world – covering transportation, industry, heating and electricity generation. Roughly 85% of California’s greenhouse gas emissions are taxed. The program raised $9.3 billion so far. Emission have reduced 16%. Cadmus reported a 33.2% growth in advanced energy jobs in that state, but the consultant was unable to say whether jobs were lost in other industries. The two consultants asked for input on two models for the State of Rhode Island. The low model would start at $6 per metric ton in 2021 and increase 5% annually above the rate of inflation, with all revenues going to decarbonization programs such as electric vehicles and heat pumps in residential and commercial buildings. The high model would start at $25 per metric ton in 2021 and increase 5% annually above the rate of inflation. Some of the revenue would go back to Rhode Island residents and the remainder would go to decarbonization programs. The stakeholders participating in the meeting were asked to provide input about the specific items to be included in the models. The Chamber requested the inclusion of a cost/benefit analysis for various industry sectors – not just emerging technology businesses – in order to obtain a more complete understanding of the economic impacts of the programs.
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Open Businesses Required To Sign Checklist Form
Rhode Island Governor Raimondo has asked all currently opened businesses and newly opening businesses to print out and sign a checklist form that can be accessed at: https://www.reopeningri.com/resource_pdfs/Business-organization-checklist-poster_05.15.20%20.pdf While the state is not requiring proof of the signed document prior to opening, she did state during her May 15th press conference that inspectors could ask for this signed form at a business location. It's not clear what penalty might be applicable if a business does not have the form executed on site. House Finance Committee Meets The House Finance Committee met last Thursday. There was no public testimony at the hearing, only a briefing from the House fiscal staff outlining the findings from the Revenue and Caseload Estimating Conference and the Federal Relief Programs and their impact on the State. The 95 slide presentation provided by House Fiscal Advisor Sharon Reynolds and her team can be viewed at: http://www.rilegislature.gov/housefiscalreport/Briefings%20and%20Presentations/2020%20Session/Federal%20Relief%20Programs%20and%20May%20%20REC%20CEC.pdf Can Rhode Island End FY2020 With a Deficit One of the questions raised was whether the State can roll over into FY2021, any deficit from the current fiscal year that ends June 30th. The answer is not knowingly. The State must do its best to end at zero or in the black (sometimes estimates are off a little when audits are completed following the end of the fiscal year, but the General Assembly must do its best to get to a zero balance or better). Federal CARES Fund Effects When Governor Raimondo and then President Trump declared a state of emergency, those declarations allowed the federal Stafford Act to go into effect. The Stafford Act provides funds to states, but comes with a 25% match requirement from states. If Rhode Island received $100 million, it would have to put up $25 million. Rhode Island has asked for a waiver of that match requirement – a response has not yet been received. The federal government has since adopted the State Coronavirus Relief Fund from which Rhode Island received $1.25 billion. As Ms. Reynolds stated at the hearing, if the federal government waives the 25% match requirement, that is the best budget situation for the State. It could also allow states to use the Coronavirus Relief money to meet the match (2nd best option); or if both of those options are not permitted then the State’s expenses occurred will have to be switched over to the Relief Fund monies and the least amount of federal dollars will be available to help with budgetary problems that have arisen due to the crisis. It is important Chamber members know that this budget is going to be tricky and cannot be solved properly until federal guidance is provided. Cities and Towns face the same challenge. The Coronavirus Relief Funds can be used for “necessary” expenditures related to COVID-19, incurred between March 1, 2020 and December 30, 2020. Direct expenditures for medical as well as public safety are covered. “Secondary” expenses are also covered such as employment or business interruptions, but it’s not completely clear what it allowable as a “secondary” expense. It does include items related to health and safety – for example payroll for public safety; but it does not include increased Medicaid expenses. The Fund also included $121.5 million for education, provided the State maintains a level of effort equal to an average over the last three previous fiscal years (FY17-FY19). Of the $121.5 million, $46.4 million is for K-12 and is available through September 30, 2022. This money can be used for items such as: cleaning, long-term closure planning, training, technology purchases, mental health support and summer learning. Also available is $66.4 million for higher education through September 30, 2021 for things like: costs associated with facility shut-downs, emergency aid to students, and assistance for minority institutions. The federal package included $197.8 million for healthcare providers, almost half of which goes to healthcare providers to assist with lost revenue due to the pandemic. RI Hospital received an additional $19.8 million because it qualified as a “hot spot” area under the federal legislation. Some of the other recipients include: community health centers ($11.5 million), community mental health centers ($6 million), community living programs ($6.4 million), child care ($8.2 million), community services for low-income families ($5.5 million), head start programs ($2.3 million), and LIHEAP – low income home energy assistance program – ($4.8 million). Additionally, Rhode Island did receive an increase in the federal rate share of Medicaid. Other items can be found in the slide presentation. Unemployment Fund update – according to the presentation, Rhode Island’s unemployment insurance fund started 2020 with $537.9 million, more than it has had in the past twenty years. As of May 12th, the Fund had $420 million. Lastly, it’s important to note that a number of federal programs for individuals and businesses, equates to a loss of revenue for the state, thus affecting the budget process. For example, the federal CARES Act gives employers credit for net operating losses. The House fiscal staff anticipates a relative loss in state revenue of $2 million in FY2021 and a loss of $700,000 in FY2022. The federal government increased the interest deduction cap for businesses. That change is expected to reduce state revenue by $1.6 million in FY2021 and $1 million in FY2022. These programs are important to the business community. At the same time, those changes have state budget implications that must be accounted for as the budget process moves forward. The House Finance Committee plans to meet again to review the 3rd Quarter Report which will include spending updates, agency additional deficits and an update on COVID expenses. The Committee will also receive updates on the current federal program as well as new program that might or might not be passed by Congress. New Bills The Rhode Island Senate did release new bills last week. The Senate desk was left open when the legislature cancelled session in March, which is why the following bills are available now, but receive a technical “introduction date” of March 12th: Senate Bill No. 2777 de la Cruz, DiPalma, Seveney, AN ACT RELATING TO STATE AFFAIRS AND GOVERNMENT -- RHODE ISLAND ECONOMIC GROWTH BLOCKCHAIN ACT (Establishes an economic growth blockchain act, set regulations for the sale of hemp, regulate virtual and digital assets and establish depository banks for these purposes.) Senate Bill No. 2794 McCaffrey, Sosnowski, Miller, DiPalma, Euer, AN ACT RELATING TO FOOD AND DRUGS - SINGLE-USE PLASTIC STRAWS (Prohibits food service establishments providing single-use plastic straws unless requested or from self-service dispenser. First and second violation results in notice of violation and $25 fine thereafter up to $300 annually.) Senate Bill No. 2795 Pearson, DiPalma, Conley, Cano, Seveney, AN ACT RELATING TO TAXATION -- STATE TAX OFFICIALS (Requires electronic filing of returns and remittance of payments for certain larger business registrants.) Senate Bill No. 2798 Pearson, AN ACT RELATING TO TOWNS AND CITIES - MUNICIPAL INCENTIVE AID (Authorizes the general treasurer to withhold state aid to municipalities which do not meet certain requirements regarding locally-administered pension plans and, if applicable, funding improvement plans.) Senate Bill No. 2800 Picard, AN ACT RELATING TO TAXATION -- STATE TAX OFFICIALS (Changes the rate of interest for underpayments of tax to prime rate plus six percent (6%). It would also limit the assessment of interest to four (4) calendar years.) Senate Bill No. 2801 Conley, Satchell, Goodwin, Metts, Cano, AN ACT RELATING TO TAXATION -- PERSONAL INCOME TAX (Adds one new income tax bracket for purposes of state income taxation.) Senate Bill No. 2803 Conley, DiPalma, Lynch Prata, Seveney, Pearson, AN ACT RELATING TO PUBLIC PROPERTY AND WORKS -- STATE PURCHASES (Increases the maximum small state purchase from $10,000 to $25,000 for construction projects and from $5,000 to $10,000 for all other small purchases.) Senate Bill No. 2804 McCaffrey, Pearson, AN ACT RELATING TO TAXATION -- PROPERTY SUBJECT TO TAXATION (Amends the classification of manufacturing machinery that is eligible for a property tax exemption.) Senate Bill No. 2816 Lynch Prata, AN ACT RELATING TO BUSINESSES AND PROFESSIONS -- HOTELS (Requires all hotels to make a good faith effort to post human trafficking awareness signage and provide all employees with human trafficking awareness training.) Senate Bill No. 2831 Lynch Prata, AN ACT RELATING TO LABOR AND LABOR RELATIONS -- TEMPORARY DISABILITY INSURANCE BENEFITS (Increases temporary caregiver benefits to six weeks starting January 1, 2021 and then to eight weeks starting January 1, 2022.) Senate Bill No. 2832 Lynch Prata, AN ACT RELATING TO LABOR AND LABOR RELATIONS -- PAYMENT OF WAGES -- VIOLATIONS (Increases penalties for violations of certain wage and hour laws.) Senate Bill No. 2835 Valverde, Satchell, Cano, Murray, DiPalma, AN ACT RELATING TO HEALTH AND SAFETY - STATE BUILDING CODE (Requires that baby changing tables are provided in the ladies' and men's rooms of the Rhode Island State House and be included in new or substantially renovated construction of all publicly accessible buildings.) Ongoing Reminders
State House Activity
The House Finance Committee has said it will convene Thursday to begin to deliberate budget issues. Logistically how the meeting will work is still not clear as social distancing is still required. The meeting could be held in a larger room, with testimony provided via zoom or with individuals coming from other rooms to provide testimony. The Finance Committee meeting will be viewable through livestream on CapitolTV found at: http://www.rilegislature.gov/CapTV/Pages/default.aspx Revenue Estimating Conference Completes Its Work The Revenue Estimating Conference completed its analysis of revenue for the current fiscal year (FY2020) and for FY2021 which starts July 1, 2020. As expected, the numbers do not paint a pretty picture and lawmakers will have their hands full crafting a budget for the State of Rhode Island. Still unknown – whether the federal government will provide any stimulus money to states to assist in the recovery. As we all know, federal money is still money that must be paid by taxpayers eventually. FY2020 Numbers The gap that must be closed in less than two months is large. Revenues are down. Personal income tax collections are down $82.9 million from what was anticipated back in November. Business Corporation taxes are down $10.8 million. The sales tax revenue was debated amongst the group for about 45 minutes. Trying to determine revenue collections as the economy slowly opens is extremely difficult. The good news, from a revenue standpoint, is that there was an increase in remote online sales tax collection. However the sales tax (which includes meals and beverage taxes, and hotel taxes in addition to retail sales tax) is down $63.1 million. The biggest hit to the FY2020 revenues, as expected, is lottery revenues. This revenue bucket includes lottery games, casino VLT and Table games, and sports betting, most of which came to a screeching halt when the conoravirus hit the State. Lottery revenues are down $108.5 million. Are there any bright spots in the FY2020 revenue numbers? A few…revenues derived from bank deposits, cigarettes, alcohol and unclaimed property went up just a little. And revenues from financial institutions and realty transfers stayed even with the November estimations. Unfortunately, the overall bottom line for revenues in FY2020 is a loss of $280.9 million over the November estimate. FY2021 Numbers For FY2021, the numbers are bleak. The following numbers are compared to our current fiscal year, which keep in mind, is already reeling from a $280.9 million decrease in revenues from where we expected to be had the virus not hit the economy. Also, kudos to the members of the Revenue Estimating Council who agonized over trying to predict how the economy will react in a very unstable time. The economic forecasters provided their insight, but in the end, the projections are a best guess at how the economy will react – when will people get back to work, when will people be able to sit in restaurants or enjoy an outside festival, etc. Personal income tax revenues are projected to go down another $63.1 million from the current fiscal year for a total personal income tax of $1,295,800,000. For comparison, before the economy closed, the current fiscal year was expected to bring in $1,441,800,000 (FY2021 is projected to see $146 million less in personal income tax collections than the State had expected to see in FY2020 before the economy went south). The Business Corporation tax revenue is expected to fall another $600,000 over the current fiscal year. Sales and Use Tax is projected to fall another $19.9 million over the current fiscal year loss. And the lottery revenue is projected to fall another $3.4 million over the current fiscal year loss. Again, the lottery revenue was difficult to predict as the opening dates for the casinos are unknown, and the start date for sports is unclear. One interesting trivia note: if the year goes as planned, there will be two Kentucky Derby races in FY2021 which are big betting days (get your hats now!). Again, a couple bright spots include an expected slight increase in the health care provider revenue as well as revenue from alcohol sales. The members of the conference reduced the amount of revenue expected to be generated from the sale of cigarettes due to the federal law change moving the legal age of smoking to 21. However, the members did not adjust the tax number for the potential for Rhode Island to see an increase in sales when Massachusetts eliminates the sale of menthol cigarettes June 1st. Massachusetts passed a sale ban on menthol cigarettes which will go into effect unless a vote is taken to suspend the ban. Should the law be allowed to go into effect, Massachusetts will send about $230 million in tax revenue to its neighboring states, including Rhode Island. At the close of the Revenue Estimating Conference, the overall revenue projection for the State of Rhode Island for FY2021 that begins July 1, 2020 and ends June 30, 2021 is $3,725,850,000. That represents a $452.95 million loss in revenue (10.8%) from what the State had expected to receive in FY2020 before the pandemic. This is the number lawmakers will use to craft a budget. How Will the General Assembly Move Forward Lawmakers must deal with the current fiscal year budget shortfall before June 30th. They do have choices concerning how to handle the FY2021 budget, however. They can push it off until the summer (a budget was passed in August one year); they can pass a budget before June 30th, based on current information and adjust it later should the federal government step in and provide assistance; or they can pass an interim budget to cover the next few months and then return in the fall to craft a FY2021 remainder budget based on the updated information at that time. State House Activity
The Joint Legislative COVID-19 Emergency Spending Task Force met last Thursday to provide an avenue to ensure that the public has trust in the government along with a verification process concerning expenditures. Senate Finance Chairman William Conley and House Finance Chairman Marvin Abney both referred to this process as a collaborative one with the Governor. The Governor is operating under a state of emergency until May 8th. The Governor can extend that declaration of emergency for a period of 30 days; and there is no limit as to the number of times the Governor can extend the declaration. As of April 28th, Rhode Island has encumbered $147 million in COVID-19 related goods and services and has expended $8.9 million. Money “encumbered” does not necessarily mean that amount will be expended. As an example, the state has encumbered $38.2 million for ventilators. Director of Administration, Brett Smiley stated that due to the success of social distancing, the need for ventilators (barring a resurgence) has decreased. His office expects the amount to be spent on ventilators to be closer to $11-15 million. The encumbrance/expenditure amount does not include all of the monies needed for the hospital surge effort, testing, contact tracing and technical enablement and quarantine and isolation needs. The Governor will be providing an updated report in May. More than 2200 state Executive Branch employees are teleworking. To accomplish this, the State purchased more than 1,100 laptops and expects to get 300 more. Approximately $1.8 million was spent for an Amazon Web Service to host Pandemic Unemployment Assistance and to process the volume of recertification calls and web submissions. Part of the $1.8 million was also used for unemployment security, audits, etc. Senator Joshua Miller asked if at a future meeting the Department could report on how the federal monies could be used to assist businesses that were closed as a result of COVID-19. Director Smiley stated that he would be willing to do that, and that the Governor’s office is still trying to determine how the federal guidance technically works for “secondary” expenses due to the pandemic. The Encumbrance and Expenditure Report can be viewed at: http://www.rilegislature.gov/jlc19/2020-4-28%20Encumbrance%20Expenditure%20FINAL.pdf Revenue Estimating Conference Looks at Economic Outlook Last Wednesday, the REC listened to the best guess economic forecast from its consultant IHS Markit. At the end of 2019, Rhode Island was doing fairly well from an economic standard. Unemployment remained steady at 3.5%, and there was a slow growth in population of 0.1%. The growth data showed that Rhode Island lost population through migration to other states (3,215 people) and gained population through migration to the State from other countries (3,645 people). Births outnumbered deaths in the state by 679 people. Even residential real estate was on “solid footing” according to the expert. “After averaging gains of 3.5% per month in January and February, private-sector nonfarm payrolls contracted at a 13.2% annualized pace in March. [This] Translates to a monthly net loss of 5,200 jobs.” This was the beginning of the COVID-19 effect on Rhode Island. The forecast included the following prediction highlights:
Lottery Revenue Challenges Lottery Commission Director Gerry Aubin and his team provided an overview of revenue and expenditures derived from lottery games, casino gaming and sports wagering. The detailed information provided in the testimony can be viewed at: http://www.rilegislature.gov/April%2029%202020/RI%20Lottery%20May%202020%20REC%20Presentation%20for%20April%2029,%202020.pdf Before the start of the COVID-19 crisis, PowerBall ticket sales were behind FY2019 by 34.19%. As the Director explained, this decrease is primarily due to larger jackpots in the prior fiscal year. The same situation occurred with the sale of MegaMillions tickets which saw a decrease of 47.51% from FY2019. The sale of instant games is up, however, by 4.97% compared to the same period in FY2019. As of April 30th, the State’s General Fund has received $44.8 million from all lottery games. The State was planning to receive $57 million by the end of June, so it appears this revenue source will be down. The bigger challenge that concerns everyone is the closure of the State’s two casinos that took place at 12:00 a.m. on March 14, 2020 (seven weeks ago). According to the written testimony provided, the VLT revenue through April 2020 is down 7.91%, and table games revenue is down 9.61%. But these percentages were driven down by the recent closure, so expect those percentage numbers to rise. This screeching halt at the two facilities could mean a loss in revenue of $100-$120 million for the state in the current fiscal year. If the facilities are able to partially open, perhaps some of the loss could be mitigated. The general rule of thumb is that the state loses about $1 million a day when the facilities are closed. The closure (or partial opening) will also have potentially large impacts on next year’s budget as well. Meetings Scheduled for Next Week Revenue Estimating Conference Monday, May 4, 2020 - Testimony 2:30 P.M. Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator Accruals – Accounts and Controls Peter Keenan, State Controller Tuesday, May 5, 2020 – Caseload Estimate 9:00 A.M. Caseload Estimating Conference Wednesday, May 6, 2020 – Follow-up Testimony (if needed) 11:00 A.M Tax Collections – Department of Revenue, Division of Taxation Neena Savage, State Tax Administrator Friday, May 8, 2020 – Revenue Estimate 9:00 A.M. Revenue Estimating Conference – this should be the final meeting where the final numbers will be adopted |
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