State Budget – Where to Cut

To close the half billion dollar operating deficit and back Rhode Island down from its ranking as the seventh highest taxed state, the focus must be on state spending which is funded by General Revenues – state income tax, lottery proceeds, business tax, gas tax, sales tax. Out of the 2007 state budget of $7,000,000,000, approximately $3,200,000,000 is funded from General Revenue. [The rest of the revenue – federal, etc – is free, right …?] Below is the breakdown for 2007 General Revenue spending. These are the areas in which cuts need to be made. For contrast, I added General Revenue spending for 2000, which totaled around $2,200,000,000.
It should be noted that while Rhode Island’s General Revenue spending increased by $1,000,000,000 and total spending increased by $2,400,000,000 from 2000 to 2007, Rhode Island’s population increased by only .009, from 1,048,319 to 1,057,832.
ADDENDUM
Commenter John correctly points out that this post, expensive (my characterization) as it is, does not include all General Revenue spending because it

obscures (within different line items) the other driver of spending increases — increased costs for pensions and, especially, pay as you go costs for retiree health care. Those are broken out separately in a different set of analytical tables in the budget.

The question then arises, of all the categories, what is mandatory and what is discretionary spending? As the General Assembly has made costly promises throughout the budget that the state cannot keep, it becomes clear that the entire expenditure side of the budget has been rendered discretionary, even including the two sacred cows which John reminds us of.

FY 2000 Revised FY 2007 Revised

General Government

Administration $301,398,448 $451,453,511
Business Regulation 7,897,375 10,812,564
Labor & Training 6,745,759 6,997,013
Revenue 0 35,773,913
Legislature * 30,784,769 33,472,897
Lieutenant Governor 687,999 896,416
Secretary of State 4,470,547 6,106,546
General Treasurer 4,808,862 2,662,801
Boards for Design Professionals 315,350 380,240
Board of Elections 2,098,265 3,684,992
R.I. Ethics Commission 814,502 1,273,231
Governor’s Office 3,729,907 4,681,601
Public Utilities Commission 740,530 737,811
R.I. Commission on Women 123,003 99,023

Subtotal: General Government

$364,615,316

$559,032,559

     

Human Services

Office of Health & Human Services 0 310,738
Children, Youth & Families 116,736,956 181,378,754
Elderly Affairs 19,715,333 19,364,571
Health 29,098,110 34,417,579
Human Services 465,187,755 716,426,058
Mental Health, Retardation & Hospitals 198,122,982 238,057,998
Office of the Child Advocate 412,965 558,674
Commission on Deaf & Hard of Hearing 239,627 342,524
Governor’s Commission on Disabilities 254,780 552,672
Commission for Human Rights 693,927 989,630
Office of Mental Health Advocate 239,067 403,413

Subtotal: Human Services

$830,701,502

$1,192,788,891

     

Education

Elementary & Secondary 616,104,140 884,303,258
Higher Education-Board of Governors 152,122,518 189,491,502
R.I. Council on the Arts 973,776 2,764,965
Atomic Energy Commission 593,929 810,531
Higher Education Assistance Authority 7,760,445 6,708,495
Historic Preservation & Heritage Commission 1,760,967 1,667,924
Public Telecommunications Authority 1,028,823 1,317,786

Subtotal: Education

$780,344,598

$1,087,074,461

     

Public Safety

Attorney General 13,438,974 20,313,531
Corrections 123,680,587 156,781,330
Judicial 51,469,015 80,842,834
Military Staff 2,272,265 2,826,113
E-911 Emergency Telephone System 0 4,098,361
Fire Safety Code Board of Appeal & Review 169,627 297,368
State Fire Marshal 1,271,547 2,596,825
Commission on Judicial Tenure & Discipline 121,209 111,216
R.I. Justice Commission 186,699 154,303
Municipal Police Training Academy 578,560 404,620
R.I. State Police 32,446,830 54,070,136
Office of Public Defender 5,031,835 8,882,554
Sheriff of Several Counties 8,361,750 0

Subtotal: Public Safety

$239,028,898

$331,379,191

     

Natural Resources

Environmental Management 31,939,123 36,632,436
Coastal Resources Management Council 963,746 2,130,724
Water Resources Board 912,123 1,825,672

Subtotal: Natural Resources

$33,814,992

$40,588,832

     

Total General Revenue Spending

$2,248,505,306

$3,210,863,934

     

* LEGISLATURE – While such an increase may seem moderate, keep in mind that the General Assembly had downsized itself from 150 to 113 members between 2000 and 2007.

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John
John
13 years ago

A nice piece of information to present to Anchor Rising readers. It clearly points to where the bulk of the spending increases have occurred (paging Ms. Brewster and the banshees)…
That said, it obscures (within different line items) the other driver of spending increases — increased costs for pensions and, especially, pay as you go costs for retiree health care. Those are broken out separately in a different set of analytical tables in the budget.
Bottom line: as anyone who works in the private sector could tell the rocket scientists now opening their 2008 session on Smith Hill, when it comes to budget cutting, the 80/20 rule says: “start with the big line items.” But in this case, I’m not going to hold my breath. I long ago concluded that change was more likely to come – painfully — via US Attorney Corrente’s efforts and a series of rolling bankruptcies, first at the municipal level via the established Chapter 9 process, and then via RI making constitutional law history by being the first state to blaze new ground in bankruptcy law.

Mike
Mike
13 years ago

“It should be noted that while Rhode Island’s General Revenue spending increased by $1,000,000,000 and total spending increased by $2,400,000,000 from 2000 to 2007,”
XXX
Well Golley-you mean you think increasing spending at 2 1/2 times revenues is fiscal suicide?
You must be one of those wingnuts that financial genius and all around prize human being (LOL) Pat Crowley says “can’t add”.

Mike
Mike
13 years ago

Anyone who thinks this GA is going to make $600 million in cuts is deluding themselves.
Sales tax will be “broadened”. Historic and film credits will be slashed. Fees will be added up the ying-yang. Capital gains and corporate “loopholes” will take hits. Many cuts will still have to be made…unless they take the obscene, cannibalizing measure of selling the lottery.
As for the future, I see John’s vision playing out, whether sooner or later.
I don’t believe the state, as an entity will go bankrupt. Rather, by gutting the $700 million plus annual extortion payments to the teacher unions (“state aid to education” in Progressivespeak) the municipalities will be forced into Chapter 9, jettisoning their absurd labor contracts.
If the GA is really bent on fiscal suicide, they can sell their interest in the VLT’s for (just a guess) $1.5 billion to keep the SS Union/Welfare afloat for 3 or 4 more years. After that? Dylan said it best ” A hard rain’s gonna fall”. Anyone seen lovely Detroit recently? LOL.

Pragmatist
Pragmatist
13 years ago

I’m not sure why you would want to work off of the numbers for FY07, since we are currently in FY08. That final FY08 budget can be found at the Budget Office website:
(http://www.budget.ri.gov)
As for what is discretionary and what is not, huge chunks of the budget are not discretionary, for one reason or another. For example, $120 million for debt service on bonds already issued and the nearly $200 million for Corrections, and the $900 million or so that goes to local governments in various forms of aid. Sure, you might be able to shave local aid a bit and save a few million, but it won’t amount to much.
As for pension benefits, while some savings might be had by curtailing benefits for non-vested members of the retirement system, the overwhelming majority of the costs of the system are for retirees and vested members, whose benefits simply can’t be touched.
Two-thirds of the budget can be found in two places: social services and personnel. And before we start howling too loudly about Ritecare and welfare, we spend a whole lot more on nursing homes that we do on welfare.

Pragmatist
Pragmatist
13 years ago

Monique:
The Budget Office website is the one I directed you to. The FY08 Budget as Enacted is available there and provides a better comparison than the FY07 numbers you cite, since we know that the final FY08 spending will be at least what is included in the FY08 Budget. Use old data if you wish.
Respectfully, how exactly should we cut the $120 million in debt service? Are you suggesting that we default on a debt payment? No, I’m sure you are not suggesting that. Any reasonable person would deem that expenditure not discretionary. Simply saying, as you do, that everything is on the table is a bit simplistic, no?
As for cutting vested pension benefits, no court in the United States will permit it. Those costs are not discretionary.
As for your overall comment — “There isn’t enough tax money to cover all this spending” — that’s not quite accurate either is it? Accoriding to the budget office, there is indeed enough revenue to cover all but about $150 million of “all this spending” in FY08.
Now, back to the main point. What specifically to cut. Why don’t you start with the FY08 Budget and take a look.

John
John
13 years ago

Pragmatist,
U.S. Courts, and the PBGC, have repeatedly allowed vested pension benefits to be cut in bankruptcy proceedings. Just ask any airline pilot you know. No reason it couldn’t happen in the public sector too, especially where those vested benefits haven’t been funded.
That’s why the real end game in RI is to see to what extent they can be funded before bankrutptcy is declared, either at the municipal or (admitedly, more of a stretch, as it would break new constitutional ground) the state level. But rest assured that’s where we’re going to end up. As you effectively said to Monique, do the math.

Anthony
Anthony
13 years ago

Did anyone else see in the paper where Carcieri’s Insurance Commissioner suggests that the $20 million Blue Cross money might be spent on “a planning effort for universal health care”?!?!
This gets better all the time.
What better way to spend $20 million that to figure out how the government can run even larger deficits!

Pragmatist
Pragmatist
13 years ago

John,
1. The PBGC has no jurisdiction over state and local public employee pension benefits.
2. The state is not going to declare bankruptcy, ever, and neither is any municipality, period. No state has ever done so, despite civil war, depressions, and natural disasters. A precious few municipalities out of the tens of thousands in the nation in the hundreds of years of our nation’s history have declared bankruptcy. You all can stop the hyperventilating.
3. No court will allow a state to de-vest pension benefits already vested.
Here’s a wild guess on how the deficit will be fixed: some deep personnel cuts, some significant scaling back of social services, a cut in local aid, a grab bag of revenue hikes, and a handful of gimmicks. Oh, and here’s a prediction that the May revenue estimates are higher than the November estimates.

John
John
13 years ago

Pragmatist,
I realize the PGBC has no jurisdiction over public DB plans; however, I used it to illustrate a point: unfunded but vested DB pension benefits have regularly been reduced in the private sector as part of bankruptcy reorganizations. The precedent for similar treatment of public sector plans is therefore established.
I read your post to argue that for some reason, unfunded vested public sector DB benefits would be treated differently. At the end of the day, courts too respond to political forces, particularly where precedent is unclear. To me, this means that the real uncertainty is whether a federal bankruptcy court dealing with a Chapter 9 municipal reorganization would force either large tax increases or substantial cuts in other areas in ordder to keep whole the benefits (pension and post retirement health care) of a group of people (public employees) who are increasingly looked upon with a mix of anger and resentment by the large majority of taxpayers who work in the private sector.
And, of course, the other unstated assumption in your post is that said taxpayers will meekly choose to remain in RI in spite of this treatment. If they leave in increasing numbers, it’s a completely different ballgame, no?
Finally, with respect to your points about no state ever declaring bankruptcy in the future, I know of at least two large NYC and one large CA law firm that have thoroughly researched this issue, in anticipation that one or more states may be forced to go this route in the future.
I recognize that you may be right in your forecast for the future. Or you may be wrong. I guess time will tell.

Mike
Mike
13 years ago

I’ll make a flat prediction that Providence is in Chapter 9 by the end of 2013.
The tax base is almost flat. Expenditures are going up 8% (when you factor in pension payments). The unfunded pension liability, $300 million when the corrupt, effeminate freak took office, is now $800 million and will be close to $2 billion by 2015. State aid will be flat, at best, for the forseeable future. All this in a city dominated by near impoverished Third Worlders. This adds up to D-E-F-A-U-L-T.

John
John
13 years ago

Pragmatist and others,
Download this document http://www.chicagofed.org/news_and_conferences/conferences_and_events/files/2006_pension_spiotto.pdf
It is from a recent Federal Reserve Bank of Chicago conference on public sector pension and OPEB liabilities, and gives a good overview (by one law firm)of its research into the treatment of these items under Chapter 9.

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