New fiscal year 2025 revenue projections show an additional $67 million in revenue coming in, helping soften the blow of an expected $398 million structural deficit in fiscal 2026. (Alexander Castro/Rhode Island Current)
A nearly $400 million deficit is expected to force dramatic government programming cuts in the fiscal 2026 state budget.
But for now, a brief glimmer of hope: State revenues are expected to come in $67 million higher than previously anticipated for this fiscal year, which could ease the pain of upcoming budget deliberations, according to new estimates adopted at the biannual Revenue and Caseload Estimating Conference on Friday. The upward revisions approved by state budget crunchers now show $5.56 billion in annual revenue will be collected by June 30, 2025, up from the $5.49 billion estimate projected in May.
It’s not a dramatic turnaround, but every little bit helps, said Michael DiBiase, president and CEO of the Rhode Island Public Expenditure Council.
“They haven’t really changed the picture very much,” DiBiase said in an interview Tuesday. “It’s better to go positive than negative, but I don’t think it’s been a big change. It’s improved a bit.”
Tough choices ahead for R.I. lawmakers staring down $400M FY26 budget deficit
New November projections aim to help elected officials and staff shape spending proposals for the upcoming fiscal year. Gov. Dan McKee is expected to reveal his proposed fiscal 2026 budget in January, which will then be turned over to the Rhode Island General Assembly to mold and finalize.
Most of the newfound money isn’t actually new at all, but rather, brings projections up to speed. For example, the $48 million bump in projected personal income taxes includes $35 million recognizing delayed tax filings.
The Rhode Island Office of Management and Budget already recognized and factored in the delayed tax filing revenue in its own October memo warning of future deficits.
Also getting better: a projected $11.8 million increase in estate tax revenue, and $10.5 million more in bank tax revenue. Sales and use tax income forecasts saw a nearly $2 million bump over prior projections.
The expected gains were partially offset by a $25 million cut to lottery income, including $10 million less in iGaming revenue. Business taxes are also forecast to come in $4 million below past estimates, while insurance tax projections decreased by $2.6 million.
2.3% increase in revenue for FY 2026
For the fiscal year starting July 1, 2025, budget crunchers expect more than $5.68 billion in total revenue. But the 2.3% annual growth rate is not enough to keep pace with rising state expenditures, creating what the state budget office projected will be a $398 million structural deficit in fiscal 2026, and swelling to more than $680 million by fiscal 2030.
The state budget office has already put government agencies on notice, requiring additional reviews for new hires or spending of more than $5,000, and mandating that each department submit a “constrained” fiscal 2026 budget request that cuts spending by 7.5%.
Olivia DaRocha, a spokesperson for Gov. Dan McKee’s office, pointed back to the projected deficit in an emailed statement on Tuesday.
“As we navigate these financial challenges, it remains crucial to prioritize fiscal responsibility and protect Rhode Island taxpayers,” DaRocha wrote. “To address this projected deficit, our Administration is proactively making budgetary decisions to streamline operations, eliminate redundancy, and ensure every dollar is used efficiently. In the upcoming budget process, it will be important to work with our partners in the General Assembly to ensure we pass a budget next year that is fiscally responsible and does not impede our state’s steady economic growth.”
House Speaker K. Joseph Shekarchi and Senate President Dominick Ruggerio put a similar emphasis on balancing the budget in a separate, joint statement on Tuesday.
“We must focus on ensuring important initiatives already approved are implemented efficiently as we try to grow Rhode Island’s economy and ensure it works for everyone,” they said.
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