Ocean State losing federal dough, report says

Tuesday, April 18, 2006

Rhode Island is receiving less federal aid relative to the tax revenue it sends to the federal government, according to a recent report by the Rhode Island Policy Expenditure Council.

The March report shows that, from 1994 to 2004, Rhode Island dropped from 21st to 31st nationally in terms of federal money to the state per dollar of federal taxes.

Gary Sasse, executive director of RIPEC, cited two reasons for the trend.

“Our income is probably growing quicker than income(s) of other states,” he said. “Generally, in states with high income, because of the progressive federal tax system, we send more to Washington.”

Also, he said, “the federal government doesn’t have the money to spend” because of the current federal budget squeeze.

55 percent of federal money that returns to Rhode Island, Sasse said, comes in the form of direct payments to individuals, such as social security or Medicare benefits. Though changes to this funding at the federal level could affect individuals, Sasse said it is “not clear what impact that would have on the state.”

30 percent of federal aid comes in the form of payments to the state to support Medicaid, transportation and other programs. Sasse said the relative reduction in federal aid would likely affect this funding, which currently totals about $2 billion a year. That, Sasse said, could create “potential issues for the state budget.”

Rhode Island’s current budget woes make the report more ominous. The state is already facing a $300 million budget deficit. The loss of federal grants was “one of the reasons (Gov. Don Carcieri ’65) this year had to propose changes to Medicare” and Medicaid, Sasse said.

Jeff Neal, Carcieri’s press secretary, also pointed to Medicaid as an example of a program affected by declining federal aid.

“Rhode Island will be receiving $35 million less in funding for Medicaid programs in the coming fiscal year than it did this year,” Neal said. “Either the state has to make that up, or those services cannot be paid for.”

Neal, who said he had not read the RIPEC report, said while the state needs more revenue, raising taxes might not be a viable solution.

“Rhode Island currently has the sixth-highest tax burden. There’s not a lot of room left to raise taxes,” he said, adding Carcieri plans to cut taxes to encourage economic growth. Neal said the state must instead “reduce the rate of growth in spending,” which has increased at a rate of 8.5 percent each year.

State Rep. Edith Ajello, D-District 3, said Rhode Island’s federal representatives should work to get the state more funding from the federal government.

“Our state senators – Senator (Jack) Reed (D-R.I.) and Senator (Lincoln) Chafee (’75, R-R.I.) and Representatives (Patrick) Kennedy (D-R.I.) and (Jim) Langevin (D-R.I.) – are the ones most likely to be helpful,” she said.

But she added the state will have to also “find alternate sources of funds,” though she said she does not know what those might be.

Carcieri and RIPEC both support an amendment to the state constitution that would limit the annual rate of growth of state spending to the Consumer Price Index plus 1.5 percent as well as hold local property tax increases to 4 percent each year.

According to an April 12 press release from Carcieri’s office, the “state government could have spent $543.8 million less in general revenue funds in (fiscal year) 2005 if state spending growth had been restrained by this constitutional amendment since (fiscal year) 1996.”

“Ultimately, we need to make Rhode Island affordable for Rhode Islanders,” Neal said, citing the amendment as a way to accomplish this. The General Assembly has held hearings on the amendment. According to a recent RIPEC survey, 72 percent of voters said they would vote for it.

Sasse said “efforts to reduce federal domestic spending because of the federal budget deficit” could further diminish the amount of federal aid that Rhode Island receives. He noted the diminishing New England population relative to that of the southern and western regions of the country could result in less political power at the federal level for Rhode Island and its neighbors, thereby resulting in less federal aid.

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