Wednesday, June 11, 2025

GoLocalProv News Team

The House Finance Committee voted 11-3 today to approve a balanced $14.33 billion budget for the 2026 fiscal year.

The House press release says the budget “bolsters Medicaid despite threats at the federal level; increases reimbursements for primary care providers, nursing homes, and hospitals; and provides additional resources to address the housing crisis.”

But the news is that the budget is a significant slap to Governor Dan McKee. The budget rejects many of his biggest proposals. The budget proposal totals about $500 million less than the current year’s budget.

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Speaker Joseph Shekarchi cited the announcement of the increased price tag for replacing the westbound span of the Washington Bridge. The committee added $22 million to cover the state’s share of the project costs from capital funds in 2027.

The House Rejected McKee’s Proposal to Buy a Building for $31 Million

According to the House budget narrative, “the House Finance Committee does not concur with the Governor’s proposal to acquire, renovate, and move various state operations to a new facility in East Providence and removes $31 million from Rhode Island Capital Plan funds recommended for this expense.”

McKee’s Digital Advertising Tax Is Rejected

“The House Finance Committee does not concur with the Governor’s proposal to create a 10.0 percent tax on business gross revenue derived in Rhode Island from digital advertising for companies with at least $1.0 billion in global revenues, effective for tax years beginning on or after January 1, 2026.  The Governor’s FY 2026 budget assumes $9.5 million in revenues that would annualize to $19.6 million for FY 2027, writes the House.   

Maryland tried such a tax. “When Maryland adopted the nation’s first tax on digital advertising in 2021, legislators hoped for a nudge for consumers to switch from ad-supported free services to paywall-based models, to target big tech companies, and to collect as much as $250 million a year in additional revenue.

Four years later, the tax has proven a debacle,” writes the National Taxpayers Union.

This budget also includes many new taxes on gas, tobacco, and real estate transfers, but it does not include a so-called “millionaire tax.”

All of it may be thrown into chaos as Congress is expected to pass some form of President Donald Trump’s “Big Beautiful Budget Bill” that will cut Medicaid and impact other aspects of Rhode Island’s budget. There are already discussions in the State House of the need to return in October or November to adjust the budget based on federal impacts.

Real Estate Transfer Tax Changed

“Real Estate Conveyance Tax Increase (Oct 1).  The Real Estate Conveyance Tax includes a first-tier rate of 0.46 percent charged on all transfers and a second-tier rate of 0.46 percent charged on the portion of residential transfers above $800,000.  The Governor recommended increasing the second-tier rate to 0.79 percent, resulting in a top-tier effective rate of 1.25 percent, effective October 1, to generate $2.3 million for the Housing Resources and Homelessness restricted account in FY 2026.  The House Finance Committee recommends increasing both rates to 0.75 percent, for a top-tier effective rate of 1.5 percent, also effective October 1, 2025.  Revenue from the first tier is allocated according to a statutory formula that includes an allocation to municipalities, essentially unchanged from current law.  The second-tier rate would now be split, with 0.50 percent of the 0.75 percent allocated to the Housing Production fund, up from 1 the current 0.46 percent, and the remaining 0.25 percent to the Housing Resources and Homelessness restricted account,” writes the House.

“Despite the very significant challenges we face in this fiscal year, this budget reflects our commitment to our priorities: not only protecting, but strengthening the vital Medicaid programs that provide health and safety to Rhode Island’s seniors, children, individuals with disabilities and working families; supporting our health care system, particularly the hard-working primary care providers and frontline caregivers, and addressing our housing crisis,” said Shekarchi (D-Dist. 23, Warwick).

“While the budget as presented to us in January included some difficult gaps that we had to close before we could consider any new programs, I’m proud of the hard work that went into ensuring that the final product puts everyday Rhode Islanders’ fundamental needs front and center. The budget is always a statement of our values, and this one says that Rhode Island is committed to the health and well-being of every member of our community,” adds Shekarchi.

House Finance Committee Chairman Marvin L. Abney (D-Dist. 73, Newport, Middletown), said, “Without any doubt, this has been one of the most challenging budgets to craft in quite some time and the fiscal issues Rhode Island is facing are significant. Rising costs, federal uncertainty and a slowing economy are some of the reasons why this was a difficult budget to put together, but it also underscores the importance of passing a budget that helps and supports every Rhode Islander during these trying times.”

Despite the loss of federal COVID funding, the budget is about $3 billion higher than before the crisis.

According to the House Press Release, the Budget Highlights Include:

Health care

The bill bolsters primary care by putting more than $40 million — $15 million in state funding, the rest from federal sources — toward Medicaid rate increases for primary care providers, which lag behind those in surrounding states. It also includes a primary care rate review to be performed by the Office of the Healthcare Insurance Commissioner in 2026. Additionally, it maintains a proposed match to qualify for federal funding for a loan forgiveness program for PCPs working in underserved communities. Legislators are also working on several bills outside the budget to ease pressures on primary care providers.

The Finance Committee added $38 million over the governor’s proposal for hospitals reimbursement rates and direct support payments, including the restoration of the upper payments limit program that the governor cut in his proposal.

The committee also added $12 million above the governor’s proposal to increase reimbursement rates for staff at nursing homes as part of its revision to the safe staffing law.

Housing

The committee increased support for programs to help Rhode Islanders experiencing homelessness by $4 million over the governor’s proposal for a total of $8.5 million. The increase is funded by a portion of an increased conveyance tax and a portion of the hotel tax on whole home rentals as well as an infusion of general revenues. It also incorporated a separate legislative proposal to allow the developers proposing to renovate the “Superman” building in downtown Providence into housing and commercial space to access an additional state tax incentive programs, but the budget maintains the current total cap on the program.

The bill also institutes a new tax on the value of non-owner-occupied houses above $1 million, dedicating that revenue to future redemptions of the low-income housing tax credit.

Support for cities and towns

The budget includes an increase in the general real estate conveyance tax levied on all sales, distributed the same way it is now including revenue directed to municipalities. It also extends the hotel tax to short-term rentals of whole homes, dividing the new revenue between the municipalities where it is generated, support for homelessness programs, and the hospitality and tourism development agencies that get a cut of the rest of the hotel tax. The committee also raised the local hotel tax from 1 to 2 percent, further supporting municipalities.

The committee added a new proposal to apply the state sales and use tax to short-term parking of up to one month starting Jan. 1, to generate $1.6 million during the half of the fiscal year it applies.

Funding for distressed communities was raised by $2.5 million over the governor’s proposal. The car tax reimbursement index was restored but capped at 2 percent.

To further help strengthen municipal budgets, the committee fully funded library aid, as well as the funding formula for state aid to education. The committee added $16.5 million in education aid to the governor’s proposal to cover data updates and some increased allocation through special education categorical funding, for a total of $59 million above the current year’s level for education aid.

Transportation

To help the Rhode Island Public Transit Authority with its budget shortfall, the committee dedicated a 2-cent-per-gallon increase in the gasoline tax to RIPTA. That move, along with an expanded share of other dedicated transportation funds, is expected to provide about $15 million to RIPTA in the 2026 fiscal year. While additional funding is less than RIPTA’s initially projected budget shortfall, House leaders are pushing the agency to identify efficiencies to make up the rest, and included a stipulation prohibiting RIPTA from cutting the RIde Anywhere program that provides door-to-door transportation for qualified passengers with disabilities.

The committee expanded the governor’s proposal for a new registration fee for electric vehicles as a proxy for transportation support that drivers of other cars provide through the gasoline tax. The proposal includes a $200 annual registration fee for battery electric vehicles, $100 for plug-in hybrids and $50 for hybrids.

The committee also maintained the governor’s assumption that the state’s toll gantries for commercial trucks, shut down for several years over a lawsuit that the state ultimately won, would be reactivated by the final months of the year to generate $10 million in revenue.

Child care

The committee extended a state program that subsidizes child care for child care providers. It also established separate rates for infants and toddlers receiving state-subsidized care and increased the infant rate to address the higher costs of those placements.

Initiatives not funded

For the second straight year, the committee removed the governor’s proposal to purchase a large facility owned by Citizens Bank in East Providence to house several state departments. In addition to general uncertainties, 

The committee faced significant challenges in this budget, from the end of emergency federal COVID funding, a sizable budget gap to address, and having identify solutions to numerous gaps in the governor’s proposal. Accordingly, the committee largely declined to include most new spending programs the governor’s budget proposed.

It also did not include his proposal to raise the cigarette tax by another 50 cents to $5 per pack, although it did close a loophole that has resulted in nicotine pouches to escape the tax on other tobacco products.

The committee did not increase marketing dollars given to Bally’s casinos. Bally’s sought a $17 million increase in the state’s marketing share in exchange for a possible smoking ban in the casinos. 

Also not included were the “baby bond” proposal from the governor and general treasurer, the governor’s workforce development program increases and a proposal to merge the minimum and medium security units at the Adult Correctional Facilities that was found not to achieve the intended savings.

The committee also did not incorporate a proposal to institute a “millionaire’s tax” on high earners, although Speaker Shekarchi said, given uncertainty at the federal level including major tax code changes, it is an option he would prefer to leave on the table for consideration should the state’s circumstances change later in the year.

The bill (2025-H 5076A)  now goes to the full House of Representatives, which is scheduled to take it up on June 17 at 3:30 p.m..

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