A balanced budget appears likely this year, but Rosemary Booth Gallogly forecasts a gap of at least $163 million if taxes and spending don't change.

01:00 AM EST on Saturday, November 20, 2004

BY LIZ ANDERSON
Journal State House Bureau

PROVIDENCE -- The state is on pace to finish the year with a balanced budget, but it will probably have no surplus to carry forward to help offset a looming deficit, the state's top budget official said this week.

Chief Budget Officer Rosemary Booth Gallogly projected that the deficit for the next fiscal year, beginning July 1, 2005, could be $163 million or more if the state makes no changes to its current taxing and spending patterns.

Gallogly and other administrators are putting together the Carcieri administration's next budget, which is due Jan. 20, a month earlier than in the past. On the same date, the governor is also required to submit a supplemental budget, made up of additional spending requests for departments that already expect to run over their allotments for this year.

The governor is required by law to submit a balanced budget. But Gallogly would not comment on how the administration would propose to close the gap.

"With such a big hole, I think everything's on the table," she said.

Gallogly and her staff met last week with House and Senate budget analysts to come up with revenue projections for this year and next.

The teams concluded that the state would take in $22.9 million more this year and at least $78.7 million more next year than was forecast -- in both cases, due largely to rising income-tax collections.

But in the current year, Gallogly said, the extra revenues will be eaten up by extra costs -- primarily in three social-service departments. She expects to submit requests for $9.9 million more than budgeted in the current year for Human Services; $6.7 million more for Mental Health, Retardation and Hospitals; and $8.3 million more for Children, Youth and Families.

Jane Hayward, who now oversees all three departments as the state's managing director for health and human services, said some of the cost increases were attributed not just to increased numbers of people in assistance programs, but also to sharply rising medical costs in the programs.

The latter increases are due to inflation and to people in the programs going to a doctor or hospital more than expected, she said.

Hayward said some agencies, particularly DCYF, are also struggling with costs because some planned changes have not been accomplished. For example, she cited the creation of "step-down" beds for children with psychiatric problems.

The placements are meant to be a way to transition children out of more costly hospital care. The state has long planned to open two homes for this purpose, and counted on resulting savings by now. But one will not be ready until January, Hayward said, and the other remains further off.

One other factor, she said, is the increasing cost of fuel to heat the state hospital complex run by MHRH, which will require $2.5 million more than budgeted.

THERE ARE OTHER expected tweaks to the state budget that will both cost and save money this year.

For example, the state is expected to need $1.7 million less than budgeted for its prescription-drug subsidy program for seniors and $1.6 million less for school-construction cost refunds to cities and towns; however, it will need $2.2 million to cover a deficit in the state-run Central Falls school district.

Overall, Gallogly is now forecasting the state will end the year with a slight surplus of $2 million, up from $500,000 in the original enacted budget.

But Gallogly said this week that, despite that good news, she is "deeply concerned" about costs that will grow in the new fiscal year, including assistance programs such as RiteCare, and health-insurance coverage for state employees. The state is also facing stepped-up contribution rates to employee pension plans that will cost an estimated $94 million.

Facing those challenges, Gallogly asked departments to submit budget requests with proposals to trim 10 percent from most facets of their bottom line.

"We basically rely on the cabinet members to come up with their best ideas," she said of those submissions, now being evaluated by the administration.

But after three years of tight budgets, Gallogly said, "you run out of ideas and you have to revisit some of the same ideas" to see what might float this time around.

In addition, she said, the state is looking at ideas produced by the governor's "Fiscal Fitness" cost-savings study and is doing its best to manage personnel expenses, including savings from job vacancies.

Overall, she cautioned, the fiscal picture is "not going to get better unless something is done to change the structural organization of government."

THERE ARE a few other trends of note in the budget documents that have emerged in recent weeks.

One is that historic-preservation tax credits will drain more from tax revenue than originally forecast: $19 million this year, up from a budgeted $5.5 million, and another $19 million due next year. State financial analysts say $148.8 million in credits have been approved overall, and $137.3 million of them could be claimed in the next five years.

Cigarette-tax revenues were also revised downward, dropping $6.3 million furtherh than expected as consumption dipped following a sharp increase in the tax rate; they are expected to drop off another $11.4 million next year.

Senate Finance Committee Chairman Stephen Alves, D-West Warwick, said he is pleased with the overall figure for this year, which he said, "just goes to show we did a realistic state budget."

But Alves said the increasing social service caseloads remain a concern.

"Everybody's claiming happy days are here again, but there's still a whole population segment out there that's unable to work, who can't find jobs, or housing."

Alves said he would ask those departments why they have often requested such large midyear budget adjustments. "They should be a lot closer than what they are, to be honest with you," he said.

House Finance Committee Chairman Steven Costantino, D-Providence, agreed. While some cost overruns are attributed to increased social service caseloads, he said, his committee will call on departments to explain other spending increases.

Costantino said he has "major concerns" about the upcoming deficit, but it is up to the governor, at this point, to suggest what to do about the situation.

"We will respect the process he's going through right now," Costantino said.

The chairman said he had been given no hint of what kind of cuts or revenue changes the administration is contemplating, and declined to offer suggestions of his own.