“This record surplus is another proof positive that my Administration’s efforts to rebuild and reinvest in Rhode Island is paying off,” Governor Lincoln Almond said in a prepared statement.
“We’ve instituted income tax relief and property tax relief. We’ve paid down the debt. And we are posting a record surplus.”
But while the present is shining bright — is Rhode Island prepared for its economic future?
According to State Policy Reports, an Alabama-based organization that reports on states’ fiscal policies, Rhode Island’s fiscal strategy is a tenuous one. The group publishes State Budget Tax News, in which it grades states on their preparedness for the future. Rhode Island was one of only three states to be given a “D.”
The report described the Ocean State’s economic outlook as “shaky at best.”
Economists share at least one view regarding the state’s economy — the prosperous times will not last forever.
The state does have a “Rainy Day” fund, which currently has $61 million in its coffers.
Rhode Island is mandated to put 2 percent of its revenues in the “Rainy Day” fund each year. When that fund hits 3 percent of state revenues, additional money can be put toward asset protection.
State Budget Officer Stephen McAllister said the “Rainy Day” account has been fully funded for several years.
Peter Moore, a professor of economics and finance at Rhode Island College and director of the school’s Center for Economic Education, believes that such a “Rainy Day” fund is a sound economic practice. And given the volatility of the economy, one that could become a necessity.
“Anytime you have an upswing in the business cycle, people think that it will go on forever,” said Moore. “It won’t.”
Leonard Lardaro, a professor of economics at the University of Rhode Island, is convinced that if the national economy takes a turn for the worse, Rhode Island could be in dire straits.
“No way are we prepared,” said Lardaro. “We are doing very well, but it is largely due to the graces of the national economy. We’ve got to stop assuming that current conditions are going to go on forever. We are not in any way prepared for the next recession.”
But another recession is not necessarily inevitable. Like other area economists, Lardaro puts the likelihood of a recession in the near future at around 30 percent. Gary Sasse, executive director of the Rhode Island Public Expenditure Council, takes a less ominous view of Rhode Island’s preparedness for the future.
Sasse said the governor and legislatures simply need to set priorities.
Rhode Island is not alone in enjoying a surplus. In fact, if the Ocean State’s $128.4 million surplus rates as big news, the budget surplus secured by Connecticut Gov. John G. Rowland is downright gigantic. It’s big enough to give officials in that state confidence that they will be able to withstand even a significant downward turn in the national economy.
According to an Associated Press report last week, Connecticut has nearly $500 million put away in its emergency fund after closing the last fiscal year with a $610 million surplus. Last week, Rowland handed a ceremonial check for $160 million to the state treasurer for Connecticut’s rainy day fund.
“I think that this will secure our future, not only in the short term but I think in the long term as well,” said Rowland during a press conference in his state Capitol office. “We’ll be ready for any economic downturn.”
Almond’s announcement coincided with the release of the state controller’s preliminary closing statement. The $128.4 million surplus is the difference between what the state received in revenues and what the state paid out in expenditures for the fiscal year time period from July 1, 1997 to June 30, 1998.
Earlier this year, Almond announced that the revenues determined by the May Revenue Estimating Conference for fiscal year 1998 and fiscal year 1999 were projected to be $132.2 million higher than estimated. By law, the Revenue Estimating Conference meets twice a year to project the general revenues the state is expected to receive — based on current law, collection trends, and economic forecast — for the current fiscal year and for the upcoming fiscal year.
It all sounds like good news. But good news that should be kept in perspective, according to economists.
“We do get spoiled in good times,” said Moore.