In record time, Rhode Island House approves $14.3B spending plan

There’s no spare money to argue over.

Hence, why the Rhode Island House of Representatives approved a $14.3 billion fiscal 2026 budget in record time. The 66-9 vote came after three hours Tuesday — the speediest budget debate in the last decade, despite challenges presented by the threat of federal funding cuts and an estimated $185 million state deficit.  

“It looked short today but there were many many hours, many many meetings,” House Speaker K. Joseph Shekarchi said, speaking to reporters after the vote. Shekarchi praised the tax-and-spend plan as a “good budget,” and one that he was comfortable with despite uncertainty over federal funding for Medicaid and food assistance. 

Health care and RIPTA prevail in lawmakers’ revised fiscal 2026 budget

Nine of the 10 House Republicans opposed the budget; the one exception was freshman Rep. Marie Hopkins, of Warwick. Hopkins, a nurse, praised the budget’s focus on health care.

“No budget is perfect, but there was enough good in it that I was able to lend my support,” Hopkins said following the vote Tuesday night. 

The approved budget is almost identical to the version given preliminary vetting by the House Committee on Finance one week earlier, with a focus on funding for health care and the state’s public transit agency. On Tuesday, lawmakers agreed to tack on $1.3 million more for Gov. Dan McKee’s Learn 365 after-school education program, $125,000 for Rhode Island Commerce’s streetscape grant program and $100,000 for Sojourner House based on new revenue from the state’s recent opioid settlement with Purdue Pharma.

The $14.3 billion bottom line for fiscal 2026 falls $433 million shy of the record, $14.8 million final budget for the prior year. But, it’s $118 million higher than what McKee proposed in January, reflecting a higher-than-expected state surplus along with extra revenue from taxes on motorists, high-end vacation home owners and nicotine pouches. 

Tuesday’s decision came after a flurry of unsuccessful amendments, led mostly by the 10-member Republican caucus. They included a reprise of the perennial GOP push to create a state inspector general’s office and a new twist on Cranston Democratic Rep. Charlene Lima’s repeated insistence on relief for state pensioners.

AG vs. House Republicans 

New this year: a proposal by House Republicans to claw back the $11 million in state settlement money from a contamination lawsuit over the Route 6/10 interchange. Attorney General Peter Neronha has already brokered a plan for the settlement proceeds from contractor Barletta Heavy Division Inc., centering on pediatric dental care for low-income neighborhoods in Providence, administered by the Rhode Island Foundation. Republican representatives argued that state law authorizes the legislature, not the AG’s office, to decide how state settlement money gets spent.

“It’s an insult,” North Smithfield Republican Rep. Brian Newberry said Tuesday. “This should be the decision of the people in this room and the people of the Senate. The attorney general needs to be taught a lesson.”

Newberry laid out a host of options: suing the AG’s office, impeaching the attorney general — “not a bad idea,” Newberry quipped — or defunding the office. 

House Republicans instead proposed to take $11 million out of the attorney general office’s $50 million budget allocation, redirecting it to 11 nonprofits and community organizations.

But Democrats shot down the GOP proposal, noting that taking money out of the AG’s office did not settle the dispute over authority of state settlement money,

“The people that lose through this amendment are the people of Rhode Island who rely on the attorney general’s office for consumer protection, for public safety,” Majority Leader Christopher Blazejewksi, of Providence said. 

Neronha’s office did not immediately respond to inquiries for comment late Tuesday, though he defended his ability to allocate state settlement funds in a prior statement.

A prescription for the health care crisis 

The spending plan made health care its focal point, boosting reimbursement rates to hospitals, primary care providers and nursing homes. 

“These people and places touch us all,” House Finance Chairman Marvin Abney, a Newport Democrat, said. “We must protect them.”

Providence Democrat Enrique Sanchez rattled off a list of examples of the ways the state health care system appeared on the brink of collapse: the abrupt closure of Anchor Medical Associates; striking Butler Hospital workers lobbying for better pay and workplace safety; nursing home closures amid widespread staffing shortages.

“If we don’t do this, people are going to die,” Sanchez said. 

Among the biggest sources of concern: a lack of primary care providers, viewed largely as a symptom of uncompetitive public and commercial insurance reimbursement rates relative to neighboring states. The fiscal 2026 budget injects another $45 million into primary care, including a $26 million boost to Medicaid reimbursement rates for primary care rates starting Oct. 1. Hospital systems will also see $38 million more in relief through a twofold measure that raises Medicaid reimbursement rates in accordance with federal pricing — McKee proposed a lower reimbursement rate based on projected state revenue growth — and restoring the state’s upper payment limit program, a longstanding reimbursement to fee-for-service providers meant to close the gap between Medicaid reimbursements to hospitals and what other health insurance programs would pay. 

Lawmakers also offered aid to nursing homes in the form of a $12 million increase for nursing home employees, coupled with easing of the state’s minimum staffing requirements for nursing home facilities, including forgiving outstanding fines for the facilities unable to meet the state’s prior, stringent staffing requirements amid widespread workforce shortages. 

Not ‘all too well’ for Taylor Swift 

Taxes and fees proved among the most divisive elements of the spending plan, with all 10 Republicans and a handful of more conservative Democrats voting against individual budget articles related to raising taxes and fees.

Among the sources of debate: an extra property tax on high-end second homes. The “Taylor Swift tax,” known because it would affect the pop star’s Westerly home, applies to all non-owner occupied homes worth over $1 million, with regular updates for inflation. Starting July 1, 2026, Swift and other seasonal residents with high-dollar second properties would pay an extra $2.50 in taxes for every $500 of assessed value over $100. Swift, for example, would pay an extra $136,000 in state property taxes based on the $28.3 million assessed value of her Watch Hill home.

Westerly Democratic Rep. Sam Azzinaro expressed concern with the proposal during a June 12 budget briefing, suggesting it was unfair to affected property owners. But he was quickly shut down by other Democratic lawmakers, who said the extra money Swift would pay was inconsequential given her $1.6 billion estimated net worth. 

Lima on Tuesday criticized the tax as hurting working families whose vacation homes had been passed down for generations. 

“This is not the Taylor Swift tax, this is the mom and pop tax,” Lima said. 

She proposed raising the value of vacation homes subject to additional taxes to $2 million, rather than $1 million. But the amendment failed on a mostly party-line vote, with all 10 House Republicans backing Lima’s proposal. Azzinaro did not.

The state’s fiscal 2026 spending plan offers no estimated revenue for the vacation home tax, which Shekarchi explained was because it was new. Instead, the spending plan funnels the unknown amount of money into the state’s Low Income Housing Tax Credit program, which aims to spur private development of affordable housing.

En route to helping RIPTA

Among the most notable tax changes starting July 1: an extra 2 cents per gallon state tax on gasoline, which coupled with an already scheduled 1-cent hike and a 1 cent environmental protection fee, would raise the per-gallon tax to 41 cents per gallon. The move aims to help shore up the cash-strapped Rhode Island Public Transit Agency, which faces an estimated $32.6 million deficit in fiscal 2026.

Lawmakers stopped short of plugging RIPTA’s shortfall entirely, instead providing $14.6 million through the gas tax increase and an increased allocation of the state’s Highway Maintenance Account. How RIPTA will account for the remaining $18 million gap remains uncertain — advocates fear layoffs and service cuts could be on the line.

A Monday memo to RIPTA from the consulting firm hired to study its operations indicated an $18 million fiscal 2026 shortfall would force the agency to cut 20% of its bus service. RIPTA CEO Christopher Durand said in a subsequent email to House leadership Monday that cutting routes would also require laying off approximately 90 employees.

Taxing nicotine pouches, parking

While the revised fiscal 2026 budget nixes McKee’s proposal to tack on an extra 50-cent-per-pack to the state cigarette tax. But, it extends the state’s 80% wholesale tax on “other tobacco products” to nicotine pouches starting Oct. 1 as a means to close what proponents said was an accidental oversight previously.

Legislative budget analysts have not calculated the cost to consumers of the wholesale tax on nicotine pouches, though a representative for the company that makes ZYN told the Providence Journal the tax could raise retail prices per can from $4 to $7.50. Each can has 15 pouches, according to ZYN’s website.

The fiscal 2026 spending plan relies on a host of additional fee increases, including a $15 boost to traffic violations, from $85 to $100; an extra $10 fee on license and vehicle registration costs, rising to $40; and new, annual fees for electric vehicle and hybrid registrations, ranging from $50 to $200.

The budget also extends the state’s 7% sales tax to short-term parking at public garages, lots and metered spaces, and hikes the local hotel tax from 1% to 2%.

Boosting housing and homelessness services

Housing has topped Shekarchi’s priority list in recent years. This year was no exception, with a 12-bill package unveiled in February. But when it comes to spending, lawmakers largely agreed with McKee’s plan, which relies upon recommendations for the newly reorganized state Department of Housing. However, the spending plan approved by the House Tuesday offers $8 million more than what McKee proposed for homelessness services.

The boost came in part thanks to application of the 5% state hotel tax to whole-home short-term rentals, ending a long-awaited exemption and providing another source of highly sought-after revenue. Amid competition for how to spend the estimated $2.1 million in extra revenue, lawmakers opted to divide the money, reserving half of the anticipated income for homelessness and housing services, and a quarter apiece to local tourism districts and municipalities.

The budget also funds homelessness services and housing programs by increasing the state’s real estate conveyance tax, from $2.30 per $500 of value to $3.75 for all properties, with an extra increase on the sale of homes exceeding $800,000 (with an inflation adjustment) starting Oct. 1.

Education, state worker contracts, etc

On education, the spending plan preserves the state’s education funding formula, which is used to determine state aid to local districts. One notable change from McKee’s original proposal: backfilling a $12 million shortfall in aid for low-income students which resulted from incorrect data by the Rhode Island Department of Education. Lawmakers also opted to devote more funding to aid for special education students rather than offer an extra $12 million in state aid to students in poverty, as McKee proposed.

Other holes plugged in the revised fiscal 2026 spending plan include $15 million for new contracts with state troopers and correctional officers, and $3.2 million for the state’s motion picture tax credit program based on an inadvertent overspend in 2022.

Left on the cutting room floor are the majority of McKee’s workforce and higher education training programs. 

Other proposals axed by lawmakers included:

• Various long-term capital projects proposed by McKee, including buying a former Citizens Bank building in Riverside to use as state offices, closing the Department of Corrections’ minimum security facility and opening a new, state-run long-term care hospital in Burrillville. The revised budget instead allocates $22 million in capital projects funds for the Washington Bridge rebuild. 
• A 10% tax on billion dollar companies for money made locally off digital advertising, as proposed by McKee
• Bally’s Corp.’s request for an extra $17 million in marketing money, aimed to offset potential revenue losses from a ban on indoor smoking in its Rhode Island casinos. The smoking ban legislation remains under consideration in both chambers, after being voted out of a Senate committee Tuesday to a floor vote scheduled for Wednesday. A House committee will consider the legislation on Wednesday.  
• Exempting gun safety items such as lock boxes, safes, and trigger locks from the state sales tax, which McKee initially tied to his budget proposal around an assault weapons ban. Separate legislation banning the sale and manufacturing of  assault-style weapons was approved by the House on June 5, while the Senate Committee on Judiciary was slated to take up a revised version of the bill Wednesday.
• Abolishing the politically appointed Rhode Island Coastal Resources Management Council and reshaping the agency as an administrative one, akin to the Rhode Island Department of Environmental Management, pitched by environmental advocates and Attorney General Peter Neronha. However, a House panel is slated to take up an alternative reform proposal Wednesday that reduces the number of council members from 10 to seven, and sets specific criteria for qualification.

But, the fiscal 2026 budget restores the state-required return of half of excess revenue to the state pension fund, a move expected to boost the pension system by $21.6 million. McKee had moved to skip the transfer to the pension fund this year. However, lawmakers concurred with McKee’s move to pass on putting the other half of the state surplus into its reserve fund. The rainy day fund is expected to end fiscal 2026 with a $299.8 million balance, according to legislative budget analysts.

The approved spending plan now heads across the rotunda to the Senate, where review is largely a rubber stamp. The Senate Committee on Finance is scheduled to take up the fiscal 2026 budget at 6:30 p.m. Wednesday, with a floor vote tentatively slated for Friday.