CIRCUMVENTING CONSTITUTION COSTS RHODE ISLANDERS MORE
At the request of Governor Gina Raimondo, the Disaster Emergency Funding Board has voted to authorize the state to borrow $300 million from private sector entities. General Treasurer Seth Magaziner explained that this debt will be in the form of an “appropriation pledge” and will have about a 3 percent annual interest rate. Treasurer Magaziner also indicated that Rhode Island’s Rainy-Day Fund of approximately $200 million is nearly exhausted. Furthermore, projections were presented showing Rhode Island could have a deficit of about $200 million by the end of the fiscal year.
R.I. Republican Party Chairwoman Sue Cienki commented: “There are three points that need to addressed here. First, by borrowing up to $300 million through an appropriation pledge, the Disaster Emergency Funding Board appears to be circumventing our state’s constitutional debt restrictions. A legally non-binding appropriation pledge is comparable to a moral obligation. Because we are circumventing the constitution, Rhode Island will pay a higher interest rate. An interest rate of about 3 percent for short term government debt is undoubtedly higher than the cost of debt using the full faith and credit of the State of Rhode Island. For example, paying an interest rate of three percent is similar to the fixed interest rate on a fifteen-year mortgage. Simple lesson here: when you circumvent the constitution, you pay more.”
Cienki continued: “Second, the projections of a $200 million deficit may be inaccurate. It is unclear if these projections take into account the $1.25 billion Rhode Island will receive from Congress due to the Coronavirus pandemic. These projections also do not indicate the possibility that economic restrictions in Rhode Island due to the pandemic will be relaxed or lifted at some point in the future. These projections are simply not be reliable.”
Cienki concluded: “Finally, one of the reasons that Rhode Island’s Rainy-Day Fund is near exhaustion is because of the bad budgeting practiced by the Rhode Island state government. Rhode Island was already facing a deficit in the current fiscal year prior to the pandemic. For example, DCYF was projecting a $22 million deficit for this fiscal year. Also, because BDDH was violating federal law, Rhode Island suffered a loss in revenues of $20.6 million this fiscal year. Rhode Island’s fiscal health was already in poor health before the Coronavirus put it into critical condition. Circumventing the constitution, faulty projections, and bad fiscal management by State House politicians will now cost Rhode Islanders millions more in debt.”