Oct. 8--PROVIDENCE -- Three months after Rhode Island lawmakers passed a balanced budget, state revenues are already $30.2 million behind estimates, a lag that has helped create a total projected budget hole of nearly $150 million.

The preliminary forecasts from state budget officials are largely due to drop offs in income and sales taxes, declines that Department of Revenue Director Gary S. Sasse calls a direct reflection of the state's continued economic struggles.

Officials have said the state could fall more than $100 million behind revenue predictions by the time the fiscal year ends. Not only would that dip exacerbate the total current deficit, it would also contribute to a potential combined shortfall of nearly $2-billion between 2011 and 2014 -- the entire first term of the next governor -- Carcieri's budget office now says.

Those projections, though not finalized until after the state's revenue estimating conference in November, will set an ominous tone for legislators returning to Smith Hill for the start of their annual session in January.

"There's nothing that we see now that indicates that we're near the turning point," Sasse said Wednesday.

Rhode Island's revenue woes are hardly unique, but news of declines here contrast sharply with the relatively positive projections that have come out of Wall Street in recent days.

Sasse acknowledges that disconnect. "I look at my stock portfolio, up 60 percent this year, and I feel great. But [you] look at [your] neighbor next door and his kids aren't working and there's a pretty good chance they're not going to find a job anytime soon," he said.

Unexpectedly high unemployment rates mean Rhode Island and other states like it are collecting fewer income tax dollars, while struggling residents are spending less, driving down sales tax totals and compounding revenue problems.

Yet even as state leaders here grapple with current-year shortfalls, they have also turned their attention to crafting next year's tax-and-spend agenda.

Members of the House Finance Committee on Wednesday went toe to toe with administration officials, grilling them on their long-term plans to rein in costs and curb gaping deficits.

"Are we in the process of just worrying about the [fiscal year] 2011 budget and not worrying about the 2012 budget until it comes to hit us, or are we doing something to solve 2011 and 2012?" House Finance Chairman Steven M. Costantino asked.

State Budget Officer Rosemary Booth Gallogly and Sasse, who also serves as the Department of Administration director, said the administration is working on a broader cost-saving plan, based in part on the recent labor union agreements that allow them some flexibility to reorganize staff.

"The budget that is envisioned will be very different than budgets seen in the past," Sasse told the committee. "The conversation is centered on reconfiguring service delivery models, restructuring and abolishing agencies and consolidating facilities. Given [this year's] deficit, and the out-year deficits, those are issues we have to begin to address."

Neither Sasse nor Gallogly would cite specifics.

In an interview this week, the governor hinted that his budget-trimming strategy could again hinge on cuts in local aid. This summer, even before the latest deficit projections, Carcieri announced he would withhold more than $32 million in fourth-quarter motor-vehicle excise tax payments, provided that General Assembly leaders sign off on the plan when they return in late October.

"Any way you slice it, [next year's budget] is going to have to focus on how we get the cities and towns to get by on less, do some of the same cost-saving things we're doing with state employees and do some consolidations," Carcieri said.

But several Finance Committee members said they want to see more of an effort from state agency directors to cut their budgets before the administration targets local communities.

That request may be premature. As of Wednesday, not a single major department had submitted its budget request to the state, despite a statute that dictates they must do so before Oct. 1. While such delays are not uncommon, that lag could hamper the Carcieri administration's efforts to shape a budget-repair plan needed to close the looming deficit.

Lawmakers will return for a two-day special session later this month, but they are not expected to start dealing with budget issues until the start of the session in January.

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Copyright (c) 2009, The Providence Journal, R.I.

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