You wouldn’t know the state is eyeing a nine-digit deficit for the fiscal year that starts July 1 judging by the size of Gov. Dan McKee’s spending plan.

The proposed $14.2 billion fiscal 2026 budget unveiled by McKee’s office Thursday marks the largest state spending plan in history — $252.8 million more than the current year’s budget, though the dollar figure on the fiscal 2025 spending plan is also going up substantially under proposed revisions. 

Despite the FY26 budget’s gargantuan size, state budget officials insisted they are preparing for a “return to normal” now that federal pandemic aid is no longer able to cushion state coffers.

“The governor’s goal was to ensure bottom line growth remained affordable and in line with our revenue forecast,” Joe Codega, state budget officer, said in a briefing with reporters Thursday morning. 

Codega pointed out that the projected deficit — pegged at $223.3 million thanks to a boost in projected revenue and lower expected costs in Medicaid due to fewer enrollees and favorable federal reimbursement rates  — does not mean state revenue isn’t growing.

The problem is that the expected 2.5% revenue growth is not rising as fast as costs, which are rising 3.7% year-over-year. Recognizing the imbalance, the administration focused on cutting costs — including state building leases, staffing and equipment like landline phones for state employees. While there are no broad-based tax increases, as McKee promised in his 2025 State of the State, the spending plan also identifies segmented fees and tax hikes to cover priority programs, including workforce development, homelessness services, and infrastructure repairs.

With McKee’s vision laid out, the focus now shifts to the Rhode Island General Assembly, which will spend the next five-and-half months revising the governor’s proposal into a final spending plan, ahead of the July 1 start date.

1. Workforce development reigns supreme

A year and two days after McKee unveiled his pledge to raise per capita income by $20,000 by the end of the decade, the hazy proposal has come into focus. 

The budget includes a tranche of workforce development and career training initiatives for secondary and higher education students and the existing, adult workforce. More than $9 million — including new state general fund money along with transfers of excess revenue from the Rhode Island Student Loan Authority and employer taxes — will be spent to bolster existing programs like Real Jobs Rhode Island, dual enrollment for high school students taking college courses and the PrepareRI high school internship program. 

The Community College of Rhode Island will also play host to two new programs: a pre-apprenticeship program for students looking to enter the building trades, and a new culinary and hospitality worker training program at its Newport campus. While higher education and workforce initiatives score big wins in McKee’s proposal, the investment comes at a price for about two dozen of the state’s largest nonprofits who would now have to start paying the 0.21% tax already charged to private employers.

Career and technical education is a well-established source of workforce training and, in Rhode Island, historically strong graduation rates, but it could see a little less money under the governor’s budget as a one-time increase of $2 million expires. 

With this year’s expensive slate of workforce initiatives, the state wants to make sure people who are educated in the state stick around to work here. The state’s higher education office would be allotted $300,000 to hire two people who would work  alongside state IT and human services officials to create an integrated data system that would centralize data on employment and educational outcomes.   

2. New budget, same great education funding formula (almost)

There are fewer kids attending Rhode Island’s public schools, enrollment data from October 2024 showed. But this decline didn’t stop McKee from offering public K-12 education a package that’s $43.4 million larger than fiscal 2025. The funding formula that determines state aid to local school districts isn’t changing much, apart from a 3% increase proposed for one of the formula’s components, the “student success factor,” which is meant to infuse poorer communities with more cash for their public schools. 

Previous changes made in the enacted 2023 budget redefined what the formula considers “poverty,” and swapped out reduced and free lunch enrollment for certification via Supplemental Nutrition Assistance Program (SNAP) enrollment instead. The redefined standard resulted in some municipalities being underfunded despite their economic challenges, so the new budget allocates more funds for Central Falls, Newport, Pawtucket, Providence and Woonsocket, each of which has high concentrations of poverty. 

The popular Davies Career and Technical High School would see more money thanks to the funding formula, with an extra $800,000 in the proposed budget, and The Metropolitan Regional Career and Technical Center would get $1.9 million more than last year. 

3. Addressing homelessness via short-term rental tax: Take 2

McKee’s attempt to extend the state’s 5% hotel tax to short-term rentals, using the money to fund homeless services, was tossed by lawmakers last year. But he’s renewing the push again in fiscal 2026, proposing the same tax on AirBnbs, along with an increase in the real estate conveyance tax on property sales over $800,000 to match Connecticut. Together, the proposals would generate $4.3 million in new revenue for homeless services in fiscal 2026, rising to $8.1 million in fiscal 2027, according to state budget projections. 

Despite these new measures, the proposed $42.8 million in fiscal 2026 funding for the housing department is $16 million less than the amount allotted in fiscal 2025, and nearly $25 million shy of what the department asked for in its fiscal 2026 budget memo. McKee also did not OK any of the six new positions requested for the nascent department, which still has 18 open positions among its 38-person staff.

4. Assault-style weapons ban

Past endorsements on banning assault-style weapons have not been enough to move the needle on Smith Hill, so the governor has wielded his budget instead.

McKee’s proposed assault weapons ban defines the firearms based on function and features such as ability to accept detachable magazines and stocks, bayonet mount, or grenade launcher. 

Assault-style weapons acquired ahead of the governor’s proposed ban would be exempt and registered with their owners’ local police department or the Rhode Island State Police. McKee’s administration also proposes exemptions for some active and retired law enforcement and military officers.

While lawmakers, including House Speaker K. Joseph Shekarchi, critiqued McKee’s decision to put a policy proposal in a spending plan, there is one small financial impact. McKee also proposed exempting gun safety items such as lock boxes, safes, and trigger locks exempt from the state’s sales tax, for a $85,714 savings to consumers in FY 2026.

5. Primary care a primary focus

McKee appears on the same page as state legislative leaders on the need to raise reimbursement rates for primary care providers (PCPs), again proposing that PCPs be included in the Rhode Island Office of the Health Insurance Commissioner’s biennial rate review. But actual rate hikes remain a long-term goal; OHIC’s upcoming rate review is fast-approaching in September, so a study on primary care rates likely wouldn’t happen until the next rate review in 2027. In the interim, McKee pitched a $200,000 state contribution — matched by equal federal funding — to expand student loan forgiveness for primary care doctors, including pediatricians, who work in the state’s most underserved areas.

In a nod to the new federal Medicaid requirements, the spending proposal offers $56 million — $5.6 million of which would come from state coffers — to update the state data and claims processing system. A tranche of new staffers will help identify fraud among providers and recipients of the Medicaid system, with other new hires dedicated to looking for ways to keep prescription drug costs down via a statewide pharmacy benefits manager or single preferred drug-pricing list.

Hospitals won’t get the same top-notch treatment, with licensing fees increasing to reflect updated patient revenue. McKee also wants to ease up on the state’s stringent nursing home minimum staffing requirements — a benefit in the eyes of industry representatives but one that advocates will surely protest for jeopardizing safety and patient care.

6. Less restrictive mental health care for kids

On the heels of a December consent decree with the U.S. Department of Justice over alleged “warehousing” of children with developmental and behavioral disabilities, McKee is offering $175,000 to help the Department of Children, Youth and Families (DCYF) meet federal reform requirements.

But budget officials said that before the consent decree was issued, there were already plans for an additional $20 million for supporting an array of community and home based services for kids’ mental health care. This transition to less isolating forms of care, including returning children currently placed in out-of-state facilities, would mean a reduction of $4.5 million for fewer out-of-state placements and $2.4 million less for congregate or residential care.

But for kids who may need a higher level of care, a psychiatric residential treatment facility may be an option. Last year the state was still banking on St. Mary’s Home for Children building to meet that need, but with the home’s closure in August 2024, the revised 2025 budget recommends redirecting the $6.4 million of unspent funds to Bradley Hospital.

7. EVs paving the way, truck tolls coming back

The long-awaited restart of the state’s truck tolling program is TBD, but McKee is counting on $10 million in revenue from the Gina Raimondo-era program in his fiscal 2026 spending plan.

The Rhode Island Department of Transportation still needs to determine rates and inspect equipment that has sat unused for nearly three years. Assuming gantries are fully up-and-running by fiscal year 2027, McKee’s administration projects $40 million in revenue.

Meanwhile, electric vehicle owners could also see new state registration fees proposed by McKee. The $1.7 million in revenue from fees — $150 per year for battery electric vehicles and $75 for plug-in hybrids — would help support municipal road repairs, which until now have been funded using federal pandemic aid.

True to his municipal-forward, mayoral roots, McKee wants to make the 2024 municipal road grant program permanent, with a $6.5 allotment in fiscal 2026.

8. State office shuffle

McKee’s administration is once again proposing to buy a former Citizens Bank loan office in East Providence as the state seeks to consolidate agencies in soon-to-be expiring leases. Unlike his fiscal 2025 budget amendment, which would have borrowed money to buy and renovate the 210,000-square-foot building, McKee this year intends to finance the project through the state’s long-term capital improvements plan. Awaiting a sticker price on the sale, budget crunchers estimate the $52 million, five-year cost would pay for itself in five years by eliminating lease payments for the Rhode Island Department of Environmental Management, Office of Energy Resources and Department of Human Services.

The bank building’s state-of-the-art, 60,000-square-foot data center would also become the new home to state IT servers, including those which house the RIBridges data. The state servers, including those which hold RIBridges data, are currently stored at a Warwick building that needs $10 million in HVAC upgrades. 

Meanwhile, the Human Rights Commission would move to the state-owned Shepard Company building in downtown Providence, and the Executive Office of Commerce would bunk up with Rhode Island Commerce Corp. under additional consolidation plans. 

The Rhode Island Department of Corrections would also see a major shakeup with the closing of its 75% empty minimum security facility. McKee instead wants to move those least-dangerous inmates into a segregated outpost within the prison’s medium security facility. The move would save the state $6 million for fiscal year 2026, reducing per-inmate cost by more than $40,000. 

Despite triple-digit vacancies that have driven up corrections’ overtime budget, McKee isn’t convinced on Director Wayne Salisbury’s pitch to hire 150 more staffers to cut nearly $10 million in overtime costs. McKee’s spending plan keeps the agency’s staffing at current levels.

9. Here comes the tax man

While McKee stayed true to his promise not to increase broad-based taxes in his spending plan, big corporations and cigarette users aren’t so lucky.

The biggest hike will be shouldered by billion-dollar companies that make money off Facebook, Instagram, and other digital ads. McKee has proposed a 10% tax on digital advertising revenue derived in Rhode Island, yielding $9.5 million in fiscal 2026, and $19.6 million fiscal 2027. How many global companies will have to start paying up on their ad profits was not immediately available — though media outlets will be exempt, per a forthcoming amendment from the governor’s office. 

Fresh off a 25-cents hike on cigarette packs in the fiscal 2025 budget, McKee wants to up the ante, proposing another 50-cent increase to $5 in taxes per pack. The second, consecutive tax increase on cigarette users would bring in $4.4 million in fiscal 2026. 

And to the tax scofflaws who owe state income or business taxes, beware. McKee is also authorizing a policy change to let the state’s Division of Taxation more quickly access delinquents’ bank accounts to put levies on their assets, including those out-of-state. Based on an October 2025 start date, the move would boost state revenue by $5.3 million in fiscal 2026.

10. Boosting Rhode Island’s startup businesses

Well aware of the constant competition with Massachustts and Connecticut, McKee wants to put Rhode Island on par with its neighbors on tax credits for startup companies. The proposed eight-year extension in the state’s Research and Development Expense Tax credit would give eligible life science and research companies 15 years — rather than the existing seven years — to apply credits against building and equipment purchases. Unlike many of the state’s tax credit programs, which the Office of Revenue Analysis has found to be losing propositions — this particular tax credit offers a big return-on-investment, and also helps advance the priorities of the Rhode Island Life Science Hub, Commerce Secretary Liz Tanner said Thursday

Unfortunately, the program won’t do much for Hasbro Inc., which has already suggested it’s looking to abandon its Pawtucket headquarters in favor of greener pastures in Massachusetts. McKee’s budget does not include any money for Hasbo, though Tanner said Thursday that state officials remain “in conservations” with executives of the toy and gaming empire.

Also missing from McKee’s budget: any extra state dollars for High Rock Development, which told Providence Mayor Brett Smiley it needs some extra cash to advance the redevelopment of the Superman building in downtown. Tanner said High Rock has not asked the state for more money or tax breaks.

11. Opioid crisis funding

The governor continues to dole out money for the opioid crisis, offering additional $11.8 million in fiscal 2026 for initiatives new and old to prevent overdose deaths. 

While the opioid epidemic got special acknowledgement in McKee’s State of the State, he’s not dipping into state coffers to combat the crisis. Instead, the bulk of the budget funding comes from Rhode Island’s share of massive national settlements with drug manufacturers for their role in the opioid crisis. Another $24,000, would come from the settlement with consultancy McKinsey.

12. Independence for the Cannabis Control Commission

Since recreational cannabis was legalized in 2022, the state’s Department of Business Regulation (DBR) has had oversight of Rhode Island’s fledgling recreational market. McKee’s recommended budget calls for the Office of Cannabis Regulation to become its own independent entity. 

But that can only happen once the Cannabis Control Commission approves the first set of rules governing the recreational cannabis market, per the 2022 Rhode Island Cannabis Act. Commissioners on Jan. 8 posted draft regulations for public comment through Feb. 7, after which the commission will consider making any changes before final approval.

Once set up, McKee’s budget calls for 28 full-time positions at the commission — two new people plus 26 shifting from DBR. The budget proposal also adds another staffer at the health department to oversee product testing and compliance with state health and safety regulations.

13. OER gains independence but no love for CRMC

In addition to a prospective office move, Rhode Island Office of Energy Resources would also gain newfound independence as a standalone agency — rather than a child of the Rhode Island Department of Administration — under McKee’s budget proposal. Agency status comes with a 12.3%, or $8.4 million, funding boost in fiscal 2026, including four new staffers to oversee federal solar and home energy rebate programs, and to set new emissions guidelines for state-owned buildings.

Meanwhile, First Lady Susan McKee’s signature anti-littering initiative is getting another $100,000 in McKee’s budget proposal. Yet there’s no money to set up a bottle deposit-refund program, despite environmental advocates’ insistence that it’s the best way to stop bottles and nips from piling up on roads and in waterways.

The embattled Rhode Island Coastal Resources Management Council was denied its request for more full-time staffers to handle its growing workload of offshore wind projects, shoreline access disputes, and oyster farm projects.

14. More transparent RIBridges funding

A little over a month after cybercriminals plundered approximately one terabyte of data from RIBridges, Rhode Island’s public benefits eligibility system, the state wants to restructure its funding. But the funding switcheroo involves no tangible change in total allocation. RIBridges funding now flows from three agency buckets, but the new proposal wants to see everything consolidated under the Executive Office of Health and Human Services. This fusion wouldn’t change the RIBridges governance or management. The motivation is to keep the funding — which accounts for $25.3 million in general revenue — transparent and understandable. Overall, the financing is $2 million less than the year before, but the cut doesn’t represent the loss of anything crucial for the system — just additional monies spent on special eligibility metrics during the COVID era.