Rhode Island's State and Local Revenue System, Expenditure Trends and Economic Performance

Key Facts

• Rhode Island relied on State and local tax revenues for approximately 57.5% of all general revenues in FY 1996, roughly equal to the United States average of 56.3%.
• Federal funds comprised a larger percentage of general revenues in the Ocean State (24.5% in RI vs. 19.2% across the nation in FY 1996), while fees, charges and miscellaneous revenues comprised 18.0% of general revenues, less than the United States average of 24.4%.
• From FY 1980 through FY 1996, Rhode Island governments received more Federal funds, as a percentage of personal income and per capita, than the United States average.
• In FY 1996 Rhode Island ranked 20th in total expenditures per $1,000 of personal income ($202.53 in RI vs. $195.04 across the U.S.) and ranked 13th in expenditures per capita terms ($5,638 per capita, compared to the U.S. average of $5,268).
• From 1990 through 1997, Rhode Island's per capita personal income grew at a slightly faster pace than the U.S. average.
• Rhode Island's Gross State Product increased 29.6% from 1990 through 1997, compared to the U.S. growth rate of 43.2%. The Ocean State's growth rate ranked 48th in the U.S., which was a slower rate than all states but Alaska and Hawaii.
  

Revenue System Overview

State and local governments rely upon three main sources of revenue - (1) taxes, (2) fees, charges and miscellaneous revenues , and (3) Federal funds.

Rhode Island State and local governments in FY 1996 relied upon tax revenues for 57.5% of general revenues, closely mirroring the U.S. average of 56.3%. However, as Table VI-1 shows, Federal funds comprised a much larger percentage of general revenues in the Ocean State (24.5% in RI vs. 19.2% across the nation), while fees, charges and miscellaneous revenues comprised 18.0% of general revenues, compared to the U.S. average of 24.4%.

The Ocean State relies on fees, charges and miscellaneous revenues to a lesser extent than other states due in large measure to the lack of government-run hospitals in Rhode Island. In FY 1996 hospital-related revenues comprised over 27.7% of all fees, charges and miscellaneous revenues collected by state and local governments across the United States, while hospital-related resources contributed less than 1.0% to this revenue source in Rhode Island.

Between 1980 and 1996, all three sources of revenue grew at a slower rate in Rhode Island than across the country, as measured in nominal dollars unadjusted for inflation. As a percentage of personal income, all three sources of revenue declined. However, in all but three of these 17 years, Rhode Island governments collected more State and local taxes, measured as a percentage of personal income and per capita, than the U.S. average.

Both Massachusetts and Connecticut rely upon State and local taxes to a greater extent than Rhode Island and the United States average. Massachusetts State and local governments receive approximately 60.0% of their general revenues from State and local taxes, while Connecticut governments receive close to 70.0% of their general revenues from State and local taxes.

Expenditure Trends and Economic Performance

From FY 1981 through FY 1996, Rhode Island's State and local government expenditures increased at a slower pace than the U.S. average (160.0% vs. 193.3%), although expenditures per capita and expenditures per $1,000 of personal income remained above the U.S. average throughout this period. Public education, both K-12 and higher education, represented the largest expenditure category, consuming 28.8% of all general revenue expenditures in FY 1996. This compares to the U.S. average of 32.0%.

General revenue expenditures per $1,000 of personal income declined by 1.1%, from $204.81 per $1,000 of personal income in FY 1981 to $202.52 in FY 1996. Across the country, expenditures per $1,000 of personal income increased 4.0% over this period, from $187.51 in FY 1981 to $195.04 in FY 1996. In FY 1996 Rhode Island ranked 20th in total expenditures per $1,000 of personal income and ranked 13th in per capita terms ($5,638 per capita, compared to the U.S. average of $5,268).

In addition, the Ocean State's aggregate increase in per capita personal income was slightly above the U.S. average of 32.1% from 1990 through 1997. During this time, Rhode Island's per capita personal income grew by 33.1%, from $18,894 in 1990 to $25,689 in 1997.

While expenditures per $1,000 of personal income and per capita remained slightly above the U.S. average and per capita personal income mirrored the U.S. growth rate, it is important to note that the State's economy, as measured by the change in value of Rhode Island's Gross State Product, did not kept pace with the U.S. average.

According to the U.S. Bureau of Economic Analysis, Rhode Island's Gross State Product increased 29.6% from 1990 through 1997, compared to the U.S. growth rate of 43.2%. The Ocean State's growth rate was ranked 48th and grew at a slower pace than every state except Alaska and Hawaii.

Gross State Product is a measure of the value added in production by the labor and property located in a state. It is derived as the sum of the GSP originating in all industries in the state. As Table IV-2 shows, all of the New England States, with the exception of New Hampshire, experienced slower GSP growth from 1990 to 1997 than the Nation as a whole.