Governor McKee opposes the FY2026 State Budget, but not enough to veto it

"I believe that the best message I can send right now is what I’m doing today, which is letting people know that they’re being taxed unnecessarily," said Governor McKee.

Rhode Island Governor Daniel McKee told reporters today that he will not sign the FY2026 Budget recently passed by the General Assembly, but will instead allow it to become law without his signature. The budget will go into effect, without the Governor’s signature, on Friday.

When a bill is sent to the Governor, they have three options: sign it into law, veto it, or allow it to become law without a signature. The Governor clearly outlined his reasons for opposing the budget in a letter¹. Still, when it came time to defend his choice to allow it to become law without his signature, as opposed to vetoing it, he was less convincing.

Governor Daniel McKee: This is a budget that I’m not going to sign, and we’ve notified both the Secretary of State's office, before this press conference, as well as the House and Senate offices, as to the reasons why.

Steph Machado, Boston Globe: You’ll veto it?

Governor McKee: This is not the time to raise fees and taxes that could have been avoided. And that’s the reason that I will not be signing this budget

Katherine Gregg, Providence Journal: And you’re going to be vetoing it, governor, or letting it become law without your signature?

Governor McKee: I’m not going to sign it. It will go into the law, but I’m here today to tell you why I’m not signing it.

Jim Hummel, RI PBS: Question. If you feel that strongly, why don’t you veto it?

Governor McKee: Yeah. I’ve been letting the General Assembly know exactly how I feel on all these issues from the point of time when I had my State of the State address and talked about the fact that we don’t want to be raising taxes in a timeframe that is difficult on people, and I’m certain...

Patrick Anderson, Providence Journal: Why not veto it?

Governor McKee: Yeah. So the question is a good question. I don’t have a line-item veto. If I did have a line-item veto, there wouldn’t’ve been a gas tax increase. I don’t have a line-item veto, so I deal in the world that is the reality. I believe that the best message I can send right now is what I’m doing today, which is letting people know that they’re being taxed unnecessarily, and we’ll let the general public determine whether or not they feel as I do. Right?

In explaining his opposition to the budget, Governor McKee said, “Budgets are really important. They speak to our priorities, and our priorities are in the Rhode Island 2030 Plan². What this budget does, though, is tax people and raise fees unnecessarily...”

In his letter, the Governor listed what he saw as unnecessary tax and fee increases on Rhode Islanders:

1. At a time when Rhode Islanders already face some of the highest fuel taxes in the region, the Budget Act would raise the gas tax to 41 cents per gallon starting next month, 5% more than previously scheduled. It would also grow the tax at a higher rate than under the current law. Rhode Islanders already pay more at the pump than drivers in Massachusetts (27¢) and Connecticut (25¢), and this change would further worsen our regional competitive disadvantage.

2. With premiums already straining household budgets, the Budget Act adds a new $48 annual fee on health insurers for every person they cover, costs that will be passed on to families. For a family of four, that means nearly $200 more each year.

3. For Rhode Islanders looking to buy or sell a home, the Budget Act increases the real estate conveyance tax on sales under $800,000. This 63% increase would add over $1,300 in fees on the sale of a median-priced home, and it moves us further from my RI 2030 goal of expanding access to homeownership.

4. The Budget Act also proposes a new sales tax on parking, an 18% increase in traffic fines, and a significant increase in DMV surcharge costs that add up quickly for working people. At a time when everyday essentials are straining household budgets, these changes would only make it more expensive to live and work in Rhode Island.

Governor McKee pointed to recent improvements in Rhode Island’s rankings in U.S. News and World Reports, pointing out that, “In our budgets, our idea is not to raise taxes and to be competitive with our bordering states, so that we keep the economy going in a direction that is being recognized by ranking services all around the country. We’ve moved up 12 spots on the infrastructure ranking since I’ve been governor. We’ve moved up over 13 spots on the list of most livable states in the country, and that’s a reflection of our budget.”

As I’ve explained here, state rankings are bullshit, and it would be stupid to enact policy to improve our standing in them. A numerical rating that sums up everything about a state is impossible to determine. More than that, these numbers tell you nothing about the states themselves. Unfortunately, Governor McKee did not read my piece.

Steve Ahlquist: Toward the beginning of your comments, you mentioned state rankings, and I was wondering: What is the importance of those, because I don’t see them as being scientific or real. It’s just online clickbait. What do you see as the importance of those?

Governor McKee: Well, I think the way that people perceive the state, inside the state and outside the state, is important to our economy. I think that some of the rankings we read about aren’t so good, [but] I see them all. I think it’s important that they set an agenda for our office to do better on infrastructure. So when I call in and I have our staff call in to the people who are doing the rankings, or I bring in the engineers out of URI that talk about what is being presented, that gets factored into what those rankings look like, and we get better at it…

To answer your question, all of this falls into how people feel about the State of Rhode Island, and it has an impact on the overall economy, clearly. However, it also highlights some valid points that are not clickbait. Your bonding rating, to get a bond upgrade...

Steve Ahlquist: That’s real...

Governor McKee: That’s real.

Steve Ahlquist: Yeah, that is real.

Governor McKee: That’s not unreal. And I think that we’re - I don’t like to predict things too much, but I think we’re going to get another [bond upgrade]. I feel it’s an important area to solidify the state’s finances so that if we need to take action to help people, we can do so.

It’s important to note that bond ratings, assigned to a state’s general obligation bonds, indicate a state’s creditworthiness and ability to repay its debts. These ratings are issued by agencies like S&P Global, Moody’s, and Fitch, and help investors assess the risk associated with investing in state bonds. These ratings are not rankings in the sense mentioned by the Governor in the comments I quoted above.

I was also curious about another thing the Governor said: “In our budgets, our idea is not to raise taxes and to be competitive with our bordering states.”

Steve Ahlquist: Governor, if we’re worried about the impact on working families, and we want to be in line with other states, why not support the millionaire’s tax? That would have covered all [the budget shortfalls] and more, and bring us in line with Massachusetts, [which has instituted a very successful wealth tax], and prevent the impact [of higher taxes and fees] on working families?

Governor McKee: I think that’s an appropriate question if you need the funds, but I don’t want to tax people unless I know why I’m taxing them… There may come a time when there’s a reason to support tax increases, but this is not the time. You don’t just raise taxes for the sake of raising taxes, but because you have a sense that it’s the appropriate thing to do. We raise taxes because there are valid reasons for doing so, and right now, we don’t have a compelling reason to do so.

I’ve said this publicly: let’s see what happens in Washington, or let’s see what comes our way, and there may be a time that you need to discuss that tax. However, this is not my first budget cycle. I’ve managed many smaller budgets in Cumberland, but in 12 budgets, we never raised taxes unless I could clearly explain to the taxpayers why I supported a tax increase.

House Speaker Joseph Shekarchi and Senate President Valarie Lawson issued a statement:

“We were proud to again pass a balanced and responsible budget with bipartisan support that delivered for Rhode Islanders by addressing our state’s health care crisis and continuing to improve access to housing that families can afford.

“Months of public testimony highlighted the ways in which the Governor’s budget submitted in January did not address these priorities and included items that were simply unworkable or broke promises we made to retirees. The Governor’s budget also underfunded agreements made with employee unions after it was submitted. Major miscalculations of education aid needs and reduced local aid support posed additional challenges for us.

“We were fortunate that an uptick in revenues was available to cover some of the shortfall, but we could not deny that issues such as healthcare, transportation, and housing problems needed sustainable solutions, some of which came in the form of targeted revenue enhancements.

“We did so in the shadow of pending federal action that is likely to pose severe challenges to our state and our finances, which will require planning, collaboration, and efficient and effective government services for fellow Rhode Islanders.”

1. Here’s the Governor’s letter in full:

TO THE HONORABLE, THE SPEAKER OF THE HOUSE OF REPRESENTATIVES:

I am transmitting to the Secretary of State, without my signature and noting my significant concerns,

2025-H 5076 Substitute A as amended "An Act Making Appropriations for the Support of the State for the Fiscal Year Ending June 30, 2026" (the "Budget Act").

The Budget Act Imposes Unnecessary Tax and Fee Hikes

I want to thank the General Assembly for its careful consideration and thoughtful efforts during a trying budget year. The Budget Act includes several shared priorities that reflect the direction I outlined in January. These include making RhodeRestore our local road improvement program permanent, expanded support for dual and concurrent enrollment, additional support for primary care providers, and the inclusion of many of our cost-saving initiatives aimed at bending the long-term fiscal curve.

However, I cannot support the Budget Act because the proposed tax and fee increases would make it even harder for Rhode Island families to afford everyday life at a time when inflation is still top of mind and affordability remains their top concern. My guiding principle in developing my budget was to avoid wide-ranging, broad-based tax increases even while closing a $250 million deficit, because I know how hard families are working to keep up with rising costs. I closed the deficit with strategic reductions and efficiencies, including but not limited to reducing consultant and contractor expenses by 4.2% statewide, pursuing more cost-effective approaches to state hospital operations and child welfare programs, and bolstering efforts to identify and prevent waste, fraud, and abuse.

By contrast, the Budget Act, as passed by the General Assembly, imposes the following unnecessary tax and fee increases on Rhode Islanders:

1. At a time when Rhode Islanders already face some of the highest fuel taxes in the region, the Budget Act would raise the gas tax to 41 cents per gallon starting next month, 5% more than previously scheduled. It would also grow the tax at a higher rate than under the current law. Rhode Islanders already pay more at the pump than drivers in Massachusetts (27¢) and Connecticut (25¢), and this change would further worsen our regional competitive disadvantage.

2. With premiums already straining household budgets, the Budget Act adds a new $48 annual fee on health insurers for every person they cover, costs that will be passed on to families. For a family of four, that means nearly $200 more each year.

3. For Rhode Islanders looking to buy or sell a home, the Budget Act increases the real estate conveyance tax on sales under $800,000. This 63% increase would add over $1,300 in fees on the sale of a median-priced home, and it moves us further from my RI 2030 goal of expanding access to homeownership.

4. The Budget Act also proposes a new sales tax on parking, an 18% increase in traffic fines, and a significant increase in DMV surcharge costs that add up quickly for working people. At a time when everyday essentials are straining household budgets, these changes would only make it more expensive to live and work in Rhode Island.

The General Assembly Could Have Made Critical Investments Without Wide-Ranging Tax Hikes

I want to recognize the General Assembly’s shared commitment to strengthening our healthcare system. I’m glad to see them embrace the direction I laid out in the letter transmitted with my budget recommendation, especially the increased funding for primary care.

As Governor, I recognize that revenue increases can sometimes be necessary to support smart, targeted investments that strengthen our state’s economy, and I have supported them when justified. Unfortunately, the Budget Act imposes tax and fee increases on everyday Rhode Islanders at a time when they are not necessary. Let me be clear: with $67 million in additional revenue available following the May Revenue Estimating Conference, the General Assembly had more than enough resources to address updated costs and obligations since January, and to fully fund many key priorities without raising taxes or fees. In particular, the additional revenue could have fully funded the primary care investment and expanded support for education, while repurposing certain existing available transportation revenues could have sustained RIPTA at the proposed level, without increasing costs at the pump.

If I had line-item veto authority, I would have reversed many of these tax and fee hikes. Lacking that authority, I am allowing this bill to become law without my signature as a clear and deliberate statement of my strong opposition to the cost increases it imposes on Rhode Islanders.

As Governor, it is my responsibility to speak up for those without a lobbyist or loud voice on Smith Hill: everyday Rhode Islanders who will shoulder the burden of these added costs. I respectfully urge the General Assembly to join me next session in developing a more responsible path, one that protects affordability while still investing in our shared priorities.

2. Governor McKee’s 2030 Plan is a set of goals he hopes to accomplish by the time he leaves office, contingent on his winning a second term in office in 2026.