Governor McKee's proposed FY 2027 Budget called a "good start"

"It’s time for a tax system that’s actually fair, guaranteeing that the richest one percent will pay more to fund our public schools, colleges, roads, bridges, and public transit.”

View Governor McKee’s full budget submission here.

Rhode Island Governor Daniel McKee rolled out his FY 2027 budget on Thursday, to generally good reviews from the Working Families Party, the Economic Progress Institute, and the Housing Network of Rhode Island. The proposed budget includes a version of the millionaire’s tax. However, the Governor’s proposal is weaker than the one proposed by Revenue for Rhode Islanders, a coalition that has advocated for the tax for at least the past five years.

“My commitments to Rhode Islanders are clear: putting more money back in families’ pockets, protecting the most vulnerable from President Trump’s safety net cuts, and keeping Rhode Island building to support good-paying jobs and long-term economic growth,” said Governor McKee. “With the Trump Administration’s tariffs, its inaction to address the cost of living, and the passage of H.R. 1, the state is facing a different set of challenges. These challenges call for clear direction and decisive leadership—and my budget reflects both.”

Among the investments in the Governor’s budget proposal are:

• Eliminating the state tax on Social Security benefits by phasing it out over the next three tax years. Rhode Island is one of eight states that tax Social Security benefits for at least some beneficiaries. In the first year alone, 9,200 early retirees will be fully exempt from the state tax on their benefits.

• Creating the state’s first Child Tax Credit, converting the existing dependent deduction into a fully refundable credit, and delivering approximately $30 million in annual tax relief, with the largest benefits going to lower-income families who receive little or no value under the current deduction—$325 per child per year.

• Providing more than $151 million in ratepayer relief in 2027 and over $1 billion in cumulative savings over the next five years by reforming the roughly 25 percent of electric bills driven by state programs and taxes. The Governor recommends aligning certain ratepayer-funded programs with peer states and scaling back others to reflect disruptive federal actions and affordability constraints—moderating near-term utility costs while preserving a more affordable path to decarbonization and repealing the 2-cent motor fuel hike enacted by the General Assembly in the Fiscal Year 2026 Budget.

• Backfilling the recently expired, enhanced Affordable Care Act subsidies to keep coverage affordable for approximately 20,000 individuals. With a $9.5 million investment, some 6,500 persons are projected to allow their coverage to lapse.

• Curbing healthcare cost growth and increasing drug-price transparency by authorizing the Office of the Health Insurance Commissioner to set enforceable annual cost-growth targets for payers and requiring Pharmacy Benefit Managers to report detailed rebate, pricing, and fee data—laying the groundwork for more effective oversight and cost containment.

• Calling for the implementation of a line-item veto, empowering the Governor to strike specific appropriations without approving or vetoing an entire budget, thereby preventing unnecessary tax and fee increases and strengthening fiscal discipline.

The Governor proposes placing six general obligation bond questions totaling $600 million on the November ballot. The initiatives are:

• Higher Education Facilities ($215 million): Investing in capital infrastructure at all three, public institutions of higher education, including an integrated health building for the University of Rhode Island ($105 million); a workforce innovation center on the Warwick Campus of the Community College of Rhode Island ($60 million); and a student success and career readiness center within Adams Library ($50 million).

• Housing and Homeownership ($120 million): Increases and preserves the state’s affordable housing portfolio through redevelopment, new construction, property acquisition, and infrastructure improvements. $25 million of this bond is dedicated to increasing homeownership across Rhode Island.

• Economic Development ($115 million): Creating pad-ready locations and facilities in the Quonset Business Park ($70 million) and investing in infrastructure that supports Rhode Island’s ocean, defense, life sciences, data analytics, and related industries ($45 million).

• Green Economy and Clean Energy ($50 million): Investing in energy efficiency infrastructure, vulnerable coastal habitats, recreational facilities, brownfields remediation, and Narragansett Bay’s water quality, among other initiatives. This includes the state’s largest-ever investment in climate resiliency through a $20 million proposal for the Resilient Rhody Fund.

• Career and Technical Education ($50 million): Creating new career technical and education programs and improvements to existing programs. This is Rhode Island’s first dedicated Career and Technical Education bond.

• Cultural Economy ($50 million): Constructing a State History Center ($45 million) and providing matching grant opportunities for municipalities and nonprofits to preserve and renovate historic sites that are open to the public ($5 million).

Protecting Rhode Islanders from President Trump’s Safety Net Cuts

• Investing $19.3 million for information technology, personnel, and resources to ensure that Rhode Islanders can retain their Medicaid and SNAP benefits in response to the federal reconciliation bill called H.R. 1, as well as maximize the amount of federal funding that the State receives for these critical programs

• Providing $10.0 million from all sources of funds to be distributed to Rhode Island-based hospitals through the established Disproportionate Share Hospitals payment to help offset losses related to uncompensated care.

• Increasing funding for the Office of the Health Insurance Commissioner’s recommended rates by $23.0 million in Fiscal Year 2027 for social and human services providers.

• Doubling the amount of funding for the Rhode Island Community Food Bank from $1.0 million to $2.0 million.

• Helping preserve access to essential preventive and reproductive health services by providing Planned Parenthood of Southern New England with a $600,000 State grant.

• Beginning to fully reopen the Foxtrot Neighborhood within the Rhode Island Veterans Home, starting with 16 additional beds, which is half of the neighborhood’s capacity. This plan puts the Home on track for full occupancy in FY 2028.

Supporting K-12 and Higher Education

• Increasing per-pupil education aid by $17.5 million, which is a 3.1-percent increase over Fiscal Year 2026.

• Boosting high-cost special education categorical funding by $2.5 million – from $17.5 million in Fiscal Year 2026 to $20.0 million in Fiscal Year 2027.

• Providing $2.0 million for the Learn365RI program.

• Increasing unrestricted operating support to the three public institutions of higher education by 2.5 percent, or $6.2 million.

• Converting the Hope Scholarship, which provides in-state students their junior and senior years tuition-free at Rhode Island College, from a pilot program to a permanent one.

Revenue Initiatives

• Decoupling from H.R. 1’s research and development tax provision to retain $22.6 million in tax revenue in both Fiscal Years 2026 and 2027.

• Creating a fourth tax tier at 8.99 percent for income over $1 million starting in tax year 2027. The new tax is projected to generate $67.1 million in Fiscal Year 2027.

• Launching a tax amnesty program to incentivize delinquent taxpayers to pay outstanding taxes owed to the State. The program is projected to generate $26.3 million in Fiscal Year 2027.

Economic Progress Institute Responds:

The Economic Progress Institute (EPI) applauds Rhode Island Governor Daniel McKee for including several proposals in his recommended FY2027 budget to help struggling Rhode Islanders while also raising revenue to protect the state amid relentless and detrimental federal cuts.

Specifically, the Governor’s proposal to create a fourth tax bracket – an additional three percent on taxable income above $1 million – is a good start towards increasing tax fairness in Rhode Island. It also provides additional revenue to prevent cuts in critical programs. However, the Revenue for Rhode Islanders proposal would set the new bracket at $640,000 (the cutoff for the top 1 percent) rather than $1 million, generating more revenue. $203 million annually versus $136 million annually is better for Rhode Island.

EPI also welcomes the Governor’s call to establish the state’s first permanent and refundable Child Tax Credit of $325 per child annually. The evidence shows that the enhanced federal Child Tax Credit during COVID led to a massive drop in childhood poverty rates. Although a much smaller state version will not have as large an effect, it will still make an important difference for at least tens of thousands of Rhode Island families. This is a good start, but policymakers should also consider increasing the state’s Earned Income Tax Credit, which stands at only 16 percent of the federal credit. In comparison, Massachusetts and Connecticut set theirs at 40 percent. This refundable tax credit makes a difference for working families.

Given the threats to affordable healthcare coverage, EPI also supports the Governor’s Marketplace Affordability Program, which will spend $9.5 million to assist thousands of Rhode Islanders who recently lost enhanced federal subsidies in purchasing coverage through HealthSource Rhode Island. The Governor’s team estimates that this will help 20,000 Rhode Islanders maintain their coverage. This is also a good start, though even more needs to be done to keep healthcare affordable.

EPI supports one part of the Governor’s budget proposal on Social Security taxation while opposing the other part. We support the proposal to exempt low-income Rhode Islanders who are collecting Social Security benefits and are below full retirement age from state taxation, at a cost of only $3 million per year. EPI sees this as a good start, but we should stop at this good start and not take it any further. We oppose the plan to phase out state taxation of Social Security income altogether. Rhode Island already exempts this income from taxation for individuals with $107,000 or less in income and for joint filers with $133,750 or less. This proposal would result in an estimated $60 million in annual revenue loss by FY2030. If we exempt all Social Security income, this will include such income even for millionaires. EPI believes we should assess taxes based on ability to pay, not on membership in a group.

Likewise, EPI supports a $19.3 million investment in personnel and information technology to help Rhode Islanders maintain their SNAP and Medicaid benefits. They are eligible but at risk of losing these benefits due to new federal paperwork requirements to prove they are working or are excused from work requirements.

EPI plans to take a deeper dive into the Governor’s FY2027 budget proposals in relation to additional federal decisions and our income tax revenue review at the virtual Revenue Roundtable on January 29, 2026.

Housing Network of Rhode Island responds:

As a network of affordable housing developers, providers, and advocates, we know housing is one of the strongest investments we can make in our state’s future. After today’s release of the Governor’s proposed FY2027 budget, we are pleased to affirm that housing affordability and production remain priorities of the governor’s administration.

The Housing Network of Rhode Island’s vision is that all Rhode Islanders live in safe, healthy, and affordable homes in thriving communities. As we work to accelerate progress toward our shared goals, we are grateful that Governor McKee’s budget proposes another $120 million housing bond, which will continue to help create and preserve permanent affordable housing.

We agree that Rhode Island should be a place where people of all backgrounds can afford to live and thrive. To truly address our state’s housing and homelessness challenges equitably and humanely, we must ensure that all voices - especially those of people most impacted - are welcomed into the conversation and in the development of people-centered solutions.

Our state’s housing challenges did not emerge overnight; they are the result of systemic barriers compounded by growing instability at the federal level. Longstanding housing programs now face shrinking resources, major restructuring, or potential elimination altogether. At the same time, reduced funding and workforce losses have weakened the systems responsible for delivering these essential supports, leaving more residents at risk of housing instability and homelessness.

As federal support becomes less reliable and the responsibility increasingly shifts to states and municipalities, Rhode Island has taken important steps, including the passage of the state’s largest housing bond in the November 2024 election and the proposal for a second bond in FY27. These investments are necessary to meet the scale of the challenge before us.

Continued, sustained investment is essential if we are to build on this progress and respond to the urgency of the moment. As the Governor noted in his 2026 State of the State Address this week, “it’s not time to take our foot off the pedal. It’s time to keep Rhode Island building and fighting for the housing we deserve.”

The Housing Network of Rhode Island, our members, and our partners remain committed to working alongside the Governor and elected leaders at all levels of government to ensure that every Rhode Islander has a safe, healthy, and affordable home. We look forward to reviewing the budget in greater detail and engaging further on proposals to expand affordable housing opportunities across the state.

Working Families Party responds:

In response to the ‘millionaire’s tax’ included in Governor McKee’s proposed budget, Working Families Party (WFP) New England Regional Director Georgia Hollister Isman said:

“This is a good start from the Governor, but it leaves too much money on the table. The bottom line is this: at the same time we’re facing rising costs and serious funding cuts to the things every Rhode Islander depends on, we’re losing out on hundreds of millions of dollars because we won’t tax the wealthiest people in this state in a way that genuinely reflects their ability to pay. This proposal still leaves nurses and teachers paying more of their income in taxes than the richest 1%.

“People are tired of leaders who are disconnected from the pressures that working people are facing every day. Rhode Island has a Democratic trifecta and a set of Working Families legislative champions who are ready and willing to lead this fight. It’s time for a tax system that’s actually fair, guaranteeing that the richest one percent will pay more to fund our public schools, colleges, roads, bridges, and public transit.”

WFP will join a group of lawmakers holding a press conference on January 22 to announce a “Fair Share for Rhode Island Package,” a set of bills that require the highest earners in the state to pay a comparable share of their income in taxes as other Rhode Island filers. The package will re-balance the state’s upside-down tax system, protect the state against Trump cuts, and fund critical services like public education, healthcare and childcare and public transportation. Together, the package will raise more than $600 million annually and only affect top earners and people with extreme wealth.