With RI budget deficits looming, McKee looks to slow state spending. What to know.

PROVIDENCE – Gov. Dan McKee's administration is ordering state agencies to pull back on new spending and hiring because of projected budget deficits starting next year.

After years of surpluses, analysts now forecast a $262 million deficit in the fiscal year starting July 1, 2025, according to a report from the House fiscal office.

Even thought the budget for that year hasn't been written yet and won't begin for nearly a full year, state budget officials want to slow the pace of spending now as a precaution.

"While revenues continue to grow modestly, we cannot expect year-end surpluses of hundreds of millions of dollars as in recent years," Brian Daniels, director of the state Office of Management and Budget, wrote in a memo. "To avoid the need for broad-based tax increases or major programmatic cuts in FY 2026, we must take steps now to control agency spending."

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The House fiscal report now estimates that after the $262 million deficit next year, the budget gap would grow each year, to $293 million by the year that starts in July 2028.

To curb spending, Daniels ordered agencies to "instruct all program staff to refrain from discretionary spending that does not directly meet the critical needs for the continued operation of the respective program."

"OMB will be rejecting any procurement requests that do not address immediate health and safety needs; do not support federal- or state-mandated programs; and/or are not critical to agency operations," he said, adding that hiring requests will go through an "additional review."

This year's state budget passed last month is expected to be the last to take advantage of federal pandemic aid, and in some cases no replacement funding has been identified, creating a future structural deficit.

"One-time resources are used for the [FY24-25] budget and are the primary reason again for the [FY25-26] outyear budget gap," the House fiscal report says.

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McKee spokeswoman Laura Hart wrote that the administration is taking a "proactive approach to a projected deficit in FY26, employing strategies as early as possible in the new budget year to curb unnecessary spending."

"The deficit is not a reflection of a projected reduction in revenue," she said. "Both [the Office of Management and Budget] and the Governor feel that state needs to adjust its mindset in a post-[American Rescue Plan] world, where large budget surpluses will no longer be the norm and cannot be used to cover budget deficits."

This article originally appeared on The Providence Journal: With RI budget clouds looming, McKee looks to slow state spending