News Summary
Rhode Island’s fiscal 2026 budget is under threat due to high tariffs and potential federal funding cuts, raising recession risks. Economists highlight a significant impact on job growth and wages, while federal Medicaid funding cuts pose further challenges. Despite a diverse job market, the state’s financial stability is at stake, emphasizing the need for strategic planning.
Providence, Rhode Island – Rhode Island’s economic outlook is fraught with uncertainty as officials gather to review the fiscal 2026 budget amid concerns over high tariffs and potential federal funding cuts. During the Revenue and Caseload Estimating Conference, senior economist for Moody’s Analytics, Emily Mandel, highlighted that the state’s financial future is under significant threat, with recession risks described as “extremely high”.
The conference, aimed at updating revenue and spending forecasts for Rhode Island’s fiscal 2026 budget scheduled to commence on July 1, revealed important insights regarding the challenges facing local economies. Economists anticipate that the average tariff rate has surged to 21%, marking the highest levels in the U.S. since 1909. This rise is attributed to reciprocal tariffs of 145% with China and a 10% tariff on imports from other countries, leading to increased costs for consumers and businesses.
As a result of these tariffs, job growth in Rhode Island is expected to slow, alongside wage stagnation as increased consumer costs put pressure on families. Although strong job growth has been observed, with a record of 515,600 jobs in March 2025, the unemployment rate stands at 4.8% and is projected to reach 5% by the end of 2025.
Impact of Federal Funding Cuts
One of the most pressing concerns is the potential cuts to federal funding, particularly in Medicaid, which could drastically impact the state’s budget. Rhode Island relies heavily on federal aid, with over half of its annual Medicaid budget coming from these funds. Analysts estimate nationwide federal Medicaid cuts may reach $880 billion, posing severe challenges for the state’s healthcare services.
Rhode Island’s population decline further complicates its economic prospects, as residents are increasingly moving to southern and mid-Atlantic states, along with more affordable New England locations like Maine and New Hampshire. The decline in population could affect both the labor market and demand for housing, which is already experiencing a critical shortage due to rising costs exacerbated by tariffs on building materials and stricter immigration policies that impact the construction workforce.
Local Economic Landscape
Despite these challenges, Rhode Island’s diverse job market, significantly in sectors such as finance, education, and healthcare, provides some buffer against the economic downturn caused by tariffs. Although projections for job growth through fiscal 2030 remain consistent with previous forecasts, a low outlook on housing starts reflects ongoing difficulties since November.
In the surrounding region, recent income tax policies in Massachusetts have drawn residents to Rhode Island, a notable trend that may both bolster and challenge the local economy. Current state legislation proposes a 3% surtax on the top 1% of earners, igniting debate on its potential effects on revenue generation and the wealthiest individuals’ decisions to remain in the state.
Moreover, a report from the Institute for Policy Studies indicates the number of high earners in Massachusetts has grown following a tax amendment, which could impact Rhode Island’s competitiveness. Concurrently, the Greater Boston area has experienced slower wage growth relative to national averages, largely attributed to soaring living costs, indicating potential socio-economic shifts ahead.
Future Budget Considerations
The upcoming May Revenue and Caseload Estimating Conference is set to provide crucial insights into the budget landscape, allowing state officials to better prepare for the fiscal challenges ahead. As Rhode Island confronts the dual issues of high tariffs and potential funding cuts, the state’s financial stability hangs in the balance, emphasizing the need for strategic planning and robust economic policies to navigate the uncertain future effectively.
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