Mayor: Providence is facing bankruptcy
February 3, 2012 By Ted Nesi,
WPRI.com Reporter By Nancy
Krause
PROVIDENCE, R.I. (WPRI) - Rhode
Island's capital city will be in bankruptcy by June
if it doesn't get help resolving its financial crisis.
That was the dire warning from Providence Mayor Angel Taveras during a Thursday morning news conference at City
Hall. With five months left before the end of the fiscal year and the capital
set to run out of cash by the start of summer, the city still faces a $22.5
million deficit in its budget for the current fiscal year, which ends June 30.
The budget shortfall was projected at $110 million last
March, when Taveras declared a "category
five" financial emergency in Providence.
It was reduced after he negotiated new contracts with unions, laid off workers, cut spending and won increased state aid.
Taveras, a Democrat who took office 13 months ago,
told reporters Providence could be pushed to the breaking point without
sacrifices from retirees and the city's large tax-exempt institutions,
including Brown University and the hospitals.
"Our firefighters, police officers, teachers and
taxpayers have all sacrificed in the last year and helped Providence avoid catastrophe," the mayor
said. "However, not everyone has sacrificed. The failure of our
tax-exempts to sacrifice has left a $7.1 million hole in our budget."
Warns colleges
of 'a failed city'
Brown and other institutions "can't be successful in a
failed city," he declared. Taveras and Brown
President Ruth Simmons clashed in December after her board spurned the mayor's
request for an additional $4 million from the Ivy League school and he rejected
her counteroffer of $2 million.
A spokeswoman for Brown did not immediately respond to a
request for comment.
Taveras said the city's retirees must accept reduced
pension and health care benefits to save the city from financial ruin. A decree signed in 1991 by Mayor Buddy Cianci
pushed the city's pension liability "into the stratosphere" by giving
annual cost-of-living increases of 5% and 6% to more than 600 retirees, he said.
"These retirees have refused to sacrifice and are
costing Providence
taxpayers tens of millions of dollars a year," Taveras
said, calling the increases "raises," not adjustments to keep up with
the cost of living. The mayor will hold a meeting with retirees on March 3
where they will be asked for concessions.
Taveras's office released a
list showing that the city's highest-paid pensioner, former Fire Chief Gilbert
McLaughlin, now receives an annual pension of $196,813 a year. He retired with
an annual salary of $63,510. At the current rate of growth, McLaughlin's
pension will total roughly $796,871 if he lives to the age of 100.
'Everything is
on the table'
Thursday's event was sparked by a Superior Court Judge Sarah
Taft-Carter's ruling Monday in which she sided with retirees and blocked the city
from forcing its retired police and firefighters to sign up for Medicare. The
judge dismissed
the $6 million cost of her decision as “alleged savings” that “would not save
the city from financial ruin."
Taft-Carter's ruling "has pushed the city to the brink
of bankruptcy," Taveras said. "Everything
is on the table." The city will appeal her decision to the Rhode Island Supreme
Court on Thursday and ask the high-court justices for an expedited review.
Taveras said his advisers had warned against using
the word "bankruptcy," particularly because it could spook rating
agencies into lowering the city's bond rating and raising its cost of
borrowing. But he said he wanted to be "straightforward" with
residents about how he sees the problem.
Taveras ruled out "a one-time fix" such as
borrowing to close the $22.5 million hole in the budget, which is the strategy
his predecessor, former Mayor David Cicilline, used
to close a similar-sized gap in his final budget. Increasing taxes is a
possibility but "a last resort" because it could damage the economy,
the mayor said.
But City Council President Michael Solomon ruled out any tax
hike, implying that either the retirees and tax-exempt institutions pay up or
the city will file for bankruptcy. "A supplemental tax increase is not
going to solve this problem," Solomon told WPRI.com. "That's off the
table with the Council."
Specter of Central Falls
The tiny city of Central Falls
became the first Rhode Island
municipality ever to file for bankruptcy last August. East Providence's finances were also placed
under formal state oversight in November. Woonsocket and Pawtucket recently
disclosed surprise deficits, and two-thirds of local pension plans in the state are
"at risk."
Retired police officers and firefighters in Central Falls
recently reached a tentative agreement with former R.I. Supreme Court Justice
Robert Flanders, the city's receiver, that would see their pension payments
reduced by as much as 55% if state lawmakers agree to augment that with
supplemental payments over the next five years.
Taveras urged Providence's retirees to learn a lesson
from what happened in Central Falls, warning he would find a way to reduce the
cost of their pension benefits "one way or another."
As of June 30, Providence's
city pension system was 32% funded with a shortfall of $901 million, and the city also had a $1.2
billion unfunded liability for retiree health benefits, according to its most recent audit.
The entire city budget is roughly $619 million this year.
Fox: 'Providence cannot fail'
Taveras was flanked by other city and state
officials, including House Speaker Gordon Fox, who represents a district in Providence and is perhaps
the most powerful individual at the State House.
"Providence cannot fail," Fox said. Providence's state aid
fell from $137 million in 2006-07 to $68 million in 2011-12, excluding
education funds. Lawmakers are "committed with all due urgency" to
resolving the city's problems and may pass legislation mandating payments from
the tax-exempt institutions.
Taveras said he briefed Gov .
Lincoln Chafee
on the city's problems for more than an hour on Wednesday and spoke with Senate
President M. Teresa Paiva Weed on Wednesday night.
Chafee spokeswoman Christine Hunsinger said the
governor's staff is working closely with Taveras and
his aides to deal with the crisis.
"This is exactly what the governor has been talking
about and why he talks about independent municipal pensions being part of
pension reform," Hunsinger told WPRI.com.
"The governor has confidence in Mayor Taveras.
And, as he's said, this crisis is in large part due to the cutting of state aid
- $192 million over the last four years. That's just too much for cities to
absorb."
Taveras asked residents and businesses in Providence
to lobby on the city's behalf, directing them to a new website - SavingProvidence.com
- with information about the situation. "I will do everything in my power
to make sure the city succeeds," he said.
Ted Nesi ( tnesi@wpri.com ) covers
politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi
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