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Woonsocket working on contingency plan

May 16, 2012

WOONSOCKET — Though the supplemental tax legislation is not officially dead, it’s dead enough for the state to begin gearing up for Plan B — the imposition of a budget commission to take over the city’s finances.
Finance Director Tom Bruce told The Call Wednesday that State Revenue Director Rosemary Booth Gallogly and city officials will mount a last-ditch effort to revive supplemental taxes in the House, but Gallogly is already making preparations to seat a budget commission for the city if the effort falters.
Already approved in the Senate, the 13 percent supplemental tax bill was held for further study after a hearing before the House Finance Committee Tuesday. While the maneuver is often the demise of legislation, Mayor Leo T. Fontaine is still hopeful the measure will be reconsidered. But it has to happen soon, he says, or the city will run out of money and the state will have little choice but to intervene.
“I’m very concerned as the lack of movement on this issue puts the school department’s ability to keep functioning into question,” Fontaine said. “For all intents and purposes, they are already insolvent.”
Fontaine said the House panel’s action, or lack of it, makes budget commission oversight more likely than ever, but it’s still not inevitable. “The question,” he said, “is whether the bill is being held for further study or legitimately tabled for review of all the information that was presented to them during Tuesday afternoon’s hearing.”
“If they decline to act that may be the deciding factor in the state appointing a budget commission,” he said.
Gallogly did not return phone calls, but Fontaine said he was expecting to be involved in conference calls with the revenue director and East Providence Rep. Helio Melo, chairman of the House Finance Committee, to discuss the city’s options during the day yesterday.
While the city’s financial situation remains in limbo, Bruce said it’s clear that some mechanism must be activated soon to keep the Woonsocket Education Department from going broke. As of yesterday morning, Bruce said Schools Supt. Giovanna Donoyan told him the Woonsocket Education Department was roughly $5.9 million in arrears to vendors, including Blue Cross, various special education providers, an oil company, and the student busing company. Some of those vendors have been patiently waiting to see whether the supplemental tax bill would pass the House, but now that it’s stalled, they may cut off services, prompting the state to intervene sooner rather than later.
Even if vendors continue providing services without payment, Bruce says Donoyan now predicts the school department will run out of cash during the week of June 4. The only revenue expected is state aid and she’s reserved all of it for payroll. Nothing will be left for vendors.
The sheer logistics of printing and mailing tax bills in time for the revenue to be applied where it’s needed – in the current fiscal year – is putting additional pressure on officials to act quickly, says City Council President John Ward.
“Time is not our friend here,” he says. “If something is going to happen with supplemental taxes it has to happen within the next week.”
Like the mayor, Ward said he’s still holding out hope that Gallogly can persuade the House panel and the local delegation that the bill is a preferable alternative to another municipal insolvency. State Reps. Lisa Baldelli Hunt and Jon D. Brien have expressed reservations about the bill. Neither they nor State Rep. Robert Phillips who has said he supports supplemental taxes, testified before the House panel Tuesday.
“It’s going to take the work of our local delegation to get this to the House floor, otherwise the city is going to run out of money,” Ward said.
Officials proposed supplemental taxes to eliminate a cumulative deficit expected to top out between $10 and $11 million by June 30. The measure before lawmakers would raise up to $6.6 million to help close the gap, bringing in an average of $350 each from residential property owners in the form of a “fifth quarter” bill. Approval of the legislation would have also served as collateral for a $3.2 million bridge loan from Citizens Bank to help the city eke through the fiscal year.
Combined with the new fair funding formula for school reimbursements, Fontaine and other officials say the supplemental tax plan would establish a new baseline tax levy sufficient to attain a break-even budget for the city and schools in fiscal 2013, which starts July 1.
Just seven people testified during the House hearing, however, and some questioned whether the fix gets at the underlying problems pulling the city’s fiscal boat asunder, including its pension obligations and other post-employment benefits, like retiree health care. At the current rate of disbursement, about $8 million a year, the assets of the city’s pension system for police and firefighters will be depleted in seven or eight years, maybe less, some predict.
Critics of the mayor’s plan say supplemental taxes alone aren’t enough. To right the ship, the city needs to be in the hands of a receiver or, perhaps, a bankruptcy trustee, to make the cuts local officials are either powerless or unwilling to make, they argue.
While Bruce doesn’t see receivership as a go-to option for Gallogly, he says it is likely that, in the near term, city residents will see a supplemental tax bill one way or the other. The only question, he says, is whether it will be administered by the Fontaine administration or a budget commission.
“A supplemental tax bill is going to get issued at some point anyway,” Bruce said. “The city has needs.”
The impact of the House panel’s failure to act Tuesday will probably come quickest on the city’s credit report cards from Moody’s Investor Service and Fitch Ratings, the New York rating agencies. Both place the city’s bond rating at junk levels, with a negative watch status. They would have welcomed supplemental taxes as a stabilizing force on the municipal pocketbook, Bruce said, but now the rating agencies will probably extend watch status indefinitely and keep the city under a microscope.
Under the Fiscal Stability Act of 2010, there are three ways the state may intervene in the fiscal affairs of a distressed community, each with increasing levels power. At the low end of the scale is the appointment of an overseer, at the high end, a receiver, with the authority to seek municipal bankruptcy in federal court. A judge could approve all sorts of money-saving adjustments to labor contracts, pensions and other obligations that are usually off-limits to elected officials.
A budget commission is a mid-level form of intervention, consisting of five-member panel that would include the city council president and the mayor, plus three state appointees. The panel could consolidate departments and eliminate all but the most essential services. It could cut the salaries of elected officials. And it could petition the state to speed up the delivery of the June 29 state aid allocation to schools, a pot of nearly $4 million, by a month, according to Bruce.
In East Providence, the only other city in the state currently under budget commission management, the rating agencies have reacted positively to the city’s improving condition.
Meanwhile, Bruce says, continuing uncertainty hovering over the city’s fiscal future is taking a toll on employees at City Hall, whose ranks have already been thinned in series of budget cuts dating back to at least 2009.
“We’re having some serious morale issues in this building,” says the finance director. “There are people here who are worried about their salaries, their benefits, their job security.”

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