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Out of time, officials now seek state intervention

May 18, 2012

WOONSOCKET – Although a tabled bill that would let the city issue a 13 percent supplemental tax bill is now scheduled for a vote in the House Tuesday, it looks like the city is going to get a budget commission anyway.
The “fifth quarter” tax bill has long been portrayed a way to stave off a budget commission stacked with outsiders and keep the tough choices facing officials local. But in the last day or so, Mayor Leo T. Fontaine – and a majority of the City Council, apparently – appear to have changed their minds and are now asking State Revenue Director Rosemary Booth Gallogly to appoint a budget commission to take over the city’s finances.
A formal resolution asking for state intervention will be taken up by the City Council on Monday night. Four of the council’s seven members, including President John Ward, Christopher Beauchamp, Roger G. Jalette Sr. and Daniel Gendron, have co-sponsored the measure. That makes passage likely, and officials see no reason why Gallogly would not honor such a request.
“We’ve been in close communication with her office,” said Fontaine. “We foresee no reason why they’re not going to approve this.”
There are a number of factors behind the course-correction, Fontaine says, but the main one is timing. Since the House Finance Committee tabled the supplemental tax legislation on Tuesday, the city’s capacity to issue the bills and collect the revenue fast enough for it to be applied to the current fiscal year has become increasingly questionable. The city needs to bring the revenue in before July 1 for it to lessen a projected deficit of $10 million in the Woonsocket Education Department.
The city initially wanted to issue supplemental tax bills by May 15. Now, House leaders are saying the earliest the enabling legislation could reach the House floor is next Wednesday or Thursday.
“For us to get passage, get the bill signed by the governor and get the bills mailed out and give taxpayers 30 days to pay, it become difficult,” said Fontaine.
Larry Berman, a spokesman for House Speaker Gordon Fox, told The Call Thursday the House Finance Committee held the enabling legislation for further study because no member of the Woonsocket delegation spoke in favor of it. Or against it, for that matter. Reps. Lisa Baldelli Hunt and Jon D. Brien have since said they would support the bill, though Baldelli-Hunt, for one, thinks it might need to be amended, which could mean additional delays because the Senate would have to sign off on any changes.
Beyond the legislative quagmire, Fontaine and other city officials say new problems in the WED have prompted them to reluctantly embrace a budget commission. On Thursday, Fontaine said, RIDE, the state department of education, issued another ruling in favor of special education vendors who have complained that the WED hasn’t paid them.
In April, Education Commission Deborah Gist, after a formal hearing, ruled that $185,000 would be deducted from the May installment of state aid (about $4 million), to reimburse unpaid special education subcontractors. Two days ago, Gist ruled that another $85,000 will be deducted from that payment, plus another $65,000 from the June payment, for services provided by a different group of special needs providers, including the Groden Center, St. Mary’s Home for Children, the Wolf School and the Paul J. Primavera Center.
School officials reported the department’s collective debt to vendors, including utility and transportation companies, is now nudging the $6 million mark.
Moreover, said Fontaine, the school department overdrafted bank accounts by $239,000 in making payments for health care and pension obligations on Thursday. The cash squeeze also forced schools to borrow $490,000 from the city to make payroll.
While the latest cash flow projections from Schools Supt. Giovanna Donoyan pegged the “drop dead” date for exhausting available funds as June 4, Fontaine said the evidence suggests a more dire scenario.
“It appears that our original estimates for when they were going to run out of money were pretty much spot on,” said the mayor.
Some officials are also troubled by continuing problems the WED and the School Committee appear to be having assembling a 2013 budget. A flurry of budget workshops in recent days was expected to culminate in the approval of a spending package in the vicinity of $67 million last night. But Finance Director Thomas M. Bruce III says that although a consultant was called in to manage the process, it has still been marked by alarming oversights, including the omission of a $1.4 million line item for retiree benefits.
The origin of the budget crisis can be traced to the surprise discovery of a $2.7 million deficit in last year’s school budget, on the heels of a far rosier forecast by former Business Manager Stacey Busby. The discrepancy raised red flags with Revenue Director Gallogly, who ordered an audit that not only confirmed the shortfall, but discovered a new projected loss of $7.3 million by the end of the current fiscal year. Busby has since been fired.
Dina Dutremble, a retired business manager, was called in to help straighten out the mess, but she was recently replaced by a state-vetted temp, Ralph Malafronte. Donoyan, who has been on the job for less than a year, is now looking for a permanent replacement.
Bruce says the turnover and lack of continuity is part of the problem, and a budget commission could help get it under control.
“They are starting from scratch down there,” he says. “All of the institutional memory is gone.”
Councilman Beauchamp also says he is dissatisfied with the performance of the school department and he hopes a budget commission will keep the situation from worsening.
“They were supposed to have a budget finished by the end of March,” said Beauchamp. “Here it is almost the third week of May and we still don’t have a budget from them.”
Even if the House rejects supplemental taxes next week, it’s overwhelmingly likely the plan will be resurrected by a budget commission, officials say. The idea is to raise up to $6.6 million to help close the budget gaps and keep the school department from running out of cash. The city also plans to obtain a $3.2 million bridge loan from Citizens Bank by borrowing against the expected tax receipts, using the funds to smooth cash flow until the tax revenue begins arriving.
One benefit from a budget commission the city expects to begin feeling almost immediately will be a stabilizing effect on the city’s bond ratings, Fontaine says. Fitch Ratings and Moody’s, both of whom place the city at junk bond status, contacted the city after the House panel postponed action on supplemental taxes last week, but so far neither has altered the city’s standing.
Also, the commission would also have the power to command the delivery of school aid to the city sooner than otherwise scheduled. In this case, the next pool of aid, about $4 million, minus the deductions to pay vendors ordered by RIDE, is expected at the end of June, but it could arrive weeks earlier with a budget commission in place.
Fontaine sees the budget commission as a “proactive response” to the city’s deteriorating financial condition, and perhaps the city’s last best hope for averting receivership or bankruptcy. But he acknowledges that elected officials will sacrifice much of their power once it’s in place.
Under the Fiscal Stability Act of 2010, a budget commission has five members, including the mayor and the council president, plus three appointees of the governor. It would have absolute control of all spending decisions now shared by the School Committee, the City Council and Fontaine administration.
Additionally, Fontaine says all hiring would be subject to the approval of the budget commission. The panel would have the power to consolidate departments, eliminate positions and abolish entire programs. Non-essential services like the Senior Center or Harris Public Library could conceivably end up on the chopping block. Salaries of elected officials could be reduced.
The panel could also reopen collective bargaining with major employee groups, including teachers and City Hall workers.
It’s a level of state intervention substantially weaker than that of Central Falls, which was placed in receivership under the FSA. The receiver, former Superior Court Judge Robert Flanders, later petitioned a federal court to place the city in bankruptcy, opening the door for unilateral cuts in pensions and contracts without collective bargaining.
Still, if a budget commission were appointed in Woonsocket, it would be something of a milestone. The city would become only the second in the state to operate under such authority, after East Providence, and only the third to operate under any form of state intervention since the FSA was passed, after Central Falls.

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