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City could lose $1.4M in aid

June 21, 2013

WOONSOCKET – As the Budget Commission prepares to adopt the first budget of its five-year solvency plan Monday, there are hurdles on the revenue side of the $127.9 million spending package some officials fear may be insurmountable.
The latest curveball is a proposed $1.4 million cut in aid the commission was expecting from the state. Gov. Lincoln Chafee had included the money for distressed communities and pension supports in his proposed $8.2 billion state budget, but when the plan emerged from the House Finance Committee earlier this week, the aid had been eliminated.
Mayor Leo T. Fontaine said the cut will be “devastating” to the city if it’s part of the final state budget. State lawmakers are expected to take up the spending plan on Tuesday. Before then, Fontaine said the budget commission will make a last-ditch appeal to state lawmakers to push for the restoration of the aid.
Indeed, sources at City Hall said Council President John Ward, also a member of the budget commission, had already fired off a letter to lawmakers and state leaders Friday saying the legislature had failed the city, which now has no alternative but to impose salary cuts on all city employees effective July 1, or move into receivership.
Ward pointed to a host of requests put to lawmakers months ago in order to implement the five-year plan, all of which remain undone. They include legislative proposals that would have allowed the city to reamortize the $60 million unfunded liability of the pensions plan; implement a tax break for senior citizens to compensate for rollbacks in the homestead exemption; and raise $2.5 million in supplemental taxes for fiscal 2013.
Fontaine said the impact of the $ 1.4 million cut in aid must be viewed in the context of the five-year plan and coupled with the collapse of the supplemental tax. Both the House and Senate passed bills allowing the city to collect the supplemental for fiscal 2013, but lawmakers in both houses say they won’t forward a bill to the governor for his signature unless the city’s employees unions accept concessions on health care benefits, also as part of the five-year solvency plan.
The combined loss of aid and the supplemental tax nudges the $4 million mark, but it’s not just a one-year gap. They permanently shrink the tax base and throw off revenue projections for the life of the five-year plan, according to the mayor.
Another question-mark in the budget is whether residents will face a doubling of the fee for municipal trash pickup, to $192 a year per household – a move intended to raise another $1 million in new revenue. Residents turned out in force at the last meeting of the Budget Commission to protest the plan, saying it’s unaffordable given the other tax hikes they’re facing. The proposal was on the agenda of the commission’s meeting two weeks ago, but it was tabled until Monday’s meeting, which is scheduled to begin at 3 p.m. in Harris Hall.
Fontaine said the city could save about $13,000 a day by bringing back furlough days in fiscal 2014 for all but the most vital city employees, possibly as a strategy for deep-sixing hikes in the trash fee.
But he said it’s hard to imagine shutting down government long enough to make up for the loss of aid to distressed communities and the supplemental tax, too.
“To make up $4 million you’d have to shut down city government for quite some time,” says Fontaine. “This is a dire issue the budget commission is going to have to address because these cuts could be a death sentence for any hope the city has of solving its budget problems on its own.”
The reaction of Peder Schaefer, the deputy director of the Rhode Island League of Cities and Towns and a member of the commission, was much the same when he learned of the cuts at the State House earlier this week. Radio station WRNI, the state’s National Public Radio affiliate, quoted him as saying the loss of the $1.4 million raised questions about whether the budget commission can continue doing its work in Woonsocket.
The panel was seated by the state under the Fiscal Stability Act to take control of the city’s teetering finances in May 2012. Theoretically, the state could withdraw the budget commission and move to a more aggressive form of fiscal intervention, including the appointment of a receiver with the power to push the city into Chapter 9 bankrupcty.
So far, however, state officials have given no indication that they’re inclined to repeat the experience of Central Falls. Two weeks ago, the commission approved a pair of resolutions authorizing the city to obtain an advance of up to $12.7 million in 2014 education aid from the Rhode Island Department of Education, just as it did during the current fiscal year, in order to make payroll and cover overdue bills to vendors.
The city can gain access to the funds around July 1, which marks the start of the fiscal year. State Revenue Director Rosemary Booth Gallogly, who has been overseeing the state’s fiscal intervention in the city, says it’s overwhelmingly likely RIDE will grant the city the requested advance, which otherwise wouldn’t have been due to reach city coffers until April 2014.
The commission has also authorized the city to seek up to $12 million in short-term bank notes if it can find a lender willing to spot a borrower with a B3 bond rating on the Moody’s scale, or junk bond status.
The underlying problem with the budget is that it has racked up millions of dollars’ worth of cumulative operating deficits in recent years. While officials estimate the current deficit in operating revenues to be around $8 million, a detailed analysis by the commission earlier this year projected that the city would be over $100 million in the hole by 2017, including benefits owed to retirees and pensioners.
The five-year plan was supposed to vanquish that crippling shortfall, but with so many pieces of the plan in limbo so close to the start of a new fiscal year, the analysis may have to be revisited.
Follow Russ Olivo on Twitter @russolivo

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