5 Cities and Towns that Could Go Broke in 2012
Thursday, December 29, 2011
Rhode Island’s municipalities faced a tumultuous year in 2011 as cities and towns continued to tread water financially amidst staggering budget deficits and looming pension and other post-employment benefits problems.
Ever since Central Falls filed for bankruptcy this summer, the question has been, who is next?
GoLocalProv breaks down five cities and towns that could face major problems in 2012.
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According to Governor’s Chafee’s office, East Providence has been challenged over the years to resolve a growing cumulative school deficit, estimated at $7.2 million in FY 2011. The city’s adopted budget earlier this month resulted in an additional $7.2 million budget gap, which the City is still attempting to resolve.
The city was dealt another serious blow when Moody’s downgraded the city’s bond three notches to junk bond status, raising concerns that it might be the next place to file for bankruptcy. Now the city is going to be facing more significant challenges in securing the short term financing it has historically relied upon to pay bills and city payrolls.
Earlier this month, the state decided to form a budget commission to help address the city’s woes. Although the decision was not met with much fanfare in East Providence, Governor Chafee said it was the best way to help attempt get the city back on track.
“This step will allow the state to further assist the City of East Providence and help it reach fiscal stability,” Chafee said. “My Administration has been proactive in confronting financial difficulties in our cities and towns, and we will continue to help struggling municipalities and protect the property taxpayer wherever necessary. I am confident that East Providence elected officials, employees, and taxpayers will ultimately view this as a positive and will welcome the establishment of the budget commission to assist in the development of a plan that resolves the prior year deficits, brings the current year into balance, and provides for structural balance in the future.”
Woonsocket
Woonsocket recently ran into problems recently when it learned it faced $2.7 million deficit in the school department, raising questions about where it stands in terms of fiscal stability. The city’s bond rating has now been placed on a negative watch by Fitch and the Governor’s office has acknowledged that it is closely monitoring what’s happening in the city.
While the city doesn’t face the severe unfunded pension liabilities some other cities and town are facing, the total unfunded retirement liability was nearing $185 million as of June.
West Warwick
West Warwick Council President Angelo Padula has been outspoken over concerns he has with his city’s finances, mostly blaming the unions and misspending in the school department. With one of the worst funded retirement systems (86 percent unfunded as of June) in the state, Padula has threatened that West Warwick is only a few years from being “the next Central Falls.”
Dr. Ed Mazze, Distinguished University Professor of Business Administration at the University of Rhode Island, told GoLocalProv last month that West Warwick could be the next town to go broke.
“East Providence is just the beginning of round two of the cities and towns that will be asking for state fiscal management assistance if the General Assembly does not approve the pension program recommendations later this week and provide the cities and towns with the tools needed to meet their unfunded pension and health benefit liabilities,” Mazze said. “West Warwick may be next followed by the larger cities and towns who have been unable to manage their fiscal affairs because of the economy and lack of state financial support. It is time to put fiscal decisions and the control of the budget back to city and town governments.”
Pawtucket
Pawtucket got a shot in the arm this month when Fitch raised its bond outlook, but the city is hardly in strong financial condition. Mayor Don Grebien, who will be forced to run for re-election next fall, was among the Mayors that lobbied the General Assembly to address municipal pensions to no avail during the special session.
Pawtucket’s pension plans are underfunded to the tune of $166 million, and Grebien and other local leaders were hoping the General Assembly would suspend annual cost of living allowances, limit pension benefits to what is available under state plans and work toward moving all municipal employees to state-run plans. Governor Chafee has said he plans to introduce municipal pension reform legislation when the new session begins.
“Until pension plans now threatened with failure at the city and town level are addressed, the task of reforming and stabilizing the pension systems throughout Rhode Island, for the financial security and well-being of retirees, current employees and taxpayers alike, cannot be called complete,” Grebien told GoLocalProv.
Providence
The city no longer faces a staggering $110 million structural deficit, but Mayor Angel Taveras isn’t yet predicting a bright future for his city’s finances. Taveras said he felt let down by the decision not to address municipal pensions during the special session and has continuously said it won’t truly be comprehensive pension reform until cities and towns are helped.
Still, unlike some of the other cities and towns on the list, Taveras remains optimistic about the working being done in Providence.
“I said we’re a category 5 just for hurricane, I think the eye has passed and it’s been down-graded. But there’s still heavy winds,” he told GoLocalProv recently. “We’re still in a storm, but we’re on the backside of that storm I hope. We’re working very, very hard to make sure that this budget is balanced and that going forward we can continue to do that without any one time fixes or borrowing or anything like that.”
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