Providence Bond Ratings in Question: Agencies to Meet With City
Tuesday, February 07, 2012
Providence officials will soon meet with representatives from the three major credit rating agencies – Standard & Poor's (S&P), Moody's, and Fitch Group – to discuss the city’s financial problems, city leaders confirmed Monday.
The credit rating companies reached out last week after Mayor Angel Taveras held a press conference to outline the city’s “fiscal crisis” and explain that Providence could be “on the brink” of bankruptcy if it is unable to cut retiree benefits and collect about $7.1 million from the city’s tax-exempt nonprofit institutions.
The city is currently facing a $22.5 million budget shortfall for the 2012 fiscal year, according to Director of Administration/acting Chief of Staff Michael D’Amico. City officials have also warned that the city could run out of money by June and end up $46 million in the red by July.
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Following a municipal strategy session with the Governor, Senate President M. Teresa Paiva Weed and members of the Providence delegation in the General Assembly, Taveras said he is encouraged that so many elected officials appear willing to support the capital city.
But the city is still in wait-and-see mode on several issues that could help cut significantly cut the deficit this year. City lawyers are expected to meet this week with Supreme Court officials to see whether they can expedite an appeal of a ruling made last week that guarantees retirees lifetime health benefits from the city.
In addition, Taveras spoke of positive news that could soon come from the tax-exempt intuitions. The city has been in a public battle with Brown University, but it hasn’t yet reached an agreement with any of the nonprofits. Only Johnson & Wales is said to be close to a deal with the city.
“We need everyone to come to the table,” Taveras said. “The bottom line is we need to get there.”
Bankruptcy Questions
The city will likely have to answer questions about the status of those two issues specifically when it meets with the ratings agencies. Mayor Taveras has called bankruptcy a “last resort” and confirmed again Monday that he would consider a supplemental tax increase as an option if it can help the city avoid going broke.
“The consequences of a capital city in this country going into bankruptcy would be severe,” Taveras said.
Taveras has also met with Central Falls receiver Judge Robert Flanders to discuss the work he did in Central Falls, the tiny cash-strapped city that filed for bankruptcy last summer. Taveras said he is hoping his city does now follow a similar path.
“He has had experiences that I hope we never have,” Taveras said.
City Council President Michael Solomon has said a tax increase is “off the table,” but during a finance committee meeting last week, internal auditor Matt Clarkin said there are other potential options for addressing the city’s current shortfall.
A Structural Problem
To address the possibility of running out of money by June, Clarkin suggested the city could: defer vendor payments, freeze hiring, limit purchasing to only vital needs and eliminate all but emergency overtime.
For July, when the cash-flow problems balloon to nearly $50 million, Clarkin said the borrowing of tax anticipation notes (TANs) or accelerating the state PILOT payments would be an option
But Taveras has long been hesitant about borrowing money and other one-time fixes. He said the city needs to address its structural problems.
"We want to make sure we're not back here six months from now,” Taveras said.
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