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Providence Budget Bombshell: $40M in New Taxes

Tuesday, May 03, 2011

 

The 2012 budget proposed by Mayor Angel Taveras last night calls for as much as nearly $40 million in new taxes to help close what was estimated to be about a $110 million structural deficit.

The budget also includes a series of new cost-cutting measures—ranging from carving $12 million out of the fire and police departments to closing schools and firing some teachers.

■ Click here for reaction from the police and fire unions.
■ Click here for reaction to the impact on schools.
■ Click here for more on what Taveras needs from the state.
■ Click here to find out what is happening with pension reform.

Taveras: Without budget, city could end up in ‘dark, uncharted territory’

After saying he had cut as much as he could in spending, Taveras said he had to turn to higher taxes as a last resort. “Shared sacrifice is more than a phrase,” Taveras said. “Shared sacrifice is the realization that everyone must help in order to save our city. Every citizen, every city worker, every taxpayer, every business, and every organization including tax exempt institutions must share part of the burden of saving our city.”

Taveras warned that the consequences of not passing the budget would be dire. “Providence stands on the edge of a financial precipice,” he said in his budget address before the City Council. “If we are unable to achieve the cost savings and revenue goals in this budget, the free fall of our city over the edge will lead us into dark, uncharted territory.”

His budget includes raising the tax levy by 5.25 percent—one percent more than what is currently allowed by state law. The change—which requires a new law—would net about $15 million in new tax revenue. “While I know that this is undoubtedly unpopular, it is also absolutely necessary,” Taveras said.

Wants nonprofits to pay 25 percent of tax

He also is pursuing more money from the many tax-exempt nonprofit hospitals and universities in the city. For that too, the city is asking the General Assembly to pass a new law allowing it to tax nonprofits institutions 25 percent of what they would be paying if they were not exempt. That would produce just over $24 million in new revenue—roughly a fifth of what had been the projected deficit for next year.

Combined with higher property taxes, the city is looking at a potential for nearly $40 million in new taxes. But, Taveras is not counting on getting all of that to balance the budget. To “be conservative” his budget assumes that the city will get at least $7 million more in voluntary payments from hospitals and universities next year.

“I am hopeful that we might reach a negotiated agreement directly with our colleges and universities, but as that process unfurls we will continue to fiercely advocate for passage of this legislation,” Taveras said. (The plan includes hospitals.)

The 25-percent proposal is modeled after a similar plan Boston Mayor Thomas Menino recently floated. In the case of Boston, Menino asked nonprofit hospitals and universities to simply pay the city for the cost of the services they use. In Providence, city services to nonprofits cost about $32 million in 2010, according to a report commissioned by the City Council. (If nonprofits were not tax exempt, they would be paying a total of $97.5 million next year in taxes.)

Three big ifs

Overall, the budget envisions $616.7 million in spending—down from roughly $640 million in the current year. The new budget is balanced and does not rely on borrowing any money or other one-time fixes, according to Taveras spokeswoman Melissa Withers. If approved, it would take effect in July 2011.

But it does depend on three big ifs: winning $12 million total in concessions from the police and fire unions, getting the General Assembly to pass a series of new laws, and convincing hospitals and universities to at least pony up millions more in voluntary payments.

“It’s a three-front war they have to manage and come to a cease-fire almost simultaneously,” said one city union official, who spoke on the condition of anonymity.

Without winning on all three fronts, Taveras warned that the budget crisis could get even worse. “Achieving these goals will not be easy, and while the alternative seems too much to fathom, it is a distinct possibility,” he said.

Such statements are “code for bankruptcy,” according to the union official. Taveras and Director of Administration Michael D’Amico have previously denied that bankruptcy is being considered as a way out of the city’s fiscal hurricane.

But last night, Taveras did bring up the topic of receivership. “Let it be written that while others went into receivership, we solved our problems,” Taveras said. “Let it be written that while some looked to Providence’s fiscal crisis and saw nothing but darkness and foreboding, we seized this opportunity to show that hard work and shared sacrifice brought about Providence’s finest hour.”

Community leaders praise Taveras

The budget proposal earned some praise from various quarters last night.

“It was a good address. It was strong and it was full of solid ideas and suggestions,” said Karina Wood, interim executive director of BetterProvidence, a nonprofit organization which has taken no positions on the proposals. “The theme of shared sacrifice really carried through … and it’s just a matter of getting the balance right.”

“You have to commend Mike D’Amico and Mayor Taveras for putting a budget together after finding out only five or six weeks ago that there is a potential $110 million shortfall,” said Ken Richardson, a member of the Municipal Finances Review Panel that came up with that estimated deficit.

He added: “As assumptions have to be made regarding give backs from the city unions, we have to also keep in mind administering this budget will be an even harder task. Many people and groups will have to cooperate to make it successful. Mayor Taveras straight in your face talking is gaining the respect of all who deal with him.”

Councilman: Taxpayers, children paying for mismanagement of city finances

City Council members had no unified response to the budget proposal.

“I’m going to go through the budget. It’s going to take shared sacrifice,” said Councilman David Salvatore, who declined to elaborate until he had more time to study it.

Councilman Kevin Jackson praised the speech—particularly for its emphasis on raising more money from nonprofits. “I think he did a good job presenting his first budget,” said Councilman Kevin Jackson. “I think it shows great leadership he’s going after the nonprofits.”

He said the property tax increases are a measure of last resort. “Everyone’s got to share in the process of getting this financial house in order,” Jackson.

Councilman Miguel Luna, however, said he was unhappy with the plan to close schools and raise property taxes. “It’s the taxpayers and the children of Providence who are going to be paying for the mismanagement of the past administration,” Luna said.

He thinks council members will be reluctant to come out in early support for the budget. “I don’t think you’re going to find a council person who will jump right away and support the budget,” Luna said. “People are going to be cautious because of the hard decisions they will have to make.”

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