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Is Providence Going Belly Up?

Tuesday, January 31, 2012

 

Concerns are mounting over whether the capital city can remain afloat in light of cash flow problems, a $22.5 million budget shortfall and a court ruling that sided with retirees over the city in a healthcare dispute.

Now economic advisors and former mayors are saying Providence is nearing a breaking point and all options to solve the cash-strapped city’s financial woes must be on the table, including a tax hike, a cash advance from the state or a potential bankruptcy.

The city took another blow Monday when Judge Sarah-Taft Carter ruled it could not switch retirees over to Medicare after they turn 65 because they were guaranteed lifetime health coverage from the city. While the decision came as no surprise to the Taveras administration, it does leave about $8 million in assumed savings in the fiscal year 2012 budget at risk.

"Mayor Taveras is extremely concerned and disappointed with the decision," said city spokesman David Ortiz. “He and his staff are still reviewing the 47-page decision and reviewing our options."

Taveras acknowledged over the weekend that a potential supplementary tax raise was one option for addressing the city’s immediate financial problems and he suggested that a ten year cost-of-living-adjustment (COLA) freeze for retirees is something he is considering as part of tackling the city’s massive unfunded pension liability.

Former Auditor General: A Serious Setback

But former Auditor General Ernest Almonte, who helped prepare a report on the city’s fiscal health last year, said the real issue for Providence is that it isn’t being given the tools it needs to address its problems. The city faced a $110 million structural deficit for 2012 and the budget included several assumptions that have not come to fruition, most notably the $7 million in additional funding from tax-exempt institutions and the $8 million in savings expected from switching retirees to Medicare.

Almonte called Taft-Carter’s decision a “serious setback.”

“You can’t keep taking away the tools needed to address the problem or you’re going to have cash flow problems,” he said.

Almonte said state oversight was one potential option if the city’s credit rating were to drop, although he believes that would be unfair given the work the administration and the City Council has done to take on what Taveras last year called a “category five fiscal hurricane.”

Almonte said bankruptcy, which Taveras has said is an option if COLAs aren’t frozen, would be a poor strategic plan. He said he hopes the city can solve its problems before going down that route, but said it will take a lot of help, particularly from the tax-exempts.

“I hope they take a second look at this because this is real,” Almonte said of the nonprofits. “It is a fact.”

Former Mayors: Changes Needed

Before resorting to bankruptcy, two former mayors said Monday that the city should look to borrow money (much like Pawtucket or East Providence) or make more cuts.
“I think that [bankruptcy] would be an embarrassment to the capital city,” said former Mayor and City Council President John Lombardi. “I think it would be a major, major blunder that we'll never recover from. This would have ramifications across the state and throughout New England.”

Lombardi questioned whether the consolidation of departments with other cities and towns has been seriously considered and said he believes the conflict with the tax-exempt institutions dates back to Congressman David Cicilline’s tenure as Mayor. He called Cicilline’s approach “confrontational” and noted that the nonprofits could simply pull their payment in lieu of taxes agreement at any time.

He also said he’s been pointing at the city’s pension problems for nearly two decades. Similarly, Taveras has said the he biggest issue the city of Providence has on pensions is the five and six percent compounded COLAs given out in 1989 and 1990, when the Mayor was still in college.

“I’ve been trying to tell everyone this for many, many years and they thought it was personal,” Lombardi said. “It was never personal. I talked about this back in 1994. Had the previous administrations had the intestinal fortitude, we could have taken care of this years ago.”

Former Mayor Vincent "Buddy" Cianci called the city’s woes a “perfect storm -the economy, cuts in state aid and the ineptness of Cicillline.”

Cianci said he believes Taveras and the Council are doing a good job in attempting to address the issues, but that the budget clearly had a lot of assumptions that haven’t materialized. He said those numbers are adding up in a hurry.

Cianci said a state overseer may be one option.

“I think if they don't make some real strong changes, the city will need adult supervision,” he said.

Fiscal Advisor: Bankruptcy Should be Last Resort

Former city Democratic Party chairman Kenneth Richardson, a CPA who worked closely with Almonte on the city’s financial review panel last year, said the city’s cash flow problems could result in vendors not getting paid and the possibility of some services coming to a halt. He said if this year’s budget stays in the red and next year’s budget cannot be balanced the long term affect could be a lowered bond rating.

Richardson said the city has followed through on some of the recommendations in the review’s panel’s report, but “there were more in there that could be substantial like limiting retiree pensions to a percentage of the rank or class the employee retired at so you don't get a fire chief earning 50 percent more than the current working chief and setting up a substitute pool of firefighters and police to cover absenteeism, somewhat like the teachers do. This would save millions on overtime and call back.”

Richardson said supplemental taxes would be a major blow to the city.

“Supplemental taxes could just mean more business that do not want to locate to Providence, the housing market gets tougher to sell, rent increases to afford the tax payments, and more foreclosures,” Richardson said. “You can see that this trickles down to many other issues, not just financial.”

And bankruptcy?

“It’s always an option, but more severe cuts in costs and services should be looked at first,” he said. “Bankruptcy should only be used as a last resort.”

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Comments:

Edward Smith

Lombardi, the leader with intestinal fortitude and three pensions.

David Bibeault

Maybe Politicians shouldn't be allowed to buy votes by sticking the taxpayers with public employee union contracts that last longer than their tenure. Union campaign contributions are nothing more than bribes for future benefits. The State's taxpayers have propped up Providence and other cities for too long.... time to let them fail. No more bailouts.

John McGrath

Could the state oversight be from another state? Or country?

David Beagle

Funny how taxes can be hiked virtually infinitely, while cuts, never fail to hit a "bone."

manny costa

IF THE CITY WOULD JUST GO AFTER THE "TAX EXEMPTS" WITH THE SAME FURVER THAT THEY USE WITH ALL THE CITY WORKERS AND RETIREES, THEY COULD CLOSE THE GAP IN THE BUDGET. EASIER TO GO AFTER CITY WORKERS THAN THE "GOLIATH" KNOWN AS BROWN AND TO A LESSER EXTENT ALL THE OTHER UNIVERSITY'S AND HOSPITALS.

anthony sionni

Right on John and Ed his petty pension is well deserved for 26 years of service!!!

anthony sionni

The Mayor has to stop giving out pay raises for starters and cut his budget and cut some more of those hundred thousand dollar salaries. Whats this jim bennett doing from economic development at 150,000, plus all his other perks. Maybe Taveras should start driving to work and ditch the suv and police detail,where does he think he is driving in New York.
The city council needs to tighten up as well,heck they just hired kimball brace from election data services for 126,000 to draw up maps for the city's redistricting. Yup the same company that billed the state at 700,000 and that turned out to be a big waste of money. They should also stop giving out retroactive homestead exemptions ,especially going back 5 years!

Jim Okolowitcz

If you go to the lifestyle section of this page, look what Brown did for $2million. When you have all that money you need to spend it somewhere!!! Guess that's their way of saying they are giving back to the city !! But they don't want to pay more in taxes???? Even though they continue to take more and more property off the cities tax rolls. How much are they paying to get control of the property left over from the rte.195 move???

Mike Govern

With 50.4% of all revenues going to pay public pensions, Providence is unlikely to remain solvent. Declare bankruptcy, and start anew.

anthony sionni

If I am not mistaken there was a recommendation from the municipal panel financial report last year to consider to privatize the Mayors police detail,this could save a ton of money. I just saw Taveras the other day heading to lasalle bakery in the big suv with police driver,one expensive pastry run!

Matt Cavanagh

Stick a fork in Providence. They are done!
It's simple math...they got state money and federal money in recent years past. Now there is none. They made little headway in halting their spending. Oh, I know, the police and firefighters gave a couple million here...a couple million there. It's a lot to them, but it's a mere pittance relative to the massive shortfalls Providence is experiencing.
The unfortunate thing is that a lot of people will be hurt by the obstinate union leaders who will not stop until they bleed the city dry. Witness the ruling in favor of the retirees today. They think they won?? Maybe for a few more months..but make no mistake about it - there will be cuts. And it's is right around the corner.
Providence has the potential to take down the State of RI.
Do you think the state is going to let that happen, or do you think they are going to ram it up the Providence employees/retirees?
Just askin'!

Vincent Sheehan

Letter about court ruling 1-31-2012


Please,, the former mayors have given away everything so they can get the votes. If you spent 20-30 years on the fire or police depts, and were told that each week the city matched your 9-10% of your pay to go to your pension, then you find out they haven't done it for 50 years, WHO is at fault.???
People who get contracts thru CBa's are held to strict guidelines by law, because without the laws, the contracts would be voided every year by the city or state who failed to contribute the matching share to the pensions.
On 1-30-2012 the judge in the latest go around with the city of providence sided for the plantif,
the fire and police, stating that a contracts were in place all the time and the rule of law was clearly on their side. If people keep playing games electing the same people every year and expect a different result are not realizing what they are doing, Please stop electing pupputs and put people in these important positions that will reflect your well-being and your voice. These contracts are public info anyone can view them under the foia that is federally ordered. Look at the years and timming to elections and SUPRISE they seemed to be unaware of their own actions. When people see this what do they do ? they promote them to congress and other places.Fire and police work hard for the monies they earn, and yes I am a retired firefighter who retired with a broken back. I have lost a kidney to cancer, and 2 other cancers covered under the law and had 2 heart attacks as well. Here I am at 66 years old and feel like the begger at a corner looking for a hand out, no I just want what was promised in writting and fairly due me, my family deserves that at least for service to the city and the loss of earnings I could have made. REMEMBER fire and police do not pay social security tax's due to private pension. I worked enough in the 60's to get my quarters in so I started getting S/S. My 1st check was for $ 111.00 and no cola's for last 3 years , so now you might understand why this issue has pushed me to write this. If you want to screw someone at least have the #^%@'s to tell them up front, not after all these years. By the way I pay for medicare, so I really feel screwed by the city of providence. If the mayor or anyone in power has anything say,say it to my face abd stop this behind closed doors and behind my back bull-shit.
V.S.

Gertrude O' Pell

Are you sure Ken Richardson was the Democratic Providence Chair? He talks like a Republican.

To inform those that are unfamiliar with Brown's PILOT participation. First, Brown since 2003, has paid the stated taxes on any property purchased. Going after Brown and hospitals, is not the answer - then what churches, synagogues, independent and charter schools! Non-profits are non-profits for a reason.

David Beagle

The old saying, "too big to fail" doesn't hold any water with Central Falls, but with Providence it does. There are just too many political careers, too many plush jobs, too many with too much to lose. Tax hikes aren't popular with many but since there is no tax contract with city residents to negotiate, the city will lean on taxes because thats all they can do.

John McGrath

Germany has proposed taking control of Greece's budget, tax policies, expenditures, auditing and putting the whole fiscal management process with the European Commission. Voted down now, but expected to pass in the future. Not very Democratic, but Germany likes it.

Maybe a special commission could take control of failing RI cities, merge their school systems and other appropriate public services, get rid of the office of mayor, control finances. Maybe the Commission could be called the Central Failures Authority.

Dave Barry

Tavares gets all sorts of passes from the media....why is that when he BASED A BUDGET ON ASSUMPTIONS? He assumed he could move retirees to medicare even though they had a contract. He assumed the colleges would volunteer more money. This guy went to an Ivy league school? Or, do they really want to settle all of these pesky union contract issues through bankruptcy.

Paul Marshall

DAVE is right. Tavares is an empty suit.

Liberalism got us here. Look at DETROIT. Youtube: "Detroit in Ruins". This is where we're heading. The democRATS have destroyed our capitol and our state. For what? Their own personal enrichment.

Local government is a KLEPTOCRACY. Organized theft. "Stick it to the tqaxpayers" has been their mantra. Class warfare and fallacies their weapons. Now what? More empty homes, empty stores, empty streets, our kids move away as do the jobs and ultimately the union thugs who benefit from this treadmill of tax hikes and theft.

STOP VOTING democRAT.

Charles Drago

How is this possible?

According to Tom Sgouros, David Cicilline was "good for Providence," and Providence has survived its economic crisis.

As for the sock puppet Edward Smith: Tell your fingerer David Cicilline that trying to blame John Lombardi and/or Buddy Cianci for his own professional incompetence and dishonor just ain't gonna cut it.

David Cicilline's desperation may be appreciated in direct proportion to his attempts to claim that the disasters he has rained on Providence are in fact the faults of Lombardi and Cianci.

David Cicilline's public life comes to an end in January, 2013.

David Cicilline's multiple six-figure pensions begin shortly thereafter -- possible legal difficulties notwithstanding.

Cara Mella

@Dave Barry
Tavares didn't BASED A BUDGET ON ASSUMPTIONS he based it on promises.
He was promised that he could move retirees to medicare even though they had a contract.
He was promised the colleges would volunteer more money.
He was fooled by all of them and now it's showing...tick tock.. so much for the cool calm ivy league demeanor.
Watch out Cicilline, he is next on his list...he can only take this for so long.




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