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Which Communities Get the Most State Aid in Chafee’s Budget?

Tuesday, February 07, 2012

 

In his effort to make this “the year of the cities and towns,” Governor Lincoln Chafee pledged almost $40 million in additional funds to municipalities –mostly in education aid – in last week’s budget proposal.

So which cities and towns will benefit the most?

A GoLocalProv review of the Governor’s budget plan shows East Greenwich, Barrington, Lincoln, Cranston, Scituate and North Providence will all receive at least 16 percent bumps in aid, with East Greenwich and Barrington – two of the wealthiest communities in the state – getting 38.2 percent and 36 percent increases, respectively.

In total, 15 communities will receive at least ten percent increases and Providence, which receives by far the most state aid of any city or town, will get a 9.5 percent increase in aid.

The increases are expected to come from revenue generated from the proposed two percent increase on the meals and beverage tax, a plan that has been met with outrage by restaurant owners over the last week. But Chafee has blamed the $192 million in cuts – and resulting property tax hikes – in the five years prior to his taking office as a major reason why cities and towns are in “crisis.”

“If we are going to grow our economy and get our people back to work, we have to make this the year of the cities and towns and work together on behalf of the property taxpayer,” Chafee said during his State of the State address last week.

Must Address Unfunded Liabilities

According to Dr. Edward Mazze, Distinguished University Professor of Business Administration at the University of Rhode Island, the key for cities and towns will be to address their unfunded pension and health liabilities.

Mazze predicted that without help from the state to address the problems, the solution for many municipalities could be filing for receivership or bankruptcy, which would be a crushing blow to economic development in any community and the state as a whole. He said that would create “havoc in borrowing funds for tax anticipation notes and bonds needed for meeting expenditures and other projects.”

“Rhode Island's cities and towns are 'bleeding' today because of the cuts in state aid they took during the last six years,” Mazze said. “Many cities and towns have cut services, laid off municipal employees, tried to re-negotiate labor agreements and started consolidating services with neighboring communities. The cities and towns need relief from state directed mandates and unfunded pension and health benefit liabilities.”

We Have a Revenue Problem

But the cuts in state aid have also played a major role in damaging already cash-strapped cities. East Providence and Pawtucket have already been forced to ask for cash advances from the state – $12.6 million each – and last week, Providence Mayor Angel Taveras warned that his city was teetering on the verge of bankruptcy.

Taveras has suggested he is not interested in one-time fixes, but Mazze said borrowing is likely to be a continuing activity among communities moving forward.

“We do not have a spending problem we have a revenue problem in the state,” Mazze said. “We have been unable to attract and retain businesses and we are losing people because of housing affordability due in part to high property taxes. Unless we start to build a strong foundation of sustainable city and town budgets, we will not be able to rebuild the Rhode Island economy.”

But University of Rhode Island economist Dr. Leonard Lardaro said short-term solutions are not the best way to help cities and towns.

“This fits quite well with the way fiscal policy has been conducted for years -- treat symptoms, not problems, emphasize the short-term over the long-term and consumption-oriented spending over investment-oriented spending,” Lardaro said.

Municipalities Encouraged

Taveras has continuously praised Chafee for showing a commitment to cities and towns, noting that the Governor’s experience as Mayor of Warwick has helped shine a light on the struggles of municipalities. Other chief executives also said they were happy with the Governor’s plan to increase state aid.

“The Governor is committed to the cities and towns,” Pawtucket Mayor Don Grebien said. “When you look at the state aid that has been cut over the last five years, it’s a step in the right direction. In these tough times, you always want more, but the Governor has done his share. He has teed it up for the General Assembly and let’s hope they take it and they swing away at it and give us the tools we need.”

Cumberland Mayor Dan McKee said he was encouraged to hear the Governor express his commitment to municipalities, but noted that a lot more work needs to be done.

"I'm happy to have a Governor that is speaking like that, but it would be good to match up the words now," McKee said. "State policies as he has indicated have communities on a financial death march and they're being pushed into insolvent situations, bankruptcy situations."

Merger Talks

But Lardaro said communities need to start getting serious about consolidation if they want to remain afloat. Although Chafee’s address did not include any talk of consolidation or mergers among communities, Lardaro said he believes the fiscal problems facing some communities could force that conversation moving forward. Lardaro said those talks should have started three years ago.

“As cities and towns have continued with their historical redundancies, failing to merge to realize any obvious economies of scale, this has continued to raise their overhead, as has their pension and other costs,” Lardaro said. “But when do we start this? The perfect time was late 2008 as the US flirted with a global depression.”

Lardaro said until the state begins to reinvent itself with pro-growth policies and not tax increases, it will continue to show slower growth than other states.

“Remember: deficits ultimately impose a fiscal discipline that our state/cities/towns were always able to follow, but never willing to pursue,” Lardaro said. “Our state's problems at all levels are therefore largely self-imposed. I have referred to this in the past as endogenous mediocrity.”

Let the Mayors and Executives Manage

Initial reaction to from legislators to Chafee’s budget has been lukewarm, particularly regarding the tax hikes. The Governor acknowledged that his tax increase could be controversial, but he has said the money raised will go directly to helping schools and taxpayers.

Still, Mazze said the solution to the city and town budget problems is simple: Let the mayors and town executives manage. He said it’s time to give municipal leaders the tools they need in addition to the state aid they deserve to get rid of state mandates that have not been funded and the right to re-negotiate labor contracts that have benefits that cannot be sustained.

And if that doesn’t happen?

“The longer these expense items stay in local budgets, the closer the state comes to appointing 39 receivers, and the federal court to appointing 39 bankruptcy trustees,” Mazze said.
 

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