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The Most Debt-Ridden Cities and Towns

Friday, January 18, 2013

 

Rhode Island cities and towns have amassed $3 billion in debt and long-term liabilities, with half of all communities owing $2,000 or more per resident, according to an analysis of the most recently available annual financial statements.

The most debt-laden towns owe $5,000 or more per capita, with Woonsocket topping the list. The top ten includes cities have seen severe financial distress in recent years, such as Providence and Central Falls.

The figures include long-term liabilities that cities and towns are required to report on their annual financial statements. That includes bonds, capital leases, and compensated absences.

Pensions are included—but only the portion of the annual required contribution that a city or town failed to make, not the full amount of the unfunded liability. The same goes for retiree health care benefits.

In all, cities and towns have racked up a total $3,057,574,636 in debt and other long-term liabilities, with a statewide average of $2,344 per resident.

‘Municipal debt crisis expanding’

Taxpayer advocates told GoLocalProv that the state isn’t doing enough to help financially beleaguered cities and towns, pointing to the new data as yet further evidence that communities across the state still face serious fiscal challenges.

“There is a municipal debt crisis expanding—not shrinking—in Rhode Island,” said Donna Perry, executive director of RISC.

“When you see core cities, including Providence, Woonsocket, Cranston, and Pawtucket continuing to carry substantial debt that in some cases is of a quarter of a billion dollars or higher—while they combat struggling local economies—it all adds up to ongoing fiscal crisis in many Rhode Island communities even though elected leaders seem reluctant to face it this year,” Perry said.

She said Governor Chafee’s new budget proposal took a “timid” approach towards tackling municipal debt problems, as compared with his plan last year. “This year his proposals seem designed to help cities keep the lights on and keep the schools open but it’s not a budget plan that got real ambitious toward giving municipalities the help they really need,” Perry said.

Another taxpayer advocate agrees Chafee isn’t doing enough.

“The Governor stated in his budget address that he'll be providing cities and towns with municipal relief,” said Lisa Blais, spokesperson for OSTPA. “He implied that taxpayers will see property tax relief or at least see their local governments hold the line on property taxes. The numbers make the case that we were bamboozled by the Governor’s words. Local debt as compared with the local aid contained in his budget doesn't begin to chip away at the tip of the iceberg.”

Perry warns that municipal bankruptcies are on the horizon if state lawmakers fail to help cities and towns “rein in high unfunded pension obligations” and other debts.

Woonsocket tops the list

Woonsocket tops the list with $6,112 owed per resident. The city’s finance director told GoLocalProv that the financially distressed city has three major debts it has incurred over the last decade.

The first, nearly ten years ago, was a $90 million, 30-year bond to fund Woonsocket’s unfunded pension liability. About four years ago, the city borrowed roughly $74 million to fund the construction of two new middle schools, followed by a $11.5 million bond to cover deficits in the city and school budgets—that was before the new deficit materialized last year, according to Thomas Bruce, the city finance director.

Woonsocket is among the poorest communities in the state, with a per capita income of $20,846, but Bruce pointed to other explanations behind its high debt. One is nearly a half-century of mismanagement of the city pension system, which city leaders of the past failed to fully fund.

He also pointed to the financial management problems in the Woonsocket school system, which led to the termination of the school finance director last year. Yet another factor: a drastic decline in state aid, to the tune of $14 million over a four-year period, according to Bruce.

To make matters worse, apart from the new middle schools, Woonsocket taxpayers aren’t seeing any benefits from all of the debt that has been incurred. “It’s not much to show [for] the high level of debt,” Bruce said. “The city is not out there resurfacing roads or building infrastructure with this debt.”

Providence debt ranking ‘alarming’

Providence may no longer be in a “Category 5 fiscal hurricane” but the capital city’s long-term debt is cause for alarm, the chairman of the City Council Finance Committee said.

“That kind of a high debt ratio is a cause for alarm and the city should do everything it can to lower it,” said Councilman John Igliozzi. “A high debt per capita is something the city has to be concerned about because it has an impact on its ability to fund quality of life services people expect, to fund the public safety services people expect, and the city’s ability to provide a place where people want to move to, work, live, and raise a family.”

He said the city’s debt burden could also be detrimental to its efforts to attract new businesses and grow its economy.

Igliozzi says the city can improve its debt standing by shedding non-essential services and focus on lowering infrastructure costs. He suggested that the city unburden itself of operating the Water Supply Board by selling the city agency to the state. The city has already turned over its sewer services to the Narragansett Bay Commission, Igliozzi said.

Surprises in the data: smaller communities

The data did not quite paint the usual story of financially distressed cities in Rhode Island. Although the some of the most debt-ridden communities were also those that are or have recently faced financial hardships, others came as a surprise.

“The debt levels do not appear to correlate with any demographic or economic rankings of Rhode Island’s cities and towns. That’s a good indication that every city and town exists in different circumstances than its neighbors, and that raises questions about plans for regionalization and consolidation,” said Justin Katz, the research director at the Rhode Island Center for Freedom and Prosperity.

“Of course, it also indicates that the rest of Rhode Island should look closely at circumstances behind those communities that are struggling; it’s dangerous to reward bad decisions at the expense at others who’ve made good decisions,” Katz added.

Perry said the data shows the state’s big urban centers aren’t the only areas facing financial issues.

“Rhode Islanders in smaller suburban communities far from the urban core should not feel comforted by this analysis and should not think fiscal distress is only happening to our aging cities. The chart shows places [like] Tiverton … are ranking close behind the distressed cities and they have fewer businesses and smaller populations to rely on to make up revenue as their debt piles up.”

Pension tsunami still hasn't hit yet

Whatever message the debt data contains, one thing it does not account for is the full extent of the unfunded pension liabilities across the state—a problem that is far from resolved as the statewide pension reform is tangled up in litigation while reform of locally-run municipal plans is still underway.

But that will all change by 2015, when a new rule by the Governmental Accounting Standards Board takes effect, mandating that municipalities record their unfunded pension liabilities on their primary financial statements.

That rule will be a big change for communities that have significant unfunded pension liabilities, according to Dennis Hoyle, the state auditor. “It’s going to have a fairly dramatic impact because all of the sudden there’s going to be a huge liability that appears on the balance sheet,” Hoyle said.

Just how significant?

Providence currently has a debt of $926 million, with only a fraction of that stemming from pension-related costs. The unfunded pension liability, at about $903 million, will nearly double the city’s total debt figure, according to Blais—and that’s still not counting its liability for retiree health care.

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Debt chain image courtesy of StockMonkeys.com

 

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Comments:

These alarming numbers are not real to citizens until they actually have to pay them and feel pain. They pray things will get better.They very likely will not and in my opinion will get worse. Taxpayers advocates are on target but its the leaders of this state who are in charge and they need to make tough decisions.The real numbers are in fact worse. Narragansett for example has unfunded OPEB (health care) of nearly 85 million dollars but less than 10% of that number has been recognized thus far and that is only because GASB rules have just begun to force recognition. Proper recognition would double the per capita debt number for Narragansett on the above chart.Ultimately these debts are due to overly generous and open ended defined benefit programs that directly benefit less than 70,000 of our population.Citizens across the state are liable for market shortfalls in order to Guarantee retirements for government workers.Many say this is unfair and we should end this risk for all of us. We need action at the town level with each town addressing their obligations and the reason they pay their workers more than they themselves can obtain in the private sector.

Comment #1 by michael riley on 2013 01 18

17% of Woonsocket's population is low-income/affordable housing. RI law states all cities/towns must have 10% affordable housing. Yet when Woonsocket tried to reduce it's low-income/affordable housing to 12% RI Housing blocked the request.
This 17% non-taxpaying population is an albatross around the cities neck

Comment #2 by Chris MacWilliams on 2013 01 18

Sure too many towns took a hit when state aid was cut, but they didn't do the right thing and cut spending nearly enough to counter the cuts. Is it written somewhere that legitimate, hard, gut wrenching cuts at the municipal level are against the law?

Comment #3 by David Beagle on 2013 01 18

West Warwick is listed at $79 million!~ Are you kidding me? Between the UAAL for the Pension Fund and OPEB, I believe it is north of $224 million.

Nice try Mr Beale, but I'd suggest you recheck your figures!!!

Comment #4 by Fabiano Terrenni on 2013 01 18

These municipalities have been burning their budgets with reckless abandonment for decades. Lousy leaders provide lousy government. We can't continue to live on credit card budgets.

Comment #5 by Gov- stench on 2013 01 18




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