Russell Moore: In Providence, Bankruptcy is a Solution
Monday, December 08, 2014
At this point, it's unclear whether people should be giving Mayor-elect Jorge Elorza their congratulations...or condolences due to his victory in the Providence mayoral election in November.
That's because The city of Providence has bigger financial woes than Nicholas Cage. And that means Elorza has woes because he's the man that will be expected to right the financial ship of Providence, one way or another.
Awash in red ink
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTPut plainly, the city is awash in red ink. It faces a $17 million deficit in fiscal year 2016, and an even larger deficit of $24 million in 2017. Providence City Councilman Luis Aponte told Golocal last week that he believes the city could even end the current fiscal year in a deficit if it's not careful given the budget's reliance on one-time fixes, some of which haven't come to pass.
But those short term issues (in municipal finance, a couple years is short term) aren't the city's biggest problems. The city could easily hike taxes, or even more conveniently, simply ignore its liabilites, and therefore balloon them even further and exacerbate the financial problems, to put off the days of finanical reckoning even further.
Unfunded liabilities
The city's real problems lie with its unfunded liabilities. The city has a pension system that's hovering around 33 percent funded, and has an unfunded liability of about $831 million according to the most recent actuarial report.
But here's the kicker: the city has nothing set aside of the funding of the retiree health care benefits that the city has promised its workers. Depending on the rate of medical care inflation, a conservative estimate has the city's unfunded health care liablities set somewhere easily north of $1 billion.
Yet despite these ballooning financial problems plaguing the capital city, it's not like anyone in their right mind believes Providence taxpayers are undertaxed. To his credit, Elorza has come out on record and stated that he doesn't beleive raising taxes is the answer to the city's problems. Last week, Elorza told Golocal that he's "committed to holding the line on taxes".
Grow? How?
While that's all well and good, it's unclear how the city is going to cut its way out of the problem. Current Mayor Angel Taveras has been going around the state bragging about the tremendous cuts the city made under his tenure to help it avoid bankruptcy a couple of years ago. Yet it's hard to see how that's the case given the fact that the city is still in such dire financial straits.
In any event, a common refrain from all the mayoral candidates during this year's election was that Providence had to grow it's way out of the financial doldrums it faces. How's that going to be possible when the city has had no success whasoever over the last 4 years in marketing the route 195 land freed up by moving the highway.
Thanks to the extremely high commerical property taxes, the city is stuck in a position where it needs to offer special tax deals to even get residential units built there, and that's hardly economic development.
Eat the rich?
Golocal Mindsetter and former congressional candidate Michael Riley has a really creative and novel idea that would have the city implement a municipal wealth tax that would have the richest in the city pay for the massive unfunded liabilities. I have to admit, I like the idea because it forces the elitists on the east side to literally put their money where their mouths are and shoulder the burdens of the government spending they love.
But let's face it: with Elorza margins of victory provided by those very people, there's no way on earth that he'd turn around and stick it to his suppoters like that. That's just plan old political reality.
All these facts suggest that bankruptcy may be the only real way to shave off the city's unfunded liabilities. Far from destroying the state's and city's reputation, bankrupty, if done correctly, and that's key, would show the world that Rhode Island's capital city was serious about getting it's financial house in order. That's far better than simply muddling through year to year with not plan to address our problems.
Taveras argued in 2011 that he could do anything a receiver could do--namely, bargain with unions, non-profits, and raise taxes. But what Taveras ignored was the fact that a receiver has far more leverage than mayor, because a receiver can void contracts.
Elorza's choice
Too see the fruits of bankruptcy, look to Detroit, which is emerging from bankruptcy in a much stronger position than where it started from. But one doesn't have to look to Detroit to see how bankruptcy have a posititve effect on a municipality. Central Falls has already showed us that fact.
Elorza seems like a man who appreciates large challenges, and if that actually is the case, he'll have an opportunity to make his mark as a reformer who saved Providence. If he fails, he'll be looked at as just another career politician who simply kicked the can down the road, inflated Providence's liabilities, and left a bigger problem for the next mayor. It's his choice.
Russell Moore is a lifelong Rhode Islander and avid politics and sports fanatic. He has worked on both sides of the desk in Rhode Island media, in both newspapers and on political campaigns. Follow him on twitter @russmoore713.
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