Taveras: Don't hike taxes, axe pensions

PROVIDENCE, R.I. (WPRI) - Providence Mayor Angel Taveras said Monday he wants to balance the 2012-13 city budget by keeping tax rates the same, scaling back retirees' benefits and funneling increased state aid into the school system.

"Tonight I present to you a balanced budget for next year that begins to rebuild Providence’s rainy day fund and grows the city’s tax base without raising taxes on homeowners, car owners and businesses," Taveras said in his budget address to the City Council on Monday evening.

Aides to the mayor acknowledged the budget numbers rely on two big assumptions: that Taveras will get larger payments out of nonprofit institutions including Brown University and Rhode Island Hospital, and that the courts won't throw out his proposed pension changes.

"Rarely in government do we have two cut-and-dried choices - this is one of those rare times," Taveras said. "We can choose to act and position Providence to be the next great American comeback story. Or we can do nothing, cling to the unreasonable hope that this will resolve itself, and watch the city that we love fall into a black hole and make national headlines because of our plight."

City Council President Michael Solomon called the mayor's budget blueprint "very promising," and said he is particularly pleased Taveras did not propose increasing taxes. But Paul Doughty, president of the city firefighters union, criticized the mayor for balancing the budget based on savings that are still up in the air.

No change in tax rates

Under Taveras's proposal, the total 2012-13 city budget would increase about 4% to $638 million, up from $613 million this year. But the increase is primarily the result of a boost in education spending that will be paid for with dollars from the state. School spending makes up about half the entire city budget.

The other major change is a $7.7 million contribution to the rainy-day fund, which the city has to make under an ordinance the council passed last year. Excluding that and the school department, the rest of the city budget will shrink by about $2.9 million. "Most departments are flat or down," Director of Administration Michael D'Amico told reporters.

Providence's total tax revenue in 2012-13 is projected to increase by about $5 million, primarily because of new restrictions on the exemption for homeowners and more cars getting registered in the city. "Tax rates are flat," D'Amico emphasized. "We did not raise the rates."

Taveras took office in January 2011, and two months later revealed that Providence faced a $110 million structural deficit in 2011-12. In response, he cut spending, hiked taxes 10%, eliminated roughly 200 jobs and secured more state aid. The deficit is now roughly $22 million, and his administration blames city retirees and tax-exempt institutions for the remaining shortfall.

'A gun to our head'

On retiree benefits, Taveras wants the council to pass all seven recommendations put forward last week by a special subcommittee as soon as possible. The most consequential would be a suspension of annual pension increases, or cost-of-living adjustments (COLAs), until the system is 70% funded. That could take until the 2030s.

"We will never win the promise of a brighter future, and the threat of eventual, inevitable bankruptcy will continue to plague our city, if we do not accomplish pension reform," Taveras said. Solomon said he is "very confident" the full council will pass the pension changes in full, which will almost certainly set off a court fight.

The mayor has set a deadline of next Tuesday to finish negotiating with retirees to reach an alternative deal on pension changes. "If they had a reasonable proposal that allowed us to save something close to this amount and spared us a long and costly litigation, it would be prudent to do that," D'Amico said. "But if the proposal doesn't save us something that's in the ballpark of that amount, that's where we have a problem."

Doughty dismissed the administration's argument, saying city officials did not present a formal offer to retirees until just last week. "We will not negotiate with a gun to our head," he said. "It's sending a message that you're going to dictate what the solution is."

D'Amico said the administration will implement the pension changes regardless of whether retirees support them. "I can't control if someone chooses to sue and what the courts will decide at what point," he said. "We'd expect they'll be challenged in court, and we will defend them."

Mayor remembers Dorley, Cianci

On the tax-exempts, the city has only reached a deal for increased payments with one: Johnson & Wales University. Taveras said Monday night he expects to reach agreements with "most, if not all, of our tax-exempts" before June 30.

D'Amico said the administration will otherwise lobby state lawmakers to pass a bill forcing the institutions to pay 25% of what their tax bill would be. Taveras said he has received "support and advice" from Governor Chafee, House Speaker Gordon Fox, Senate President M. Teresa Paiva Weed and Senate Majority Leader Dominick Ruggerio.

The mayor's budget proposal is now in the hands of the City Council, which is expected to pass a budget by early July. The new fiscal year begins July 1. D'Amico acknowledged there isn't a backup plan if the pension changes are ruled illegal. "I'd say it's back to the drawing board at that point," he said.

At the start of his address, Taveras paused for a moment of silence in memory of both Providence Police Sgt. Maxwell Dorley, who died in a car accident last week while on duty, and Nicole Cianci, the 38-year-old daughter of former mayor Buddy Cianci who died of an apparent overdose last week. The mayor had attended Cianci's wake earlier Monday.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi