Mayor: Providence is facing bankruptcy

PROVIDENCE, R.I. (WPRI) - Rhode Island's capital city will be in bankruptcy by June if it doesn't get help resolving its financial crisis.

That was the dire warning from Providence Mayor Angel Taveras during a Thursday morning news conference at City Hall. With five months left before the end of the fiscal year and the capital set to run out of cash by the start of summer, the city still faces a roughly $22.5 million deficit in its budget for this fiscal year, which ends June 30.

The budget shortfall was projected at $110 million last March, when Taveras declared a "category five" financial emergency in Providence. It was reduced after he negotiated new contracts with unions, laid off workers, cut spending and won increased state aid.

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Taveras, a Democrat who took office 13 months ago, told reporters Providence could be pushed to the breaking point without sacrifices from retirees and the city's large tax-exempt institutions, including Brown University and the hospitals.

"Our firefighters, police officers, teachers and taxpayers have all sacrificed in the last year and helped Providence avoid catastrophe," the mayor said. "However, not everyone has sacrificed. The failure of our tax-exempts to sacrifice has left a $7.1 million hole in our budget."

Warns colleges of 'a failed city'

Brown and other institutions "can't be successful in a failed city," he declared. Taveras and Brown President Ruth Simmons clashed in December after her board spurned the mayor's request for an additional $4 million from the Ivy League school and he rejected her counteroffer of $2 million.

A spokeswoman for Brown did not immediately respond to a request for comment.

Taveras said the city's retirees must accept reduced pension and health care benefits to save the city from financial ruin. A decree signed in 1991 by Mayor Buddy Cianci pushed the city's pension liability "into the stratosphere" by giving annual cost-of-living increases of 5% and 6% to more than 600 retirees, he said.

"These retirees have refused to sacrifice and are costing Providence taxpayers tens of millions of dollars a year," Taveras said, calling the increases "raises," not adjustments to keep up with the cost of living. The mayor will hold a meeting with retirees on March 3 where they will be asked for concessions.

Taveras's office released a list showing that the city's highest-paid pensioner, former Fire Chief Gilbert McLaughlin, now receives an annual pension of $196,813 a year. He retired with an annual salary of $63,510. At the current rate of growth, McLaughlin's pension will total roughly $796,871 if he lives to the age of 100.

'Everything is on the table'

Thursday's event was sparked by a Superior Court Judge Sarah Taft-Carter's ruling Monday in which she sided with retirees and blocked the city from forcing its retired police and firefighters to sign up for Medicare. The judge dismissed the $6 million cost of her decision as “alleged savings” that “would not save the city from financial ruin."

Taft-Carter's ruling "has pushed the city to the brink of bankruptcy," Taveras said. "Everything is on the table." The city will appeal her decision to the Rhode Island Supreme Court on Thursday and ask the high-court justices for an expedited review.

Taveras said his advisers had warned against using the word "bankruptcy," particularly because it could spook rating agencies into lowering the city's bond rating and raising its cost of borrowing. But he said he wanted to be "straightforward" with residents about how he sees the problem.

Taveras ruled out "a one-time fix" such as borrowing to close the $30 million hole in the budget, which is the strategy his predecessor, former Mayor David Cicilline, used to close a similar-sized gap in his final budget. Increasing taxes is a possibility but "a last resort" because it could damage the economy, the mayor said.

But City Council President Michael Solomon ruled out any tax hike, implying that either the retirees and tax-exempt institutions pay up or the city will file for bankruptcy. "A supplemental tax increase is not going to solve this problem," Solomon told WPRI.com. "That's off the table with the Council."

Specter of Central Falls

The tiny city of Central Falls became the first Rhode Island municipality ever to file for bankruptcy last August. East Providence's finances were also placed under formal state oversight in November. Woonsocket and Pawtucket recently disclosed surprise deficits, and two-thirds of local pension plans in the state are "at risk."

Retired police officers and firefighters in Central Falls recently reached a tentative agreement with former R.I. Supreme Court Justice Robert Flanders, the city's receiver, that would see their pension payments reduced by as much as 55% if state lawmakers agree to augment that with supplemental payments over the next five years.

Taveras urged Providence's retirees to learn a lesson from what happened in Central Falls, warning he would find a way to reduce the cost of their pension benefits "one way or another."

As of June 30, Providence's city pension system was 32% funded with a shortfall of $901 million, and the city also had a $1.2 billion unfunded liability for retiree health benefits, according to its most recent audit. The entire city budget is roughly $619 million this year.

Fox: 'Providence cannot fail'

Taveras was flanked by other city and state officials, including House Speaker Gordon Fox, who represents a district in Providence and is perhaps the most powerful individual at the State House.

"Providence cannot fail," Fox said. Providence's state aid fell from $137 million in 2006-07 to $68 million in 2011-12, excluding education funds. Lawmakers are "committed with all due urgency" to resolving the city's problems and may pass legislation mandating payments from the tax-exempt institutions.

Taveras said he briefed Gov. Lincoln Chafee on the city's problems for more than an hour on Wednesday and spoke with Senate President M. Teresa Paiva Weed on Wednesday night. Chafee spokeswoman Christine Hunsinger said the governor's staff is working closely with Taveras and his aides to deal with the crisis.

"This is exactly what the governor has been talking about and why he talks about independent municipal pensions being part of pension reform," Hunsinger told WPRI.com. "The governor has confidence in Mayor Taveras. And, as he's said, this crisis is in large part due to the cutting of state aid - $192 million over the last four years. That's just too much for cities to absorb."

Taveras asked residents and businesses in Providence to lobby on the city's behalf, directing them to a new website - SavingProvidence.com - with information about the situation. "I will do everything in my power to make sure the city succeeds," he said.

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

Earlier versions of this article put Providence's deficit for fiscal 2012 at roughly $22.5 million and roughly $30 million; Director of Administration Michael D'Amico said the correct figure is roughly $22.5 million.