Government

Providence faces staggering financial deficits, panel says

PBN FILE PHOTO FRANK MULLIN
PROBLEMS RANGING from high pension costs to poor budget estimates plague the city of Providence's finances, according to a report commission by Mayor Angel Taveras.
Posted 3/3/11

(Updated, 11 a.m.)

PROVIDENCE – Problems ranging from high pension costs to poor budget estimates plague the city of Providence’s finances, according to a report commissioned by Mayor Angel Taveras.

The report, released Thursday, details a structural deficit estimated at $69.6 million for the fiscal year that ends June 30 and a $109.9 million hole in the budget for fiscal year ending June 30, 2012.

At a news conference Thursday morning, Taveras called it an “unprecedented fiscal crisis,” adding that it constituted an emergency that “demands immediate action.”

The 24-page report identified problems with finances in everything from the city chronically underfunding pension plans to Providence’s red light traffic cameras that likely cost, rather than make, the city money. The panel also projected property taxes would come in $1.7 million under budget and back taxes $2.5 million under budget this year.

In the immediate future Taveras must close a projected deficit in the current fiscal year. The panel said borrowing is expected to whittle down the deficit to $28.6 million from $69.6 million. But the panel criticized such one-time revenue fixes as fostering structural deficits and depleting the city’s reserves.

On Thursday morning, the mayor outlined a number of other steps to slash the deficit. Taveras said he would take a 10 percent pay cut, implement a hiring freeze, require department heads to trim their budgets by at least 10 percent and had already canceled a $1.4 million contract with an employee benefits management company to save the city $900,000.

The mayor also eliminated 13 non-union positions Thursday, including several school administrators, and plans to close four to six public schools. He also said that there would likely be fewer public school teachers next academic year, though he would not provide a specific number.

He warned Thursday morning that the cuts required “will be deep and very painful but we have no choice.”

He also said raising property taxes remained “a last resort” but continued to be an option.

He did not address a suggestion by the panel to privatize operations at the city-owned Roger Williams Park Zoo.

The panel outlined staggering financial problems, especially in the pension and retiree health care areas. Providence faces unfunded pension and retiree health care costs reaching $2.3 billion. By 2039, the city is projected to need $210 million annually to pay for its pensions.

The city has historically contributed less than the ideal amount to the plans for years, skipping on $132.7 million in payments, the panel said.

The city also offers “extraordinarily excessive” cost-of-living adjustments of 5 percent or 6 percent to 27 percent of its retirees. The increases “are inconsistent with their intent which, in essence, was to preserve purchasing power eroded through inflation,” the panel wrote. “With 5 or 6 percent COLA provisions, retirees would far outpace amounts paid to active employees who are not receiving annual salary increases that even approximate 5 or 6 percent annually.”

The panel also questioned the city’s decision to fund two pension plans for some union workers. The city contributes to the workers’ municipal plan as well as their union plan.

To reduce costs the panel laid out a number of options, including eliminating the contribution to the union plan and merging the city’s entire pension system with the state-administrated Municipal Employees’ Retirement System. Such a merger would “provide the necessary discipline to make required contributions and insulate the city from attempts to increase benefits,” the panel wrote.

The panel also suggested raising the amount some employees must contribute to their pensions by 1 percentage point and raising the required number of years of service and age before retirement.

To reduce health care costs for retirees, the panel suggested eliminating coverage for spouses of retirees, raising co-pays and upping the retirement age.

Many changes to retirement benefits require new contracts with the city’s public employee unions.

On Thursday, Taveras said he was committed to pension reform but declined to go into specifics.

“I’m not going to negotiate in public,” Taveras said.

On the revenue side, Providence is plagued by property taxes that consistently fall below projections. Since state law limits how much the city can raise property taxes, the city must look to other fees, such as enhancing its enforcement and charging fees for reviewing building plans, even if the plans are denied.

The panel also took aim at nonprofit organizations that do not pay property taxes, saying they represent one-third of the total assessed value of all the property in the city. The panel suggested renegotiating agreements with institutions that make voluntary payments in lieu of taxes, requiring college students to register their cars with the city or implementing a housing fee for students living in dorms.

And while the mayor minced few words to describe the fiscal health of the city on Thursday morning, he shied away from blaming his predecessor, David N. Cicilline, who is now in Congress.

“Blame is not going to balance the budget and it’s not going to pay the bill,” Taveras said.

Updated at 11 a.m. with quotes from the news conference.

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