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Mayor hopeful Prov can avoid bankruptcy

WPRI 12

Updated: Feb 6, 2012 8:03 PM

PROVIDENCE, R.I. (WPRI) — A markedly more upbeat Providence Mayor Angel Taveras expressed optimism on Monday that Rhode Island's capital can avoid bankruptcy through the collective efforts of city and state officials.

"We need to make sure we address this structurally," Taveras said during a press conference at the State House where he stood alongside Gov. Lincoln Chafee. "We need to make sure we're not back here six months from now."

Taveras's comments came after a closed-door briefing where he and other city officials briefed lawmakers, including Senate President M. Teresa Paiva Weed and House Speaker Gordon Fox, on the looming crisis that led him to warn last week the capital is on "the brink of bankruptcy."

"I'm confident that working together the mayor and the city will face those challenges in a successful manner," Paiva Weed told reporters as she left. "It's important that they're coming to us early - the lines of communication are open." No specific legislation the city wants was discussed during the meeting, she said.

Providence faces a roughly $22.5 million deficit in its budget for this fiscal year, which ends June 30, and a projected $30 million deficit in its budget for 2012-13, according to Michael D'Amico, the city's director of administration.

Agreement with Brown possible

Chafee said Taveras is taking the right approach by seeking solutions to Providence's financial woes that will give the city long-term fiscal stability rather than simply asking the General Assembly to provide a bailout that will stabilize it for one year.

The mayor singled out two main problems Providence faces in sorting out its budget for this year: a Superior Court judgment last week blocking the city from moving retirees to Medicare, and the failure to get tax-exempt institutions including Brown University to provide $7.1 million in voluntary payments sought by the mayor.

The city has appealed the lower-court decision on Medicare to the Rhode Island Supreme Court and asked for an expedited review. The city has until March 31 to enroll the retirees in Medicare, Taveras said. Lawyers from both sides will hold a closed meeting with a Supreme Court justice about the case Wednesday, a spokesman said.

Taveras also hinted that he could have "positive news" to release soon regarding a deal with Brown and the other tax-exempts. A meeting Chafee brokered last week between Taveras and Brown President Ruth Simmons was "very helpful," he said. "The hospitals need to be part of the solution, as well."

Will ask retirees for cuts

Another problem for the city is a pension system that awards 5% and 6% compounded cost-of-living adjustments to one in four retirees. Taveras said he is hopeful they will agree to pension concessions after a town hall meeting early next month.

Asked whether Providence's problems have made her regret successfully fighting to make sure last year's pension law didn't include a provision allowing the city's locally run pension plan to freeze COLAs, Paiva Weed said: "Absolutely not."

Taveras described Thursday as "a very difficult day" because of the bankruptcy warning. "No mayor wants to announce that," he said. The supportive comments he's received since then from state officials and others have made him more hopeful the city can avoid that fate. "You realize you're not in it alone," he said.

Providence's highest-paid pensioner, former Fire Chief Gilbert McLaughlin, retired with an annual salary of $63,510 and now receives an annual pension of $196,813 a year, according to the city. At the current rate of growth, McLaughlin's pension will total nearly $800,000 a year if he lives to the age of 100.

'Severe' impact of bankruptcy

The three major credit rating agencies in New York - Moody's Investors Service, Fitch Ratings and Standard & Poor's - requested meetings with city officials after hearing Taveras's announcement last Thursday, D'Amico said. All three downgraded Providence's credit rating last year after a fiscal review team uncovered a $180 million two-year structural budget deficit.

Taveras pushed back forcefully against those who've urged him in recent days to simply file for Chapter 9 bankruptcy so he can take a scalpel to Providence's contracts and other obligations, saying there is no comparison between the capital and tiny Central Falls, which declared bankruptcy last August.

"It's easy for people to make suggestions without having to live with the consequences," Taveras said. "The consequences of a capital city in this country going into bankruptcy would be severe. ... We need a healthy capital city for the rest of this state to prosper."

Rhode Island has "one of the highest unemployment rates in the country - what do you think is going to happen if we have our capital city file bankruptcy?" the mayor said. "We cannot let that happen."

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

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