Acting on a city request, Rhode Island officials appointed a five-member budget commission to oversee the finances of 44,000-population Woonsocket, whose school system’s deficit could worsen to $10 million if state lawmakers don’t approve a supplemental tax levy.
Gov. Lincoln Chafee and revenue director Rosemary Booth Gallogly announced the commission late Tuesday, two days after Woonsocket’s City Council voted during a Memorial Day weekend emergency session to request the panel.
The commission has scheduled its first meeting for Friday.
Susanne Greschner, head of the state’s muni finance division, endorsed the move, citing Woonsocket’s budget imbalance and cash-flow urgency. City officials say they could run out of money in two weeks.
Moody’s Investors Service last week lowered Woonsocket’s general obligation bonds three notches to B2 from Ba2, affecting $225 million in long-term debt, while keeping it under review for downgrade. Moody’s in January had dropped the rating from Ba1. Fitch Ratings in March lowered its rating to BB-minus from BBB-minus.
Moody’s also dropped the underlying rating on the Rhode Island Health and Education Building Corp. bond issue, Series 2009E, to B2 from Ba2, for which the city is the sole obligor. Moody’s said the city expects to end the year with a $700,000 general fund surplus, but the school system projects a $4.3 million gap, and only if the supplemental tax bill passes.
That bill would allow Woonsocket, about 15 miles north of Providence, to bill an additional $6.6 million of property taxes during fiscal 2012. The state Legislature, however, has held up the bill, largely due to the opposition of Rep. Lisa Baldelli-Hunt, D-Woonsocket.
Gallogly said the commission will lobby to revive the bill.
In conjunction with the supplemental tax, the city had also been negotiating to sell $3.2 million in tax anticipation notes by June 1 to bridge the billing-and-collection gap.
Woonsocket’s 11.5% direct-debt burden, primarily reflecting its $90 million issuance of pension obligation bonds in July 2002 and $11.5 million of deficit bonds in March 2011, will remain high given a slow repayment of principal — 41% retired within 10 years, according to Moody’s.
Gallogly said the appointment of+ a state budget commission enables the state to advance school aid payments of about $4 million scheduled to go out June 30.
“Obviously that’s just a temporary solution,” she said. “Woonsocket still has very significant challenges. And even if the supplemental tax passes, that’s just one component.”
A budget commission is the second step in a three-tier state oversight system after a fiscal overseer and before receivership. Woonsocket, 15 miles north of capital Providence and the home to CVS Caremark Corp., becomes the third community under state intervention. Bankrupt Central Falls is under receivership and East Providence also has a budget panel. Several other communities, notably Providence, are also struggling financially.
Woonsocket’s commission consists of Peder Schaefer, associate director of the Rhode Island League of Cities and Towns; East Greenwich town manager William Sequino; and retired Woonsocket school finance official Dina Dutremble. By law, Mayor Leo Fontaine and City Council President John Ward will also serve on the panel.
“We have two priorities to begin with,” said Schaefer. “We have to look at the cash flow and accounts payable, and we have to get a budget done pretty quickly. Then we have to look at long-term financial forecasts.”
The supplemental tax bill, according to Schaefer, is a huge variable. “Our challenges could be different, depending upon what happens with that,” he added.
Woonsocket’s pension funding ratio is 60.7%, according to Gallogly’s office, which rates it a Tier 3 plan — just outside “critical status” — under a new rating system for locally administered plans.
Woonsocket would have to submit a funding improvement plan if the plan falls into critical status, based on assumption changes, Gallogly said.
Meanwhile, Chafee said a second team of auditors was poised to examine the records of troubled video game company 38 Studios LLC, whose $75 million loan guarantee by the Rhode Island Economic Development Corp. could leave state taxpayers on the hook. The state backed the bond sale to private investors with a moral obligation pledge.
The EDC on Tuesday announced its third resignation during the two-week controversy, that of J.L. “Lynn” Singleton, president of the Providence Performing Arts Center.
Executive director Keith Stokes and vice chairwoman Helena Foulkes have already resigned.
