Mayor Angel Taveras’ $638.4 million budget proposal for distressed Providence, R.I., hinges on two large variables: court or union approval of pension overhaul at the local level and greater contributions in lieu of taxes from nonprofit agencies.

Providence, which received downgrades from two major bond-rating agencies last month, faces a $22.5 million deficit in fiscal 2012, which ends on June 30.

Fitch Ratings and Moody’s Investors Service each downgraded the the capital city’s general obligation bond rating last month.

Fitch dropped it three notches, to BBB from A, and Moody’s downgraded it to Baa1 from A3.

“The threat of eventual and unavoidable bankruptcy will continue to plague our city if we do not accomplish pension reform,” Taveras said in a 23-minute address to the City Council Monday night in Rhode Island’s capital.

Taveras first hinted at bankruptcy three months ago.

Pension changes, which he calls the Providence Pension Protection Plan, call for suspending cost-of-living adjustments until the pension plan is funded at 70%, and for greater contributions from retirees.

The mayor said the plan, if totally implemented, could save Providence $16 million annually, based on analysis provided by Buck Consultants LLC of New York.

Such changes, however, need union approval or judicial support.

In February, Superior Court Judge Sarah Taft-Carter blocked the city from switching public-safety retiree health plans to Medicare. Taveras said the move would have saved Providence $6 million to $8 million annually.

The state’s Supreme Court plans to hear an appeal in May.

On Monday night, Paul Doughty, president of Providence Fire Fighters IAFF Local 799, said he did not like his union “negotiating with a gun to our heads.”

Taveras recently negotiated an agreement with Johnson & Wales University that will at least triple the school’s contribution to Providence’s coffers to nearly $1 million.

The mayor plans to talk further this week with Brown University and with Lifespan, a health system provider affiliated with Brown’s Warren Alpert Medical School.

The mayor said if the nonprofits don’t cooperate, he is prepared to shepherd a bill through the state legislature calling for such institutions to pay 25% of what their tax bill would be.

The fiscal 2013 budget calls for no increase in property taxes and no significant layoffs or staff cuts, and invests $7.7 million in the city’s gutted rainy-day fund.

“There are no one-time revenue sources in there; no gimmicks,” Taveras’ chief of staff, Michael D’Amico, told reporters on a conference call.

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