Warning that “Providence is in peril,” Mayor Angel Taveras repeated his call for retirees to accept pension cuts and tax-exempt institutions to pay more, to keep the city from running out of money by the end of June.
Providence, which last year received downgrades to its general obligation bonds from the three major credit rating agencies, has a $22.5 million shortfall – down from $110 million – that it must close by the end of the fiscal year.
Standard & Poor’s, Fitch Ratings and Moody’s Investors Service assign ratings of BBB-plus, A and A3, respectively, all with negative outlooks.
“We are standing on the edge and staring into a black hole,” Taveras said at Monday night’s state of the city address in the City Council chambers. Rhode Island Gov. Lincoln Chafee attended the event.
Taveras called annual cost-of-living payments of 5% and 6% to 600 public safety retirees “unbearable and unsustainable,” and lambasted colleges and hospitals for not contributing enough.
While Providence has budgeted a $7.1 million increase from tax-exempts into the fiscal 2012 plan, and about half of that from Brown University, “as of today, our tax-exempt property holders have failed to partner with us in making the sacrifices necessary,” Taveras said. He added that the city loses more than $100 million per year in property taxes as a result of such holdings.
Although the mayor did not mention Brown by name in his speech, Taveras’ comments were largely aimed at the Ivy League institution, which he has singled out in news conferences. The city and school have disagreed over how much Brown should contribute.
Messages were left with Brown seeking comment.
Efforts by localities to boost payments in lieu of taxes, or PILOTs, have become more common, especially in the Northeast. Moody’s, in a report issued Tuesday, said the willingness of nonprofits to increase such payments was a credit positive, although the agency warned about possible long-term risks of large payments impairing expansion plans or job growth. But, Moody’s added, “In general, local governments are still far from that tipping point.”
Taveras said Monday that the city was on the version of an agreement for increased payments from downtown Johnson and Wales University.
The mayor invoked bankrupt Central Falls in his plea for pension overhaul. “Our retirees [cannot] be successful in a failed city. Central Falls taught us that lesson,” he said.The city, with a 19,000 population and under state receivership, filed for Chapter 9 bankruptcy protection on Aug. 1, citing an $80 million pension shortfall.
Janney Capital Markets, while acknowledging the toll the recession took on Providence, called recent measures by city leaders encouraging. The firm cited a 2012 budget adopted three weeks ago that largely avoids stop-gap measures.
"It’s encouraging that, after years of short term fixes, meaningful steps have been taken to address problems through the use of recurring measures, such as tax increases and spending cuts, rather than one time fixes such as borrowing," said Janney's report, issued Tuesday.
Several Rhode Island communities are distressed. Eight received downgrades in 2011 from Moody’s, and in January the agency lowered Woonsocket’s GO rating to Ba2 from Ba1.
Providence received another legal setback last week when the state’s Supreme Court denied its expedited appeal of Judge Sarah Taft-Carter’s ruling that 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 court is scheduled to hold a full hearing in late May.