Woonsocket, R.I., Teeters After Supplemental Tax Fails

Receivership looms for Woonsocket, R.I., after a bill allowing the city to assess a 13% supplemental property tax levy to cover a $10 million budget gap died in the Rhode Island House early Wednesday.

The 44,000-population city, 15 miles north of capital Providence, is already operating under a state-appointed budget commission. The next step in a three-stage intervention would be receivership.

A receiver could recommend a Chapter 9 filing. In nearby Central Falls, then-receiver Robert Flanders filed for bankruptcy on behalf of the city last August. East Providence is also under state oversight.

Shortly after the General Assembly ended its regular session at 3:45 a.m., officials from Gov. Lincoln Chafee’s administration blamed Woonsocket’s House delegation for blocking the measure. The Senate had already passed it.

Chafee is unlikely to call a special session, a spokesman for the governor said late Wednesday afternoon.

Revenue director Rosemary Booth Gallogly, who said Woonsocket faces further budget cuts and layoffs, called out state Reps. Lisa Baldelli-Hunt, Jon Brien and Robert Phillips for insisting on single-digit tax increases and urging the removal of Mayor Leo Fontaine and City Council President John Ward from the five-member budget commission, which Chafee convened three weeks ago.

“Reps. Baldelli-Hunt, Brien and Phillips have done their city and their constituents no favors by failing to agree to what is necessary to begin to take steps to truly address the significant challenges facing Woonsocket,” Gallogly said in a statement.

Moody’s Investors Service had already called the stalemate a credit negative for the city. Moody’s in late May lowered Woonsocket’s general obligation bond rating three notches to B2 from Ba2, affecting $225 million of  long-term debt, while keeping it under review for downgrade. Moody’s in January had dropped it from Ba1. Fitch Ratings in March lowered its rating to BB-minus from BBB-minus.

Moody’s in 2011 downgraded eight Rhode Island communities.

The supplemental levy, which the City Council approved in April, would have generated $6.6 million, according to Moody’s, while state approval, required by law, was a condition for financing $3.2 million of cash-flow borrowing.

Woonsocket also has a $4.6 million debt service payment due July 15. Additionally, Fontaine has requested retirees to take pension cuts. The city’s pension funding ratio is about 58%.

“While it might have been politically expedient for the governor to cave to short-sighted pressures, the demands made by the House delegation were outside of the authority of the executive branch — a fact of which they were well aware,” Gallogly said.

Messages seeking comment were left with Fontaine and Brien.

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