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Supplemental tax bill held for further study

May 15, 2012

PROVIDENCE — Woonsocket Mayor Leo Fontaine, Council President John Ward and Finance Director Thomas Bruce spent Tuesday afternoon trying to convince the House Finance Committee that a 13 percent supplemental tax in the city would not be just a stopgap measure to temporarily forestall the inevitable appointment of a state budget commission or receiver a few weeks or months down the road.
The trio attempted to assure legislators that permanently building the extra 13 percent into the city’s property tax rate for next year, along with the planned increase in the state school aid funding formula, would be sufficient to fix the school department’s structural deficit. If the legislation to induce Steward Health Care to buy Landmark Medical Center and the governor’s proposals to accelerate the school aid formula and help “highly distressed” communities go through, that would be gravy, the city leaders said, but they are not counting on those things until they become law.
Unlike in the Senate, where the Finance Committee voted to approve the supplemental tax bill immediately after the hearing and the full chamber voted passage a few days later, the House committee voted to hold the bill for further study on Tuesday.
Sources say one of the reasons for the House’s cautious approach is that two of Woonsocket’s veteran state representatives, Lisa Baldelli-Hunt and Jon Brien have been cool toward the measure. Neither of them spoke at Tuesday’s hearing, nor did Rep. Robert Phillips, who is on record supporting the tax.
While many bills held for further study are never heard from again, others can be brought back up for a vote at any time in their original form or as an amended “Substitute A.”
Both the state auditor general and the state department of revenue support the city’s bid for the supplemental tax, the committee was told.
Fontaine walked the committee through the history of the city’s financial troubles, including the audits that showed the city’s school department ran deficits of $2.7 million last year and $7.3 million in the current year.
“We got to a point that it was very clear that the school department’s expenses were not going to be met, their payables began growing pretty quickly and despite all of our efforts to save money on the municipal side, the school department’s side was out of our ability to control…To say there is turmoil over there is a bit of an understatement.”
The mayor also related negotiations with city employee unions seeking givebacks and savings, and the lowering of payroll through layoffs and attrition. “When you walk through City Hall,” he told Chairman Helio Melo of East Providence, “there are more empty desks than in a Staples showroom.”
Fontaine said city officials are trying to emulate many of the steps being taken by the state-appointed receiver in Central Falls and the budget commission in East Providence to prevent the need for such intervention in Woonsocket.
The supplemental tax – what some are calling the “fifth quarter” bill – is expected to cost the average city taxpayer about $350 this year, Fontaine said. The tax is estimated to bring in $6.6 million, but perhaps more importantly, it will be used as collateral for a $3.2 million loan from Citizens Bank to allow the city to pay its bills until revenue from the tax comes into City Hall.
Bruce said the supplemental tax would “stop any further spiral on our bond rating” and perhaps even boost it a bit.
Rep. Daniel Riley, a Portsmouth Republican, said despite all the measures the Woonsocket officials say have been taken to save money, “That’s not what is bankrupting the city of Woonsocket, it is the pension and OPEB (other post-employment benefits) costs that go up as a greater and greater share of your revenue every year. And I have yet to see a plan on the city side or the school side to tackle that.
“All the roads in my mind are leading to receivership right now.” Riley said. “That is the only place you are going to be able to answer all these questions. Unless there is a compelling reason why that is not the case, what is the purpose of the supplemental tax increase and why are we not just postponing what will be happening soon?”
“Can we guarantee with certainty that everything is going to work out perfectly and we are going to sit here in five years and everything is going to be fine?” Fontaine asked, “I can’t, but I think it comes to a point where we think we have a pretty sound plan going forward with this first step of a supplemental and that funding addressing the structural needs of the schools. On the municipal side we ran a surplus last year, so this really gets to a point of trying to support the school system.
“We need to get out of the immediate crisis before we work on the arcs (annual required contributions) for pensions and OPEB,” he said.
Two Woonsocket residents stepped forward to take issue with what the city leaders said.
“I don’t have any confidence in my local government,” said John McLaughlin, a former city school teacher and onetime candidate for School Committee. “The School Committee is in total disarray. They don’t even know what money they are spending or what they are spending it on. It’s horrible what is going on.”
He asked why the taxpayers are being asked to come up with an additional $6.6 million when that amount isn’t going to be added to the city’s maintenance of effort in funding the schools.
Jim Cournoyer said the city doesn’t have an overall plan to overcome its fiscal problems.
“The plan is to send out a supplemental tax bill and hope for better days,” he said. “Hope is not a strategy.”
Cournoyer urged the committee to let the city “move into receivership. If we can avoid bankruptcy, that’s perfect, but if we can’t, so be it. But let’s not just jump right into bankruptcy.” He said a receiver could “make the dispassionate decisions that need to be made to put forth shared sacrifice,” including a supplemental tax increase.
“Without receivership,” he added, we’re just going to continue doing what we’ve been doing for too long, kicking the can down the road and not making the progress we need to make to start the healing process. We are insolvent. We can not meet our obligations as they come due; that is the definition of insolvency, so we are kidding ourselves.”

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