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Supplemental taxes part of broad plan

February 4, 2013

WOONSOCKET – After projecting that the city would incur a growing deficit on track to reach $95 million by 2017 the Budget Commission yesterday endorsed a still-sketchy, five-year plan to crawl back into the black, mainly through supplemental taxes, changes in union contracts and cuts in pension and other retirement benefits.
If it all falls into place – and no one’s saying it will, yet – residents could see a supplemental tax bill of roughly 5 percent before June 30. It’s a far more modest wallop than that which failed to win legislative approval last year, but would raise roughly $2.1 million in new revenue applicable for this fiscal year and more than $12 million over five years.
It’s a big number, but it pales in comparison to the amount of savings projected by rolling back benefits for employees, retirees and restructuring the public safetyemployees retirement plan.
Finance Director Thomas M. Bruce III unveiled a table projecting the following savings:
• $24 million through 2017, including $6.8 in the current fiscal year, achieved by stretching out the payoff of the unfunded liability of the police and fire pension plan to 16 years instead of the five required by law and eliminating compounded cost of living adjustments for beneficiaries. Like supplemental taxes, the new time frame, similar to refinancing a mortgage, would require the approval of state lawmakers.
• $42 million in savings through 2017 by eliminating certain post-employment benefits for all workers, mainly private health care, by shifting them to Medicare when they turn 65. The shift would affect retirees in the Woonsocket Education Department as well as those on the municipal side of government.
• $27.5 million in savings, beginning with $5.9 in fiscal year 2014, by shifting all workers to a unified health plan that calls for a 20 percent co-pay and a $1,000 annual deductible for families, $500 for individuals.
Some modest improvements in the city’s cash position would also come from the new state formula for reimbursing school districts for education – about $3 million, starting with an infusion of an extra $565,000 next fiscal year. As Bruce remarked, “Any additional aid would certainly be welcome,” but he noted that about 80 percent of all the projected savings in the plan would come from cuts in pensions and health care benefits.
The plan also envisions another $11.4 million in savings through unspecified “changes to existing union contracts” that are currently the subject of ongoing negotiation. Increasing trash fees and consolidating police and fire dispatching services could yield another $7 million or so in net savings that would, ultimately, lead to a $4.1 million cash surplus by June 30, 2017. That would restore the city to a positive cash position for the first time since about 2009.
While they portrayed the plan as a mere point of departure that is bound to see significant adjustment, members voted unanimously on a motion by Commissioner Peder Schaefer to accept the blueprint for solvency. Others were Mayor Leo T. Fontaine, Council President John Ward, Commissioner Dina Dutremble and Chairman William Sequino.
While Schaefer called it “a viable plan” he also said it contains so many hypotheticals that “it might not happen.” And if it doesn’t, Schaefer said, the Budget Commission might well be forced to step aside so the state Department of Revenue could pursue more aggressive options to resolve the city’s financial crisis.
“This may collapse and if it collapses we’re probably going to have to say we can’t do our job and a receiver is going to have to come in,” he said.
While he called the supplemental tax proposal on the table “much more modest” than the measure that fell flat in the halls of the General Assembly last year at this time, the fact is, the increase isn’t temporary. Bruce said the hike would be added to the state cap of 4 percent and become a permanent part of the city’s tax base forever.
It was the collapse of the supplemental tax bill last year, in the waning moments of the 2012 legislative session, that prompted State Revenue Director Rosemary Gallogly to empanel the budget commission. Members have taken charge of all financial decisions from elected officials, including the School Committee and the City Council. In that case, officials were seeking a boost of about 13 percent.
After explaining the nuts and bolts of the plan Bruce said the administration plans to meet with the council next Monday to discuss them in a non-voting workshop. The plan, and any changes made to it in the months ahead, will also be distributed to members of the General Assembly.
Commissioners said they want to begin entertaining draft legislation for a supplemental tax bill for House and Senate lawmakers to act on at their next meeting, on Feb. 18. Similar paperwork will also need to be approved for changes to the amortization schedule for the public safety pension system, and any changes the city might need to make in property tax exemptions for seniors, veterans and “homestead” beneficiaries.
Meanwhile, the city is still on track to lapse into a deep cash shortfall by June unless something is done to alleviate the position. In other action last night, commissioners approved sending a letter to roughly 10 of the biggest vendors, including Blue Cross and Durham School Transportation Services, that the city “anticipates a significant lack of adequate cash resources” to pay their bills from June 1 to July 15.
Schaefer suggested a copy of the letter also be sent to Gen. Treasurer Gina Raimondo to alert her that the city might be unable to make its contributions to the state employees retirement system during that period as well.
“It’s worth a try,” Bruce replied. “Our situation, plain and simple, it’s dire. The Rhode Island Retirement System is a major creditor.”

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