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Mayor proposes tax amnesty

April 14, 2013

WOONSOCKET – The City Council tonight is expected to pass Mayor Leo T. Fontaine’s request to make June a tax-amnesty month.
The administration is asking the council to support legislation to waive 15 percent interest charges on delinquent taxes of up to $3,000. The offer would apply to any real estate owned by the same individual for three years, business equipment and motor vehicles.
As far as Tax Assessor Chris Celeste knows, the city has never had a tax amnesty event before, and he doesn’t anticipate that there will ever be one again if the council supports the plan.
“I wouldn’t think it’s ever going to happen again in the near future or the distant future,” he said. “The only reason we’re doing it is because we need to bring in some revenue, fast.”
There city is carrying millions in unpaid taxes on its books, but Finance Director Thomas M. Bruce III says he’ll be satisfied if the initiative brings in $400,000 overdue for no more than two fiscal quarters.
It’s a modest goal, he said, but a critical one amid a looming cash crunch which has been forecast for nearly a year. By mid-June, he says, the city’s bills could exceed its cash on hand to pay them by some $9 million.
When a similar problem cropped up last year, the state appointed a Budget Commission to take over the city’s finances and avert municipal receivership. The major tactic that came into play was to take a $12 million advance on state aid to education from the last quarter of this fiscal year.
It solved the problem short-term, but it guaranteed that the city would again experience a period of illiquidity during the last several weeks of the current fiscal year because all its fourth-quarter education aid had been exhausted in advance.
There’s been no firm decision on how the budget commission intends to leap past that fiscal void, but tax amnesty could open up some options, according to Bruce. The budget commission has developed a five-year plan that calls for supplemental taxes, union concessions, pension rollbacks and cut in benefits, but the whole plan could founder if collective bargaining talks are unsuccessful.
Municipal receivership is an option, and so is taking another multi-million-dollar advance from the Rhode Island Department of Education. But Bruce says the state Department of Revenue, which seated the commission, is exploring the possibility of borrowing short-term notes from a bank to get the city over the hump.
“I think the state would like to see us do this on our own,” says Bruce.
Though the city’s bond rating is in junk territory, Bruce says he believes it is still credit-worthy enough to borrow money against the collateral of yet-to-be collected taxes. Such loans are known as tax anticipation notes, or TANs, a routine mechanism for municipalities to smooth out periods of low cash.
Indeed, says Bruce, the city is already in talks with Webster Bank about borrowing TANS to get the city past the fourth-quarter cash slump.
Bringing in some extra revenue with a period of tax amnesty would improve the city’s chances of qualifying for such a loan, said Bruce.
Bruce says the $400,000 goal is doable. He says about 600 property owners in the city have outstanding balances averaging $1,200 that are in some stage of delinquency.
The parameters of the amnesty plan, including the three-year ownership minimum on real estate, was designed to target the benefit to individuals instead of banks and other lending institutions that have been sitting on abandoned properties.
“It’s the best way to target individual property owners as opposed to the institutional property owners,” he said.
Bruce said Councilman Dan Gendron helped craft the parameters. He introduced the resolution to support a bill in the General Assembly to waive interest penalties from June 1 to June 30.
Tonight’s council meeting begins in Harris Hall at 7.

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