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Cash crunch jeopardizes payroll

June 4, 2013

WOONSOCKET – Borrowing – and begging – are among the city’s latest strategies for squeezing through a cash bottleneck officials now say is jeopardizing municipal and school payrolls in July.
City officials confirmed Tuesday they’ve asked the 10 biggest taxpayers if they’re willing to pony up all or a portion of their 2014 taxes early to help the city ease through the cash crunch.
Phone calls have been placed to CVS/Caremark, Wal-Mart, Lowe’s Home Improvement, National Grid, and others, but so far the city hasn’t gotten any firm commitments, according to Mayor Leo T. Fontaine.
“Timing is at a critical point right now and because of the delay we’ve faced on our request for supplemental taxes we’ve got a cash crunch,” he said. “We’ve got to make it up somewhere.”
Wal-Mart and Lowe’s don’t do business in the city any longer, but they’re still paying a combined $750,000 a year in taxes on their shuttered stores. CVS is the city’s top taxpayer, with a yearly tab of $2.8 million. National Grid is distant second, with just over $1 million. The top 10 pay a combined $6.8 million in taxes.
“Even if they wanted to pay the first quarter or a portion of the quarter in advance, it would help,’ said Tax Assessor Christopher Celeste. “It’s just a cash flow issue we’re trying to address.”
Rather than corporate largesse, however, the sizable chunk of money the city needs to make it through the fiscal year will likely come in the form a bank loan, said Finance Director Thomas M. Bruce.
The city had been preparing to borrow against a $2.5 million supplemental tax bill, but the General Assembly has not yet passed the necessary enabling legislation for the city to levy the extra 2013 tax.
Without the anticipation of supplemental taxes for the city to present to a bank as collateral, the city is preparing to do the next best thing: borrow against the receipt of regularly scheduled 2014 taxes.
Bruce said a resolution for approval by the City Council and the Budget Commission on June 17, allowing the city to seek up to $12 million in TANs, or tax anticipation notes, is already in the works. If all goes according to plan, the city could begin tapping proceeds from such a loan by July 1 – early enough to make the payrolls that appear most threatened by the cash shortfall.
During a meeting of the Budget Commission on Monday, Controller Christine Chamberland told members payrolls could be in jeopardy as soon as June 28. But Bruce said some of the city’s biggest vendors, including National Grid, Blue Cross and Durham Transportation, have agreed to forego payments for services rendered through August, and he seemed confident that the relief they’re providing would enable the city to meet payrolls and other obligations through the end of June.
The timing is tight. A cash flow analysis released this week shows the city’s ledgers in the black through most of the month, but the picture changes dramatically on June 29, when payable accounts exceeds cash coming in by $2.4 million. The hole balloons to $8.6 million by July 12 and the city doesn’t return to a liquid position again until July 26, as new 2014 taxes start rolling in.
With its credit rating in junk bond territory, Bruce concedes it may be difficult persuading a bank to lend the city money. Citizens Bank has already turned the city down. Two lenders still in play are Webster Bank and BlackRock, a large asset management company that Bank of America used to own a piece of.
If they fall through, said Bruce, the state Department of Revenue may be able find a lender willing to provide the city with a loan to bridge the cash gap.
The city will try to make the terms palatable by providing the lender with a direct pipeline to incoming taxes in real time, said Bruce. The city won’t touch the money at all.
“This is what East Providence did when they were under the control of a budget commission,” he said.
The city is on track to rack up an audited deficit now pegged to be in the range of about $12 million this year, but the short-term borrowing plan doesn’t solve the problem.
“This is just kicking the can down the road a little longer,” said Bruce. “This is not structural reform.”
The commission adopted a five-year solvency plan to address the city’s underlying fiscal instability. It calls for the $2.5 million supplemental tax for 2013, concessions from employees on health care, and an assortment of rollbacks on retiree benefits, but Fontaine said Tuesday that state lawmakers have taken so long in passing the supplemental tax portion of the plan it’s all but moot in terms of backfilling fiscal holes in the current year’s budget.
State Revenue Director Rosemary Booth Gallogly, who seated the budget commission about a year ago, reaffirmed the state’s commitment to keep the city out of receivership, even if every component of the plan fails to materialize.
If the supplemental tax bill doesn’t pass, she said, employees and retirees will have to give up more.
“If we can’t get it from the taxpayers,” said Gallogly, “it’s going to have to come from the unions and retirees and, possibly, programs.”
Both the Senate and the House have passed different forms of a supplemental tax bill that would raise $2.5 million the city was seeking. But lawmakers in both chambers have said they won’t pass either along for the governor’s signature unless the city’s unions agree to concessions in collective bargaining, a process which is continuing.
The commission has said they would simply enact the sought-after concessions on July 1 if they unions fail to provide them through though negotiations, but lawmakers may be concerned that the tactic could result in a messy, costly round of litigation with labor. Members of the budget commission say they met with lawmakers in City Hall on Monday to assure them that the so-called “enactments” could withstand a legal challenge from the unions.
Follow Russ Olivo on Twitter @russolivo

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