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Budget panel considers backup tax

June 24, 2013

WOONSOCKET – The much ballyhooed $2.5 million supplemental tax bill that’s still dangling in limbo as the 2013 session of the General Assembly draws to a close could look unexpectedly palatable compared to what the Budget Commission has in mind as its go-to alternative.
If the supplemental dies, commissioners said Monday, they’ll explore the possibility of raising an “administrative tax” of $4.7 million, on top of regular 2014 taxes, in a manner that lawmakers already approved more than a decade ago.
That authority comes via a statute the General Assembly passed in 2002 to fully fund the local police and firefighters pension system by borrowing a $90 million bank note dubbed a pension obligation bond, or POB. State lawmakers included a number of safeguards in the law to make sure the city did not default on the rarely used pension bailout mechanism, including the authority to raise special taxes to repay debt service on the loan.
It was Commissioner Peder Schaefer who opened the Pandora’s Box of the POB tax as members approved a $128.8 million fiscal 2014 budget that was, as City Council president and fellow commissioner John Ward put it, “based on hope.”
“We’re being asked to approve a budget based on things not yet done,” said Ward. “What is our next action if they pass a budget without a supplemental?”
Schaefer looked over from his seat at the dais in Harris Hall and gestured toward Tax Assessor Christopher Celeste and Finance Director Thomas Bruce. He had closely read the 2002 enabling legislation that authorized the city to float a POB, and the law appears to give the city unilateral authority to issue a tax bill to pay debt service on the bond.
“The assessor can go out and levy a tax to pay it,” Schaefer said.
The city has a $4.7 million debt service payment due on the POB in mid-July. Bruce said there is already money in the budget to pay it, but the funds could be transferred to cover other shortfalls, justifying the need to replenish the debt service line with a tax.
After the meeting, Schaefer approached reporters to tell them he’d rather see lawmakers approve a supplemental tax bill, but if that door closes he was resolved to exploring the POB option.
“That’s not what I want to happen,” he said. “It’s a loophole I don’t want to use at all.”
The supplemental is just one slice of the revenue pie in what is supposed to be the commission’s first budget under a five-year plan to wipe out multi-million dollar deficits that have delivered the city to the edge of bankruptcy. Ward said state lawmakers have also failed to act on the commission’s request to reamortize the unfunded liability of the pension and a tax break for seniors designed to blunt the impact of a sharp rollback in the homestead exemption.
The reamortization plan alone was supposed to save the city about $7 million a year by stretching out the amount of time the city has to pay back the unfunded portion of the pension from five to 16 years.
Commissioners said that in addition to the supplemental, if passed, the budget calls for a maxed-out increase of four percent in regular taxes, plus a reduction in the homestead exemption. The panel said previously that if all the pieces of the five-year plan fell into place the owner of the average home would see a double-whammy tax hike in the neighborhood of 23 percent.
The 4-0 vote on the budget comes just days after the House Finance Committee slashed about $1.3 million in aid to distressed communities from the city’s envisioned aid package.
To compensate for the cut, Bruce said the spending plan was tweaked at the last minute to shrink a built-in revenue “cushion,” originally pegged at nearly $4 million, that was to be dedicated for deficit reduction. The cushion now stands at about $1.2 million and the budget forecasts a deficit in excess of $8 million by June 30, 2014.
Commissioners were sharply critical of state lawmakers for failing to support struggling cities in general and the five-year plan in particular.
Mayor Leo T. Fontaine urged residents to contact state lawmakers and tell them to restore the Gov. Lincoln Chafee’s original $8.2 billion, statewide spending plan, that would have included additional aid for Woonsocket.
“The general assembly has done nothing with that legislation that could have helped cities and towns,” he said. “Some people think we’re a broken record talking about this. The reason is, it happens over and over and over again.”
Today’s session of the General Assembly could be the last of 2013, but despite the looming deadline members of the commission displayed little panic over the possible revenue chasm that could open up for the city before it’s over. Some members of the commission, including Chairman William Sequino, speaking at his last meeting, said there was cause for optimism, citing progress in negotiations with the city’s labor unions.
State lawmakers have passed two versions of a supplemental tax bill, but they say they won’t pass it along for Chafee to sign without negotiated concessions on health care benefits and higher co-pays. While he was short on specifics, Sequino said there has been significant progress in talks with the unions very recently that may be the catalyst lawmakers were looking for to release the supplemental for the governor’s signature at the eleventh hour.
“A lot of optimistic news is about to come out,” he said.
Until recently the longtime town manager of East Greenwich, Sequino recently got a new job as head of the state Clean Water Finance Agency. State Revenue Director Rosemary Booth Gallogly confirmed that Sequino had chaired his last meeting yesterday and told reporters that she may announce his successor as soon as Friday.
The same day, the commission also has an emergency meeting schedule to consider fallback options in reaction to what may, or may not, happen at the General Assembly, today. That meeting is scheduled for 5 p.m.
What appears increasingly unlikely, no matter what the assembly does, is that the budget commission is going to fold its hand and call in a receiver. Though cash flow will be tight through July, Bruce said it appears a $12.7 million advance in state education aid, due on July 2, will keep the city afloat and allow creditors to be paid.

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