WOONSOCKET – The city might be forced to raise taxes by as much as 4.25 percent next fiscal year to make ends meet, the most allowed by state law without a waiver from the auditor general.
But Mayor Leo T. Fontaine said he is still making cuts and hopes to propose a budget next week calling for a hike not quite so steep.
“Our goal is to come in at or under the cap,” said the mayor. “We've got most things nailed down, but we're still going through the budget to make a last round of cuts before we submit this budget to the City Council.”
The City Charter deadline for handing over the budget to the council was Wednesday but a few unresolved contingencies have held things up a bit, said Fontaine.
If all goes according to script the council will get the budget on Tuesday, at which point it becomes a public record. There will be an open hearing to gather public feedback on the proposal on June 1. The council would have to adopt the budget, possibly with significant changes in it, no later than June 30, the last day of the fiscal year.
In a sign of continuing austerity in municipal operations, Fontaine said his budget will call for some personnel cuts, but he declined to elaborate. As of Friday he was still considering whether workers will be asked to take unpaid furlough days to help balance the budget, as they have for the last two years.
Fontaine said the biggest bugbear putting pressure on the tax rate is the $12 million deficit financing bond the city floated in March. The first repayment installment on the debt, about $2.9 million, comes due next fiscal year, and the city will face a similar payment during each of the following four fiscal years.
It's extraordinarily rare for communities to resort to deficit funding bonds, but officials agreed that it was the least repugnant of an assortment of unpalatable alternatives for shoring up the city's shaky finances. With its bond rating at junk status, the city was having trouble getting access to even the routine kinds of short-term credit that keeps municipalities from running out of cash, heightening the risk of insolvency.
“Now we're hoping that within two years we'll be able to get that bond rating back up to investment grade, which is going to save us considerable money in the future on our borrowing costs,” said Fontaine.
The mayor said the essential dilemma for the city is to balance the interest of taxpayers against the necessity to compensate for cuts of some $10 million in state aid during the last four years. Ironically, says Fontaine, that cut is almost a match for the school department's share of the deficit that is to be covered by the deficit funding bond; the balance fell on the city side of the ledger.
“We're at the point where we have to consider the people's ability to pay their taxes,” he said. “We're also dealing with four years' worth of cuts in state aid and the school department's deficits.”
This year the city is projecting finishing the fiscal year with a surplus and, for the first time in several years, so is the school department. Business Manager Stacey Busby told the School Committee earlier this week there might even be a small surplus, though Fontaine says the forecast may be premature.
Another still-fluid line item in the budget is the cost of providing health insurance to city employees, Fontaine said.The city budgeted $7.3 million for Blue Cross/Blue Shield of Rhode Island this year, and if costs follow historical trends, the city might have to raise $700,000 more to cover next year's insurance costs, said Fontaine.
If the city relied soley on real estate tax to absorb just the new costs associated with Blue Cross and the deficit funding bond, and there were no offsetting cuts, the property tax rate would have to be increased by about $2.37, at least by Fontaine's math. He says every $1 million the city adds to the budget requires a corresponding increase of about 66 cents on the tax rate to cover it.
Even if city government were forced to push up taxes to the max, it's hard to predict how individuals would be affected. The increase would be spread across the entire levy, or the total amount of money the city raises in taxes, which was about $47 million this year. That's far less than the actual budget of roughly $117 million, most of which comes from sources other than local tax revenues.
But the levy represents a combination of tax revenues, including motor vehicle excise taxes, commercial real estate and residential property taxes. While the latter accounts for a significant proportion of the levy, the distribution of the burden within the residential classification is itself quite varied, with an assortment of exemptions for the owners of different classes of property.
Fontaine said his budget proposal will not tinker with the current mix of exemptions for residential property. The most generous of the so-called homestead exemptions will remain in place for the owners of single-family homes, allowing them to write off 43 percent of the taxable value of their property. The exemption for two-families is 15 percent, and for three-families, 5 percent.
There are other scenarios that could affect residential rates, currently set at $23.63 per thousand. The City Council may decide that this is the year to ease the burden on the commercial taxpayer, including small business owners, who pay one of the highest rates in the state on their real estate, $34.30. Excise taxes, at $46.58 per thousand, could ease the pressure on real estate, especially if city residents, possibly more optimistic about the rebounding economy, have been buying more motor vehicles lately.
Fontaine said the timetable for the budget has the City Council on track to take up preliminary consideration of the package on June 6, with final passage scheduled for June 20.