WOONSOCKET – Mayor Leo T. Fontaine says he’s advised the major employees unions representing police, fire and teachers that he might ask them for a 10 percent pay cut to help close a $10 million gap in the School Department’s budget.
But whether he follows through depends on what happens tonight, when the City Council takes up a resolution to borrow some $4.3 million on the anticipation of collecting supplemental taxes.
Unless the city pursues both paths simultaneously — cuts and supplemental taxes — officials may be forced to think about other options for resolving the deficit, including bankruptcy, Fontaine said Tuesday afternoon.
Fontaine stopped short of saying that opposing supplemental taxes is a de facto endorsement of receivership, but he says he’s hearing more and more people talking about receivership as a reasonable pathway out of the fiscal crisis.
“The choices we make now are going to have a very significant impact on the direction we take,” said Fontaine. “This issue of whether or not we have a supplemental tax bill is very quickly becoming a debate about the merits of receivership or whether we continue struggling and treading water.”
Up for discussion tonight at 7 in Harris Hall are two measures that define the financial crossroads the city has reached as never before.
They include legislation calling for a supplemental tax bill that would, in effect, recalibrate the tax hike for the fiscal year that began on July 1 to a net 17.16 percent, said Finance Director Tom Bruce.
The other is a resolution that would allow the City Council to borrow up to $4.3 million in anticipation of collecting those taxes, which would be due by June 15.
The finance director called the tax hike “enormous.” Fontaine agreed, but he said it’s not unprecedented in the annals of recent municipal finance
“It’s comparable to what happened in Cranston a couple of years ago,” he said. “But it comes at the worst possible time, when taxpayers are completely tapped out and can’t afford to take on any more hardships.”
Bruce said the council is expected to table the supplemental tax question until a regular meeting on April 2. But the panel must pass the resolution authorizing the city to borrow in anticipation of collecting those taxes immediately in order to proceed with efforts to arrange bank financing. Bruce said the resolution is also needed to gain passage of a bill from the legislature, a legal prerequisite for the issuance of a supplemental tax bill by the city.
The proposed schedule of supplemental taxes includes a rate of $3.13 per thousand for residential property, which means the owner of a house worth $100,000 would pay $313 more in taxes this year. For motor vehicles, the supplemental rate would be $5.81, and commercial real estate, $4.51.
Bruce said the plan would raise about $6.6 million if the city collected about 97 percent of it, standard for a normal tax bill. But the rates were calculated on an educated guess – gauged on what happened in Central Falls – that the city would only collect about 65 percent of the bill, bringing in about $4.3 million.
As soon as those tax bills go out, the city intends to borrow some $3.2 million, all of which will be turned over to the School Department. Sometime in June, when the city begins taking in revenue from the supplemental, the city will turn over another $800,000 to $1 million to the School Department.
Because both Moody’s and Fitch rating agencies have pegged the city at junk bond status, it will be more costly than usual to borrow the money in anticipation of taxes, possibly as high and 6 or 7 percent. Bruce says the city hasn’t secured a commitment from any lender, but it is talking to Citizens Bank and has other options it can pursue if that falls through.
Costly or not, the borrowing and supplemental taxes are just one part of a still-evolving plan the city is pursuing to pull itself out of the fiscal abyss. But it’s just that, says Bruce, only a part of the plan; State Revenue Director Rosemary Booth Gallogly will not support it unless is it is inextricably tied to meaningful cuts in revenues, or the state will push for a more intense level of intercession in the city’s fiscal affairs, meaning it could appoint a budget commission, as it has in East Providence, or nudge the city into Central Falls-style receivership.
“Unless the supplemental tax bill is passed in conjunction with significant expenditure cuts, they will initiate some time of intervention immediately,” said Bruce.
On Monday and Tuesday, Fontaine said he met with members of the Woonsocket Teachers Guild, the International Association of Fire Fighters and the International Brotherhood of Police Officers to talk about the possibility of the 10 percent salary cut for the balance of the fiscal year. All, he said, have expressed a willingness to at least talk about the proposal.
“The last thing we want is to see the city go into bankruptcy, so yes, we’re willing to sit down and talk,” said Detective Sgt. John Scully, president of the IBPO. “But unless he gets the supplemental tax bill, there’s no sense in going to the unions because the city is going to go into bankruptcy.”
The Woonsocket Teachers Guild hasn’t said yes or no, but in a press release issued yesterday, union president Jeffrey Partington says teachers shouldn’t, again, have to pay the price for problems that were caused by cuts in state aid to Woonsocket public schools.
“Once again, the problems need to be borne on the back of the teachers and paraprofessionals that have given back so much in the past,” he said. “Once again it is obvious that the State of Rhode Island does not consider Woonsocket students to be a priority.”
Partington called on Governor Lincoln Chafee and Education Commissioner Deborah Gist “to stand up for equity in education and come up with an immediate solution to Woonsocket’s cash flow needs.” He said the state treats Woonsocket students like “second-class citizens,” adding, “I just don’t know what it takes in this state to get any measure of fairness in education funding.”