WOONSOCKET – The Budget Commission on Friday will consider asking the Rhode Island Department of Education for an advance of some $12 million in state aid from fiscal 2014 so the city can meet payrolls in July and satisfy other bills, including a $4.8 million debt service payment.
If approved, this would be the second year in a row that the commission has asked RIDE for an aid advance to ease through a fast-approaching cash crunch. Finance Director Thomas M. Bruce says the window is closing on other options.
One closed a bit tighter Monday when Moody’s Investor’s Service downgraded the city’s bond rating from B2 to B3, making it less likely the needed funds will come in the form of a bank loan. Bruce said the city will continue attempting to borrow from either Webster Bank or BlackRock for a short-term note to make it through the fiscal year, but borrowing from RIDE must be considered as a stopgap strategy for remaining solvent.
“We’ll keep working with Webster Bank and we’ll keep working with BlackRock until we get definite ‘nos,’” said Bruce. “But we need to have this resolution passed.”
Bruce confirmed that the aid request would be considered after the release of the Moody’s report, which says the city is on review for a further downgrade.
The only ratings class below B3 is the C class of ratings, which was attached to Central Falls after the city fell into receivership and filed for Chapter 9 bankruptcy, said Bruce.
State Revenue Director Rosemary Booth Gallogly and city officials have scheduled a conference call with Moody’s today to try to convince the ratings agency that another downgrade is unwarranted, said Bruce.
Moody’s said the review would consider the possibility that the city may default on a $4.8 million debt service payment due July 15 and the likelihood of the commission executing its five-year solvency plan, which will require the successful resolution of ongoing collective bargaining to achieve savings in retiree health and pension benefits.
“Finally,” the Moody’s report says, “the review will consider the likelihood of the appointment of a receiver, which could be a precursor to a Chapter 9 bankruptcy filing.”
Moody’s said the root cause of the downgrade was the erosion of the city’s cash position and the absence of a defined plan to get around it. Bruce said it was tantamount to a rebuke of the city for making too little progress in resolving its financial problems since the last time it borrowed from RIDE.
“What they’re saying is, ‘What have you done?’” he said. “There hasn’t been any marked improvement.”
Unless the city can tap some type of revenue for near-term needs, it will be unable to meet payroll obligations for the first three Fridays in July. On July 5 and 19, employees of both the Woonsocket Education Department and the city would be affected; on July 12, only municipal employees.
“These payrolls represent about $6 million,” said Bruce. “We don’t have money for that, either.”
Days after being seated by the DOR last May, one of the budget commission’s first actions to resolve the city’s short-term cash shortage was to obtain an advance of $12 million in aid to education from RIDE. The money came from what would have normally been RIDE’s allotment to WED during the fourth quarter of the current fiscal year, which virtually guaranteed that the cash hole the commission plugged back then would reopen this fiscal year.
The main reason the city has been able to keep pushing the crash deeper into the calendar year is because some of its largest creditors have agreed to continue providing services without getting paid – at least for a time. They include National Grid, Blue Cross/Blue Shield of Rhode Island and Durham School Services, the student transportation company.
Education Commissioner Deborah Gist reluctantly agreed to the commission’s request last year, saying it was unlikely she would do it a second time. When apprised of the commission’s plans yesterday, RIDE spokesman Elliot Krieger said he’d have no comment at this time.
Part of the cash shortfall is attributable to the General Assembly’s reluctance to pass a $2.5 million supplemental tax bill for the current fiscal year, but not much, according to Bruce. The city could have borrowed some money from a bank earlier against the promised receipt of supplemental tax revenues, but it still wouldn’t have been enough to solve the city’s issue with cash flow, a problem Moody’s calls illiquidity.
The supplemental would have allowed the city to end the current fiscal year with a smaller deficit, but it would not have eliminated the problem with cash flow, which is a different type of budget weakness.
“The supplemental would provide income so our deficit would have been smaller for 2012-2013, but revenue is simply income and shouldn’t be confused with cash flow,” said Bruce.
Even though there are only 18 full days left in the fiscal year, Bruce said it’s not too late for state lawmakers to pass the supplemental tax bill. It’s too late for the bills to be printed up and collect the money during that time window, but Bruce said State Auditor General Dennis Hoyle has granted the city permission to apply the supplemental tax to fiscal 2013 revenues retroactively.
The only hitch is that the supplemental must be due no later than Aug. 15, Bruce said. That means lawmakers could pass the supplemental on the very last day of the 2013 legislative session – which could come in a matter of days – and the city could still apply the tax to the current fiscal year.
Bruce said the city is on track to end the current fiscal year with a deficit in the range of $2.2 million, but there is a bigger problem because deficits have been accumulating year over year for some time. The cumulative deficit is expected to be closer to $9 million, according to Bruce.
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