The House Fiscal Office crunched the numbers on how much state aid Governor Chafee wants to give the cities and towns in his proposed 2013-14 budget: $80.3 million, up from a proposed $71.4 million this year (excluding K-12). That’s a healthy bump, but it’s still way less than municipalities were getting in 2006-07:

In theory the cities and towns could have made up for all the money they lost when the General Assembly axed the car tax reimbursement by immediately hiking drivers’ tax bills, but in practice that probably would have caused a mass revolt, so this was where the rubber met the road when a huge economic downturn collided with a requirement that governments balance their budgets.

In nominal dollars, House Fiscal says lawmakers hiked non-school aid to municipalities from $35 million in 1989-90 to $106 million in 1999-2000 and $202 million in 2004-05, then slashed it to $60 million in 2010-11. What the General Assembly giveth, the General Assembly taketh away.

​Update​: State aid to school districts, on the other hand, has climbed steadily over the past two decades except for a dip during 2008-09 and 2009-10 (with the much-discussed new funding formula taking effect in 2011-12):

The Center on Budget and Policy Priorities, a liberal think tank in Washington that makes sweet charts, is out with a recent report advising states on how they should approach budgeting in this age of austerity.

The center’s Nicholas Johnson summarized the group’s four main recommendations thusly:

• Boost revenues and target investments to strengthen the economy.
• Avoid ineffective strategies and gimmicks that weaken the economy.
• Improve fiscal management.
• Protect the purchasing power of struggling families and children.

Not all of the center’s suggestions involve higher taxes and more spending. ”States can help avert unaffordable tax cuts or program increases by adopting a ‘pay-as-you-go’ (PAYGO) system that requires policymakers to fully offset the cost of proposed tax cuts or spending increases,” Johnson suggests.

With Rhode Island’s budget permanently out of balance, a five-year PAYGO rule – or some other change to emphasize budgeting over a longer time horizon – might be worth considering. It would also be interesting to see what those with different budget philosophies would propose doing now to permanently balance the budget.

On the other hand hand, some of CBPP’s ideas have already been considered and rejected here: There seems to be little appetite among legislative leaders for changing the income tax again to target high-earners. Combined reporting flopped last year. Amazon.com cut off its affiliates rather than pay sales taxes here.

For a different emphasis, try “Tools for Better Budgets” by Josh Barro (now at Forbes).

Regular readers know I write lots of items that use charts, graphs and numbers. That’s not because I’m a big fan of arithmetic – I was actually a terrible math student, as my K-12 teachers will attest – but rather because, as a political reporter, numbers offer an avenue to get past spin.

I know that old line about “damn lies and statistics,” and I realize numbers can be massaged and shaded. But that’s where, hopefully, professional reporting skills come in – and thanks to WPRI 12′s continued investment in local news, I have the time to try and really understand the numbers I’m looking at and find the ones that matter. A political leader can tell us he’s investing in education or cutting spending – but what do the actual audited figures show?

I bring all this up because The Washington Post’s Ezra Klein, who helped create the professional public-policy blogger gig, explained this philosophy simply and nicely in a post today about President Obama’s budget:

I love budgets. And not just because I love tables, charts and appendixes — though, to be clear, I do. I love budgets because they force us to run the numbers, to make trade-offs, to set priorities. The annual budget is, frankly, about as honest as the government ever gets with itself, and with the American people.

Well put.

Update: A reader writes in to argue Klein’s point is actually more valid on the state and local level:

I like Ezra Klein’s quote, but it’s not 100% accurate. Since the federal government can run deficits, the trade-offs aren’t as direct (since the impact of deficits aren’t clearly felt or recognized by the average citizen). When you do it as a state and have to balance the budget, then the trade-offs are much clearer.

By Ted Nesi

PROVIDENCE, R.I. (WPRI) – Rhode Island’s largest public-sector union declared victory Friday in a lawsuit against Pawtucket, just hours before the mayor revealed the city is running an unexpected $2.3 million deficit.

Superior Court Judge Sarah Taft-Carter ruled Jan. 5 that Pawtucket cannot force retired school employees to start sharing the cost of their health insurance premiums because they are entitled to the benefits stipulated in the contract that was in effect when they retired, according to Council 94.

The contract guaranteed all retired school employees age 58 or older family health insurance coverage from Blue Cross & Blue Shield of Rhode Island until they became eligible for Medicare at age 65.

A spokesman for Grebien was not available for comment on the suit. Rhode Island’s municipalities owe $3.5 billion in retiree health benefits to their employees. Providence is awaiting a decision by Taft-Carter in a different suit on whether the city can move retired employees to Medicare when they reach age 65.

(more…)

State lawmakers return to the State House at 4 p.m. Tuesday to kick off the 2012 legislative session. The AP’s David Klepper offered a solid rundown Monday of the big issues on the table.

One headache lawmakers aren’t facing – to their great relief – is a round of midyear budget cuts and tax increases. That’s because, for the second year in a row, the amount of money coming into the state treasury is working out about as they expected last spring when they passed the $7.7 billion budget for 2011-12.

Rhode Island’s state government took in $1.13 billion in revenue from July 1 to Nov. 30, which is $43 million more than the number-crunchers had projected. That gives the state a surplus of 4% for the fiscal year’s first five months. Personal income tax, the state’s top source of revenue, has come in 5.6% above expectations, while sales tax revenue has been basically on target. That’s mainly because the economy hasn’t veered off track.

Rewriting the budget halfway through the fiscal year, by passing what insiders refer to as “a supplemental,” was a painful perennial problem during Governor Carcieri’s second term. The most memorable fight was in 2010, when the House and Senate passed competing supplementals – a rare public dispute between the two chambers that took place shortly after Gordon Fox succeeded Bill Murphy as House speaker.

So far, though, Governor Chafee hasn’t had to sign a supplemental: the last budget passed under Carcieri (which he didn’t sign or veto) stayed balanced, and it looks like this year’s will, too. But that just means the new administration has only had to do one round of cuts and hikes, rather than two: this year’s budget closed a $331 million shortfall and next year’s is facing a $120 million gap.

And of course, each year’s shortfall is on top of the previous year’s. When you add it all up, Rhode Island lawmakers have closed a whopping $2.3 billion in budget deficits since 2007-08, the Center on Budget and Policy Priorities estimates.

Here’s a chart that might give you some sympathy for your mayor or town manager the next time he complains about the General Assembly slashing local aid.

The graph was buried in the House Fiscal Advisory Staff’s report [pdf] on the finance committee’s 2011-12 budget. It shows the amount of aid lawmakers sent cities and towns each year starting in 1997-98:

Local aid topped out at more than $250 million in 2006-07 – the same year employment peaked – and then shrank rapidly, dwindling to about $66 million in the new fiscal year that started in July. That’s a drop of roughly 75%.

The first thing to go was the General Revenue Sharing Program, which ended in 2009-10. Then last year lawmakers stopped reimbursing cities and towns for most of their foregone car tax revenue (listed here as “Excise Tax Phase-Out”). That allotment dropped from $117 million in 2009-10 to $10 million in 2010-11. Local drivers are now making up much of the difference.

The two Republicans vying to challenge Congressman David Cicilline next year are singing different tunes when it comes to House Republicans’ long-shot “Cut, Cap and Balance” plan to reduce the federal deficit.

A spokesman for former state Rep. John Loughlin, who is serving in Iraq, said Loughlin supports “Cut, Cap and Balance,” which passed the House on a party-line vote Tuesday. The bill would cut federal spending by $6 trillion and amend the Constitution to require balanced federal budgets.

“If John Loughlin were here he would support ‘Cut, Cap and Balance,’ ” spokesman Mike Napolitano told WPRI.com in an e-mail. “Spending caps need to be created and there must be a mechanism in place to enforce them.”

“John Loughlin is a fiscal conservative and has been well aware that the United States can’t continue to tax and spend its way to prosperity,” Napolitano said. “We need to stop spending money we don’t have as we are creating a nightmare for our future, as well as the futures of our children and grandchildren.”

Loughlin’s opponent, former State Police Col. Brendan Doherty, isn’t so sure about the strict spending limits “Cut, Cap and Balance” would put in place.

“In theory we need to balance the budget from year to year, but there also needs to be a reasonable mechanism to allow flexibility in the event of a national crisis or serious economic downturn,” Doherty said in a statement sent to WPRI.com.

“The truth is that I am not in Congress right now and don’t have access to all the information that is being considered and debated,” Doherty continued. “What I do know is that we have to work in a bipartisan manner to move this country forward.”

The “Cut, Cap and Balance” plan is unlikely to become law with Democrats controlling the U.S. Senate and President Obama threatening to veto it if the legislation reaches his desk. Nine of the House’s 240 Republicans voted against the bill, as did most Democrats, including Rhode Island’s Cicilline and Jim Langevin.

Related | Loughlin camp not fazed by Doherty’s six-figure quarter (July 14)

The Wall Street Journal caught up with Governor Chafee at the National Governors Association meeting in Salt Lake City to ask him about the fight over the debt ceiling, and – surprise, surprise – he thinks both parties are to blame:

He said the Republican Party had turned surpluses into deficits last decade with a tax cutting “program” that coincided with wars in Iraq and Afghanistan, a new prescription drug benefit that was unpaid for, a new Homeland Security Department whose costs were not offset with other cuts, and “an earmark binge.”

“I say to the Republicans, my former party, you created this economic disaster. You’ve got to be for helping to fix it,” he said. “And right now they’re not.”

To Democrats, Mr. Chafee said a balanced budget amendment would have tempered the GOP and should be considered. He is not convinced federal aid to states like his has been a help, especially in light of the federal deficit.

“I would side with, don’t drive up the deficits,” he said. “Let us fight our way out of it without the stimulus.”

The Washington Post editorial board disagrees with Chafee – the paper called a balanced budget amendment “a bad idea that never dies.” From the sounds of it, the governor is not a Keynesian.

When asked why he robbed banks, Willie Sutton is said to have replied: “That’s where the money is.”

Providence Mayor Angel Taveras would likely offer the same explanation if asked why he’s seeking such big reductions in the police, fire and school department budgets to balance next year’s budget.

With Taveras expected to announce deep cuts in Providence’s police force at a 1 p.m. news conference today, I thought it might be a good time to take a look at how the capital city allocated its $638.5 million budget this year. This comes from the revised February budget; take a look:

So out of a $638.5 million appropriation, Providence spends $308 million on schools, $69 million on police, $63 million on debt payments and $63 million on fire. The remaining $136 million covers everything else – the mayor’s office, parks, libraries, building inspections, public works, retiree health care, and so on.

Taveras’ 2011-12 budget proposal would cut total spending from this year’s level by $21.8 million, or 3.4%, for a total appropriation of $616.7 million, according to a briefing document his office released May 2. The City Council is set to hold hearings on the budget next month, with final passage expected by July 7.

(P.S. Apparently Sutton never actually uttered his famous quotation.)

Update: Make that will lay off cops.

Public Safety Commissioner Steven Paré sent a letter to members of the Providence Police Department today informing them that layoff notices will be delivered within the next week. “This fiscal crisis does not diminish the gratitude we feel for the work you do,” he wrote. “I deeply regret that we could not achieve the savings we needed from the police department in another way.”

Since we’re now on the eve of Providence’s fiscal D-Day (as WRNI’s Scott MacKay aptly put it) I thought I’d take a moment to define two key terms we’ll probably hear about tomorrow: structural deficits versus operating deficits.

It’s an issue I alluded to here earlier today when I wondered why there was such a sizable gap between the City of Providence’s projected structural deficit for 2010-11 of $70 million and its actual projected deficit of $29 million. That’s a $41 million difference – no small chunk of change.

As is often the case with these things, both numbers are accurate. They’re just describing different things.

Let’s take the $70 million first. That’s Providence’s structural deficit. It represents the gap between how much money the city can expect to take in through regular sources like property tax revenue and state aid versus how much money it can expect to spend on personnel and municipal services.

Then there’s the other number: $29 million. That’s Providence’s operating deficit. Once the fiscal year ends June 30, if we added up all the money the city spent during the preceding 12 months and subtracted all the money it brought in, the city would be $29 million in the red.

Why do they differ? “One-time fixes,” to use a phrase offered by Taveras spokesman David Ortiz. Those can include borrowing, selling off property, shifting costs into future years – anything that’s not a standard revenue source you can count on year in and year out the way you can with, say, property tax bills.

(I’m not sure exactly what the breakdown of Providence’s $41 million in one-time fixes for this year is – tomorrow’s report should have the answer to that – but it probably includes that funky $25 million green mortgage plan uncovered by WRNI’s Ian Donnis.)

In a sense, the city’s $70 million structural deficit is just theoretical – since those one-time fixes are indeed real for that one time they happen, they do cut the actual gap between revenue and spending down to $29 million. That is, the $41 million does come from somewhere.

But, by definition, some or all of those one-time fixes won’t be available in future years; therefore, including them when you look at the budget numbers doesn’t give you a true sense of the government’s financial health.

Too wonky for you? Although I’m not a big fan of analogizing government budgeting with household budgeting – they’re quite different animals – it might help in this case.

Let’s say I add up my standard expenses for each month – rent, food, beer, cable, all my recurring costs – and find that I’m spending $300 more than WPRI is going to put in my paychecks. Uh oh – I have a structural deficit in my personal budget.

But then I find out that this month, March, I’m going to get a federal tax refund of $250. Nice! That brings my personal budget deficit for March down to $50 – I have an operating deficit of $50. At that point, I can just borrow $50 from Tim White and then conveniently forget to pay him back – problem solved; deficit closed.

Then April rolls around. My standard monthly expenses are once again going to outrun my pay by $300. But this time there’s no federal refund coming. And Tim’s sore at me for not paying back the $50. I’ve got a problem.

That’s what a structural deficit is – it’s built into the structure of your finances. You can find ways to paper it over during any single budgeting cycle – you can get a $250 federal refund and borrow $50 from Tim to eliminate the operating deficit for one cycle – but the structural deficit doesn’t go away. And it’s not always easy to find one-time fixes – nor is it a very healthy way to go about managing your money.

That, in a stylized sense, is where Providence is now. And the State of Rhode Island is in a similar situation, so you can expect to hear more about all this once Governor Chafee unveils his own budget on Tuesday.

Central Falls’ state-appointed receiver made a splash last week when he suggested the city should merge with neighboring Pawtucket to deal with its financial problems. Critics have questioned how much good that would do, considering neither city is a picture of fiscal health.

That point was underlined yesterday when Fitch dropped Pawtucket’s credit rating two notches, from ‘BBB+’ to ‘BBB-.’ That’s the lowest rating the firm could give without sinking Pawtucket into junk territory, and its official outlook for the city of 73,000 remains negative.

Pawtucket isn’t Central Falls yet, but Fitch’s analysts said its “extremely limited financial flexibility” and chronic deficits raise concerns about whether the bond market will continue to lend the city the money it needs to fund its operations.

The report will make grim reading for Mayor-elect Don Grebien, who will succeed James Doyle next month. The city’s budget reserves have been declining for three years – “primarily” because of state aid cuts, Fitch said – and “future budget balancing appears even more challenging” as both the city government and the school department struggle to hold down spending.

Right now Pawtucket is working with state officials to craft a plan to address the ongoing deficit problems. The city wants to borrow $8 million to finance its deficit without raising taxes further, plus another $6 million next March to fund short-term operations. The city’s budget totaled $277 million in 2008-09.

Then, as always, there’s the pension problem. Pawtucket has only put aside enough money to cover a “very low” 30% of its long-term pension obligations, although steps are being taken to shore up the system. No money has been put aside to cover its “very large” $378 million unfunded liability for other retiree benefits, primarily health care.

The positives Fitch sees are Pawtucket’s low debt levels, its diverse tax base, and the state’s involvement in solving the deficit issue. Its biggest employers are Memorial Hospital, with 1,733 workers; toymaker Hasbro, with 1,511; and Gateway Healthcare, with 800.

On a related note, Central Falls Councilman James Diossa – who has allied himself with the receiver rather than Mayor Charles Moreau – offered a cogent argument against the Pawtucket annexation idea in a Rhode Island’s Future post today:

While Mr. Pfeiffer’s recommendation sounds dramatic, it doesn’t really address the structural issues identified in his comprehensive report, mainly unsustainable personnel costs and reduced revenues, including state aid. At the same time, an annex would only make Pawtucket’s own fiscal crisis much worse. …

The problems in Central Falls were not created overnight and will require more than a quick fix. They will require political will and difficult decisions on the part of local and state leaders who must understand that the Central Falls budget crisis is merely the opening act of a municipal funding crisis that affects all of our state’s cities and towns.

It’s hard to argue with that last point, considering the troubles facing Providence and Lincoln Chafee’s concerns about other places like Woonsocket and West Warwick.

(Photo: Marc Belanger/Wikipedia)