​By Dan McGowan and Ted Nesi

PROVIDENCE, R.I. (WPRI) – The reaction to Gov. Lincoln Chafee’s budget proposal Wednesday night was very different from the response to his first two. Here’s a roundup of reactions from Fox, Paiva Weed, Raimondo, Taveras, Fung, Melo, DaPonte, Newberry and Tanzi.

Read the rest of this story »

• Related: Chafee seeks lower corporate tax rate, more school funding (Jan. 16)

• Overview: No tax hikes in Chafee budget

In March 2011, a newly inaugurated Gov. Lincoln Chafee proposed an ambitious restructuring of Rhode Island’s sales tax to boost revenue. House Speaker Gordon Fox killed the idea just a month later amid a huge outcry.

Last year Chafee tried a different tack, proposing an increase in the meals tax and trying to win support by earmarking the money for education. But the dining industry protested, putting signs on restaurant tables from Woonsocket to Westerly, and lawmakers ignored the governor’s big idea on revenue once again.

Chafee may be stubborn, but he’s not insane: his first two budgets taught him that proposing high-profile tax hikes is political suicide. So the message in Chafee’s proposed 2013-14 budget is unequivocal: read my lips, no new taxes.

“Governor Chafee’s revenue plan was very simple – taxpayers have already shouldered enough of the cost of government, and the delicate recovery we are in today should not be derailed by any tax increases,” the budget document declares. “Therefore, Governor Chafee’s FY 2014 Proposed Budget ​does not​ include ​any​ increases in taxes, fees or charges.” (They underlined it in the original.)

(more…)

There seems to be some confusion about the state of Rhode Island’s unfunded liability for retiree health care.

The shortfalls are $774.8 million for state employees; $80.3 million for state police; $50.6 million for the board of governors; $9.5 million for teachers; $1.8 million for judges; and about $1,000 for the General Assembly. Those numbers come from the latest draft valuation by actuaries Gabriel, Roeder, Smith & Co.

Put it all together and the total unfunded liability for all six groups combined is $916.8 million as of June 30, 2011, up from $822.3 million last time. Again, that’s the state-level shortfall for OPEB (“other post-employment benefits”), which is separate from pensions. (The municipal OPEB shortfall is more than $3 billion.)

• Related: RI taxpayers to pony up $48m for retiree health in 2011 (April 28, 2011)

The national attention on Rhode Island’s fiscal crisis continues. Here’s Mike Cherney reporting for Dow Jones:

Struggling Rhode Island cities and towns faced with looming municipal-bond payment deadlines have received a helping hand from the state government: early payment of $70 million in state aid.

Cash for school construction is usually paid to state municipalities in two largely equal installments, at the end of April and October. But this year, the state sent the April payment one month early, on March 29, officials said, in anticipation of an April 1 deadline for payments on bonds issued to build schools. The payment was accelerated for all municipalities. …

Rhode Island’s move to accelerate the payments isn’t unprecedented, and states are more likely to accelerate such payments in times of fiscal strain, said John Hallacy, head of municipal research at Bank of America Merrill Lynch. However, it is unusual for a state to accelerate payments for all municipalities, as Rhode Island did with school construction aid, he said. …

“It’s one thing to ease a short-term situation, but I think it begs the question about what needs to be done for the longer haul,” Hallacy said. “Traditionally, a lot of folks were relying on economic recovery, and in the past it’s been a lot faster than it’s been developing now. And this has just made everybody so much more stressed.”

A bill in Governor Chafee’s proposed municipal aid package [pdf] would change when education aid is delivered. Basic education aid is currently handed out monthly; Chafee would distribute more cash would be front-loaded in July and August. School construction aid would be delivered as one lump sump in August.

• Related: RIPEC: Bankruptcy perilous for cities; pass Chafee’s bills first (April 2)

The Federal Highway Administration has rejected the Chafee administration’s application to place tolls on Interstate 95 near the Connecticut border, a state spokeswoman said Friday.

The FHWA gave North Carolina the third of three slots in a pilot program to allow tolling on existing highways, R.I. Department of Transportation spokeswoman Dana Nolfe told WPRI.com.

Nolfe emphasized that the state is not giving up on the possibility of getting approval to toll I-95. “It just means that this program is complete and North Carolia has the third opportunity,” she said. Nolfe suggested the federal highway bill currently debated in Congress could include new “opportunities” for states to do so.

Update: RIDOT Director Michael Lewis emphasized that the federal government choose North Carolina for this slot but didn’t make any decision on Rhode Island’s push for tolls more generally, and the state will still move forward with environmental studies in preparation for the installation of tollbooths.

Read the rest of this story »

• Related: Rhode Island asks to put tolls on I-95 near Conn. (Aug. 17)

Rhode Island PBS’s chief says he was shocked to learn of Governor Chafee’s proposal to cut off Channel 36′s state funding, which makes up about a third of its $3 million budget.

“If this is a policy plan that the governor wants to put forth then I think we should probably put together a policy plan rather than just cutting us off at the knees and telling us to go do it,” David Piccerelli, president and CEO of RI PBS, told WPRI.com. He plans to urge lawmakers to protect state funding for WSBE-TV.

“We’re bare bones as it is right now,” Piccerelli said. “I mean, we’d look at doing things differently, possibly laying off individuals. I’m not exactly sure how it would all model out, but it’s obviously something I’m going to have to look at and prepare for.”

Chafee spokeswoman Christine Hunsinger defended the governor’s proposal, telling WPRI.com “tough times require touch choices.” Rhode Island PBS is running a $90,000 operating deficit for this fiscal year.

(more…)

In 2011, Governor Chafee proposed a state budget that was big and bold. It flopped with lawmakers.

Lesson learned: Chafee’s 2012-13 budget is less big and bold, more modest and managerial. Beyond targeted spending on his top priorities – notably more than $38 million for education – his vision is a relatively austere $7.9 billion tax-and-spending plan for a state that’s spent five long years in the economic doldrums.

Last year’s budget debate left Chafee looking ineffective and out of touch with the mood on and off Smith Hill. This is a humbler document after a year atop state government. The governor still thinks broadening and lowering the sales tax is a good idea, for example. But lawmakers aren’t interested, and he left it out. There’s no combined reporting or other major shift in business taxation.

The initial focus will likely be on Chafee’s $93 million in tax and fee increases. While far less sweeping than his doomed sales tax overhaul, there’s still plenty for critics to seize on: a two-cent rise in the meals tax to pay for the education increase will draw howls, as will the expansion of the tax base to cover pricey clothes, limo rides, small cigars, bed-and-breakfasts and vacation homes.

(more…)

Annemarie Beardsworth, the R.I. Department of Health’s well-respected public information officer, revealed Friday that she’s moving to take the same job at the R.I. Emergency Management Agency starting next week.

The news came as a bit of a surprise, because RIEMA’s previous spokesman – former radio personality Steve Kass – lost the job last August after the General Assembly eliminated funding for the position. What happened?

“We didn’t fill a position that doesn’t exist,” Christine Hunsinger, a spokeswoman for Governor Chafee, told WPRI.com. “She’s temporarily reassigned to the agency to fulfill a need while the organization undergoes evaluation.”

Technically, Beardsworth will remain a Health Department employee even though she’ll now be assigned to RIEMA – a necessity, Hunsinger argued, with the winter storm season upon us. ”The EMA and the governor’s office have never been shy about the need still being there” for an RIEMA spokesman, she said.

Another Health Department employee, Robert Marshall, will be filling in as interim public information officer in Beardsworth’s absence.

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.

By Tim White

PROVIDENCE, R.I. (WPRI) – Gov. Lincoln Chafee said Monday his administration is likely to appoint a budget commission shortly to oversee East Providence’s troubled finances.

The governor told WPRI 12 his administration is “very close” to making a decision about increasing its oversight of the city, which required the state’s backing last week in order to borrow $10 million from a major bank and avoid running out of cash. The city wants to borrow $20 million more next month.

“I think it’s a logical next progression to make better headway with our finances in East Providence,” Chafee said of a budget commission, adding that the question of whether to appoint one “is being discussed as we talk,” though there was “no definitive answer” as of early afternoon.

On Nov. 14, the Chafee administration named R.I. State Police Maj. Stephen Bannon as the city’s fiscal overseer, the least serious of three steps it can take to intervene in a city’s finances under the 2010 Fiscal Stability Act. The next step is a budget commission. The third step is a receiver, the role Robert Flanders holds in Central Falls.

More details from Chafee’s exclusive interview with WPRI 12 will air at 6 p.m. Monday.

• Related: Growing crisis in East Prov.; RI’s help required to borrow $10M (Dec. 16)

Ted Nesi contributed to this report.

By Ted Nesi

EAST PROVIDENCE, R.I. (WPRI) – The growing financial crisis in East Providence took a worrying turn this week as a credit rating downgrade forced the city to get the state’s help to borrow money and avoid running out of cash.

The city closed a deal Thursday with a major unidentified bank to borrow $10 million in tax-anticipation notes, Peter Graczykowski, who took over as East Providence’s city manager in October, told WPRI.com.

But R.I. Department of Revenue Director Rosemary Booth Gallogly, the Chafee administration’s point person on troubled municipalities, said East Providence wouldn’t have been able to secure the cash without the state government’s backing.

The city would have run of money by mid-month without the $10 million, according to Moody’s Investors Service, which downgraded East Providence’s credit rating to junk status Monday and said “it is not clear that the city will continue to benefit from access to the capital markets necessary … to finance government operations.”

Read the rest of this story »

• Related: Chafee taps state police’s Bannon to oversee East Prov. budget (Nov. 14)

Woonsocket isn’t joining Central Falls and East Providence by getting state oversight of its finances quite yet.

The Chafee administration isn’t preparing to appoint a fiscal overseer in Woonsocket “at this time,” spokeswoman Christine Hunsinger told WPRI.com. But R.I. Department of Revenue Director Rosemary Booth Gallogly and her staff are “monitoring the situation closely,” she said.

The Woonsocket Public Schools ended the fiscal year on June 30 with a $2.7 million deficit despite rules requiring the city to run a balanced budget, Woonsocket Patch reported Tuesday.

Gallogly appointed State Police Maj. Stephen Bannon on Nov. 14 as East Providence’s fiscal overseer, the first of three potential steps the state can take to intervene in a city’s finances under the 2010 Fiscal Stability Act. Central Falls, which filed for bankruptcy in August, is the only other municipality that’s under the law’s control.

Woonsocket is doing “anything and everything to avoid a state intervention,” Mayor Leo Fontaine told WPRI 12 last month.

• Related: Chafee taps trooper to oversee East Providence’s budget (Nov. 14)

By Ted Nesi

EAST PROVIDENCE, R.I. (WPRI) – The Chafee administration will likely make an announcement Monday regarding East Providence’s troubled finances, just days after Bradley Hospital issued the city an ultimatum for $4.6 million in unpaid bills.

“The Department of Revenue will probably have a statement on Monday” about East Providence, Chafee spokeswoman Christine Hunsinger told WPRI.com. She declined to offer further details.

East Providence ended its fiscal year on Oct. 31 with a $7.2 million deficit, and its deadline for giving the state a viable budget-balancing plan came and went on Thursday.

Department of Revenue Director Rosemary Booth Gallogly is likely to appoint a fiscal overseer, the first of the three potential steps the state can take to intervene in a community’s finances under the 2010 Fiscal Stability Act.

(more…)

One of Governor Chafee’s cabinet members will speak at a congressional hearing in Washington later this week.

Charles Fogarty, director of the R.I. Department of Labor and Training, is scheduled to testify before the Senate Finance Committee on Thursday at 10 a.m. The topic is “Unemployment Insurance: The Path Back to Work.”

While U.S. Sens. Jack Reed and Sheldon Whitehouse are not members of the finance committee, they have been active in the ongoing debate over extended jobless benefits. Reed introduced a bill last week that would continue federal programs to help the unemployed that are currently set to expire on Dec. 31.

Fogarty was Rhode Island’s lieutenant governor from 1999 to 2007 and narrowly lost the 2006 race for governor as the Democratic candidate against incumbent Don Carcieri. In an interview last month, Fogarty said taking the helm at DLT for Chafee had opened his eyes to the depths of Rhode Island’s jobs crisis.

“I was aware we had a problem, but when you’re in this job and it’s what you focus on every day, the problem becomes very personal in a way,” Fogarty told WPRI.com. “When you do that on a daily basis, you realize how tough it is.”

The Chafee administration has made repairing the DMV a key priority – something that could pay dividends in the next election if Massachusetts is any indication. The governor proudly told me last week that their efforts have already cut some waiting times from roughly five hours to an hour-and-a-half.

“I just believe … if we can fix the DMV, if we can fix Central Falls, if we can fix the pensions, if we can get the Knowledge District at least on the move … then the allies will come,” Chafee told me. “Just do a good job and fix things and focus on big, long-term goals … that all plays into what people want out of government.”

Chafee’s interim DMV director – Lisa Holley, who is also the state police’s lawyer – is looking outside its new Cranston headquarters for help, too, my colleague Nneka Nwosu reported tonight:

The fallout from our Target 12 revelation of the Chafee administration’s proposal to toll I-95 continues, as the largest papers in Rhode Island and Connecticut offered very different editorials on the idea this week.

On Monday, the Hartford Courant – the biggest paper in the Nutmeg State – criticized Governor Chafee for failing to reach out to officials in Connecticut before RIDOT submitted its request to the feds:

[T]here’s something inequitable about soaking Connecticut and New York drivers coming into Rhode Island but not Rhode Island drivers heading into Massachusetts. Why no toll plaza at the other end of the state?

Both the states and federal government need stronger revenue streams to pay for roads, bridges and transit. … Congress should, if it ever approves a new transportation funding bill, allow a fair system of interstate tolling, preferably electronic tolling.

Meanwhile, there’s I-95. Connecticut could counter Rhode Island’s gambit by requesting a toll plaza on its side of the border. Then we could fight about it in court for years and never get anywhere. Or we could work together and perhaps develop something — a tolled express lane, tolls on bridges within each state — that would be mutually beneficial.

Closer to home, the Projo’s editorial board – which isn’t exactly known for its vocal support of the governor – offered a different take Monday, saying Chafee’s proposal “makes sense” in a piece headlined “Put tolls on Route 95″:

Not only would tolls help address the abysmal condition of Rhode Island’s transportation infrastructure, they would save money by reducing the state’s bad tradition of borrowing to pay for transportation-infrastructure maintenance rather than via the far more fiscally responsible pay-as-you-go system. …

Obviously a lure of putting the toll booths on Route 95 is that it would collect revenue from the many out-of-state travelers going up the East Coast’s most important highway. Thus, those travelers would be asked to contribute more directly to the upkeep of the Rhode Island roads and bridges that they help wear out — as many other states do. User fees have always struck us as a generally fair way to tax.

Why only at the Connecticut end of Rhode Island’s Route 95 stretch? Because putting them in a relatively open, exurban area like South County would be far less disruptive and expensive than in a dense, urban place such as at the Pawtucket-Attleboro line.

As for the fears of those who live near the proposed tolls: Transponders could be used to give significant discounts to locals and others who must commute daily. …

No one wants to pay tolls, but the state’s plan is an appropriate way to address its very serious infrastructure problems.

No word on how long it will be before federal officials get back to RIDOT with their response.

[h/t: Dave Scharfenberg]

(map: RIDOT)

When Tim White and I were working on the I-95 tolls story yesterday, one of the questions we didn’t have time to answer before the broadcast was whether state lawmakers from Southern Rhode Island had been consulted by the leaders of their respective chambers before Speaker Fox and Senate President Paiva Weed signed a letter supporting the proposal.

Now we have our answer. Rep. Brian Kennedy, a Hopkinton Democrat, sent a blistering two-page letter to R.I. Transportation Director Michael Lewis on Thursday that said it was “shocking” and “quite disappointing” that he learned about the proposed tolls in his hometown from our WPRI 12 report rather than RIDOT.

Kennedy also took issue with RIDOT’s decision to only propose tolls near the Connecticut border, which the department argued is “the most feasible action to prevent toll avoidance and to gain public acceptance.” The lawmaker said drivers should be tolled near the Massachusetts border, too, if they’re going to be at all.

“The Department of Transportation has not been known for moving quickly on road projects in our state,” Kennedy added, “thus I am amazed by the lightning speed and stealth approach that you’ve demonstrated in your impulsive action of singling out the Town of Hopkinton to be the host location for toll booths to raise revenues for road repairs.”

The proposed tolls could raise roughly $40 million a year if the Pell bridge rates are used and the volume of traffic stays the same, Lewis said Thursday on “The WPRO Morning News with Tara Granahan & Andrew Gobeil.” That would be enough to let the state stop borrowing its matching funds for federal highway money.

One of the more interesting ideas in Governor Chafee’s first budget was RIDOT’s proposal to add tolls to I-95 – though it wasn’t necessarily a surprise, considering Rhode Island’s long-running struggle to find enough money to pay for transportation costs.

U.S. Transportation Secretary Ray LaHood was less than enthusiastic about the idea when we interviewed him last spring. But RIDOT’s Mike Lewis wasn’t dissuaded, saying Rhode Island might be able to get one of a small number of exemptions from the rules that don’t allow states to toll existing federally funded roads.

Now tolls on I-95 are one step closer to becoming a reality in Rhode Island, Tim White and I report in a new WPRI.com story:

The Chafee administration has asked for permission to start charging drivers a toll on Interstate 95 near the Connecticut border, the Target 12 Investigators have learned.

The R.I. Department of Transportation filed an application in June asking the federal government to approve the installation of tollbooths between Exits 1 and 2 on both sides of I-95 in Hopkinton. No tolls are proposed at the Massachusetts border.

“The proposed location is considered the most feasible location to prevent toll avoidance and to gain public acceptance,” RIDOT said in the application, which Target 12 obtained this week. The documents don’t say how much the toll would be.

RIDOT said money is needed to pay for two large projects – replacing the decaying Providence Viaduct bridge that carries I-95 next to Providence Place mall and rebuilding the I-95/Route 4 interchange near Quonset Business Park – as well as ongoing maintenance projects along the 67 miles of I-95 and I-295 in Rhode Island.

Gov. Lincoln Chafee, House Speaker Gordon Fox and Senate President M. Teresa Paiva Weed all signed a letter on June 15 supporting the proposal to put on toll plazas the state’s main roadway.

Click here for the full article, which has much more, including Governor Chafee’s take and details on the state’s case for allowing tolls. The map at right is part of in the application.

Also, props to national outlets Stateline and The Huffington Post for their informative coverage of the proposal.

(map: R.I. Department of Transportation)

Nesi’s Nightcap will return on Thursday.

Director of Administration Richard Licht won’t like it, but the big headline out of Wednesday’s third meeting of the Chafee-Raimondo pension advisory group was undoubtedly actuary Joe Newton’s suggestion that the state may need to suspend cost-of-living increases for 15 years to get the pension system 80% funded.

“Wait, what are you doing?” a man called out from the back of the room after Newton showed a slide containing that idea.

True, that was just one piece of a proposal by Newton that would also re-amortize the state’s $7.3 billion unfunded pension liability over 25 years; reduce benefits not yet earned; and require taxpayers to continue making large annual deposits into the pension fund, among other things. But the COLA freeze was a dramatic demonstration of what painful choices Governor Chafee, Treasurer Raimondo and the General Assembly face over the next two months.

The advisory group has one meeting left – on Sept. 12 – and won’t be producing a final report or taking a vote on any specific recommendations. Here are some other highlights from today’s jam-packed meeting:

• The mood today seemed more tense than at the first two meetings. There were signs on trees outside East Providence’s Weaver Library that said: “Keep the promise. We did.” The room was full of attendees, many of them retirees, and there were a few outbursts despite a ban on comments or questions from the public. Council 94′s Mike Downey expressed disappointment that the voices of average state workers haven’t been heard much.

• An asset infusion, a preferred policy of NEARI’s Bob Walsh, looks less likely after First Southwest banker Maureen Gurghigian poured cold water on the idea of giving the pension fund T.F. Green Airport, the Lottery, the Convention Center or Twin River. Walsh told me after the meeting the one idea that survives is the potential of pledging the state’s future income from an expanded Twin River to the pension fund instead of the budget.

• A hybrid plan, which would combine a limited defined-benefit pension with a 401(k)-style defined-contribution account, was discussed by BC’s Alicia Munnell. She suggested a “stacked” plan, which would guarantee a pension benefit of up to $50,000 but switch to a defined-contribution for income above that. She said both are needed because individuals are bad at managing 401(k)-type accounts; Cranston Mayor Allan Fung responded that governments are bad at funding pension plans adequately.

• The value of a pension is significant, Newton’s presentation showed. Under the current system, for a 36-year-old new hire starting out at $34,000 a year, about $284,536 will be contributed to the pension fund on his behalf (out of his own paycheck and by the state). If he retires at age 65, he could get $2 million out of the fund.

• Not everyone in state government wants a pension. HR reps have told the group the option isn’t particularly appetizing to IT professionals and attorneys, which makes it harder to recruit them. If they worked for the state for eight years, all they’d get at the end of that time is an interest-free check for their pension contributions, since they’re not eligible for one.

• Massachusetts’ cost-of-living adjustments are much less generous than Rhode Island’s. The Bay State indexes only the first $12,000 of a pension to inflation and caps the annual increase at $360. For newer pensions, Rhode Island indexes the first $35,000 of a pension based on the CPI and caps it at 3%.

• Locally-run pension plans like Providence’s and Coventry’s are a real concern and seem unlikely to be addressed comprehensively by this group. But former Auditor General Ernest Almonte characterized them as a ticking time bomb that must be dealt with to avoid more situations like Central Falls. He said no local pension plan should be more generous than the state’s, and they should all be run out of the treasurer’s office (as many already are). But what to do about the huge funding shortfalls those plans have already built up?

• Richard Licht, Governor Chafee’s director of administration and a panel member, is very engaged in the discussions and clearly listening closely. The governor will probably pay close attention to Licht as he weighs what changes to propose, just as Treasurer Raimondo is likely to listen to Deputy Treasurer Mark Dingley. But aides say the two elected officials will make the final calls about what to include in their draft legislation.

• There is one thing the governor, the treasurer, the House speaker, the Senate president and every member of the General Assembly all agree on when it comes to pension reform, Licht said: “They don’t want to be discussing this again.”

More pension coverage on Nesi’s Notes:

• Can RI officials fix the pension problem before Halloween? (Aug. 1)
• Rhode Island’s problem isn’t ‘free’ pensions, it’s hidden ones (July 14)
• Pension group must help RI atone for the sins of the past (June 28)
• Where’s the bump? How RI’s pension system has changed (June 2)
• Could this be the year for a grand compromise on pensions? (May 23)

(photo: Ted Nesi/WPRI)

An earlier version of this post gave an incorrect title for Deputy Treasurer Mark Dingley.

Powerbrokers, gathered at Brown

For a day, at least, it didn’t seem crazy to be optimistic about Rhode Island’s economic prospects.

A who’s who of the state’s political, business and nonprofit leaders gathered midday Monday to witness the opening of Brown University’s $45 million new medical school building in the heart of the Jewelry District. The former Nemo jewelry factory on Richmond Street is now a state-of-the-art marvel; each future doctor is equipped with an iPad, and there are no books in its library.

Two hours after the Brown ribbon-cutting, a surprisingly large number of movers and shakers – again including Gov. Lincoln Chafee and Providence Mayor Angel Taveras – crowded into the mayor’s office to see Jim Bennett, a businessman and former gubernatorial candidate, introduced as the capital city’s new economic development director.

Despite year after year of double-digit unemployment and growing fears of another recession, the mood at both events was bullish and buoyant. And perhaps for good reason. As often as we talk about the game-changing possibilities for the land freed up by moving I-195, it was eye-opening – and exhilarating – to look out from the upper floors of Brown’s new building and take in the potential of those 41-plus acres.

Then again, Rhode Island has always had potential. What it hasn’t always had are leaders wise enough and shrewd enough to harness that potential for the greater good. Ian Donnis summed it up well a few years ago when he reviewed years of efforts at organized economic development: “Can’t anybody here play this game?”

That makes the redevelopment of the 195 land a true test of Rhode Island’s elite. It gives this generation of local leaders a nearly blank slate they can use to put their stamp on Providence, which is why Chafee called this “a catalytic moment” in the state’s history. They have a chance to position the city and the state to thrive for decades, and a powerful new commission to get it done. Are they up to the job?

One factor that could help is that the state’s political leaders seem to be on the same page. Brown President Ruth Simmons got a round of applause when she said “I thank God” for the state’s four-man congressional delegation, all of whom attended today’s ceremony. They are dogged in their pursuit of federal funds for their home state, and U.S. Sen. Jack Reed’s position on the Senate Appropriations Committee is key on that score.

Chafee and Taveras also have a good working relationship – they sat next to each other at Brown, and Bennett stood between them when he was introduced – as do their respective administrations. That kind of cooperation and coordination is vital in a tiny place like Rhode Island, which is economically a city-state centered around Providence. Bennett, who owned a business in Warwick and was active in Republican politics, already knows Chafee and his team and was tapped by the new governor to oversee the convention center.

Bennett’s remarks were energetic, if light on specifics. He cast himself as a salesman for the city, a roving economic ambassador who’s job is to sell the private sector on Providence and bring together the right people, and emphasized the development of the port (“200 miles closer to Europe than any other eastern port”) and changes to zoning rules. But Bennett will face fierce headwinds from a sputtering national economy and the city’s financial mess, including its woefully underfunded pension system – Taveras’ next big priority.

The medical school will be an important anchor for the Jewelry District (now dubbed “the Knowledge District”). It’s already surrounded by biomedical companies with ties to the university, including NABsys and Isis Biopolymer, and it could eventually have a fitting neighbor in URI’s planned nursing school. A group of first-year medical students, who started classes today, said they were excited to finally have a real campus after 37 years.

“Providence is on its way back, and so is Rhode Island,” Mayor Taveras said this afternoon. Let’s hope so.

Tim White contributed reporting. Nesi’s Nightcap will return on Tuesday.

(photo: Ted Nesi/WPRI)

There’s a shakeup in the $100K Club.

Mike Trainor, who lost his job as Governor Chafee’s director of communications last week, is taking a significant pay cut as he moves to a new job in the Office of Higher Education, WPRI.com has learned. Trainor’s salary at the new job will be a third lower than his old one, cutting his pay from $137,604 to $88,177.

But that doesn’t mean a windfall for Trainor’s replacement, Christine Hunsinger. Chafee’s new director of communications will continue to earn $75,153, the same amount she was getting in her previous role as director of legislative affairs, she said.

The one winner in the reorganization is Brian Daniels, Chafee’s director of policy. Daniels’ salary is rising from $97,162 to $110,000 as he adds Hunsinger’s old legislative affairs job to his portfolio.

Christian Vareika, who was Trainor’s deputy and is staying on with Hunsinger, is not getting a raise or a change of title “at this time,” Hunsinger said. He earns $45,043.

Christine Hunsinger

Governor Chafee made some key changes to his team this morning, in a sign the administration is rejiggering its approach to outreach after a sometimes difficult first eight months.

The big news is the departure of Mike Trainor, who became Chafee’s director of communications and top spokesman after serving as his campaign manager last fall. Trainor, who has been on vacation since last week, is moving over to the Office of Higher Education’s communications shop.

It’s no secret Chafee’s team has sometimes struggled with messaging in its early months, starting with the talk-radio ban. At times the governor was MIA during major policy debates this spring, and his hallmark sales tax proposal went down in flames in the face of nearly unanimous opposition led by the Projo. The independent is often overshadowed by Treasurer Gina Raimondo and Providence Mayor Angel Taveras, two new faces.

At the same time, it would be unfair to pin the blame for all that on Trainor alone. The governor’s vaunted candor doesn’t always make his job easier, and there’s only so much a communications team can do in support of an unpopular policy. But in politics, somebody has to take the fall.

Christine Hunsinger, who was the Moderate Party’s executive director and a key aide to its gubernatorial candidate Ken Block last year, is taking over Trainor’s job. She had been Chafee’s director of legislative affairs, and has a bachelor’s from Saint Anselm and a master’s from Brown.

Christian Vareika, who had been Trainor’s deputy, will play the same role with Hunsinger, while Brian Daniels, Chafee’s smart director of policy, will add Hunsinger’s old legislative affairs job to his portfolio.

“We’re about six months into the administration, post-legislative session, and did a standard customary staff review,” Pat Rogers, the governor’s chief of staff, told WPRI.com. “The governor thought we’d make some adjustments heading into the fall.”

No other major changes to Chafee’s staff are planned at this time, Rogers said.

Rogers said Chafee is confident with his remaining staff, which also includes adviser Stephen Hourahan, a communications specialist himself. ”The governor is pleased with his communications department and thinks that adding Christine to it is going to be good and is going to position him well for the fall,” he said.

Update: I reached Trainor by phone and asked if he was upset or felt he had been pushed out, and he said: “Not at all. No.”

“I’m looking forward to working with the Board of Governors and I’m very delighted at the transition,” he said.

(photo: Facebook)

Rhode Island’s pension problem has been building up for 75 years, but state leaders are hoping they’ll be finished fixing it just three months from now.

The aggressiveness of the pension timeline raises questions about whether it’s truly feasible. But officials maintain they are committed to the tight schedule put forward by General Treasurer Gina Raimondo and backed by Gov. Lincoln Chafee, House Speaker Gordon Fox and Senate President M. Teresa Paiva Weed.

“Nothing like a good deadline,” Chafee said during a taping of WPRI 12′s “Newsmakers” last week.

The 12-member pension advisory group Chafee and Raimondo appointed in May began meeting publicly June 27, though much of its work is taking place behind the scenes. The panel’s final meeting is tentatively scheduled for Sept. 12, after which the group is supposed to present recommendations to the governor and treasurer.

Once the advisory group finishes its work, Chafee and Raimondo say their offices will weigh its ideas and write actual legislation for stabilizing Rhode Island’s pension system. That will likely mean a mix of changes, possibly including a reduction in benefits and “re-amortization” of the state’s liabilities.

With Fox and Paiva Weed planning to bring back lawmakers in October, however, that leaves limited time between the end of the advisory group’s work and the special session. Will Chafee and Raimondo have enough time to craft their legislation? And when will the finance committees meet to vet it?

“We’re going to make it work,” Raimondo spokeswoman Joy Fox said. “The treasurer’s office is committed to submitting the proposal come the fall. In terms of the exact dates, we’re still working out those details.”

“It will be tight, but we definitely feel we can get the work done,” House spokesman Larry Berman said. “It can be done. We’re confident it will be.”

Raimondo met separately with Paiva Weed and Fox last week to start putting together a road map. They will continue to hold regularly scheduled meetings throughout the summer, Joy Fox said.

Speaker Fox wants the House and Senate finance committees to hold multiple public hearings on the pension issue before the full chambers reconvene, and they don’t need to wait until the full legislation is finished to do so, Berman said.

The speaker “feels this is a complex issue, and he wants everybody to have the opportunity to be heard and come testify, because this is an emotional issue that affects a lot of people,” Berman said. “We assume that retirees will want to come and talk about it, labor, average citizens.”

The committees hope to receive actuarial information from the treasurer’s office next month, and they could hold their first hearings even before the last advisory group meeting on Sept. 12, Berman said. The full House and Senate would reconvene in mid-October, after Columbus Day.

“There’s a lot of logistics to be worked on but everybody’s on the same page as far as moving forward,” he said. The speaker is “more confident than he was last week that it’s all going to get done by late October.”

WPRI 12′s Tim White contributed to this report.

What is Judge Flanders going to tell us Monday morning?

That’s the question everyone is asking this afternoon after most of Central Falls’ retirees failed to agree to the reductions in their pensions proposed by Flanders, the city’s state-appointed receiver.

Flanders is now “deciding upon the best possible course of action to put the City of Central Falls on solid financial footing,” according to a statement issued earlier today. “An announcement is expected Monday morning.”

That announcement will presumably take the form of a press conference in the cash-strapped city. The Chafee administration has put in place a news blackout until then, and spokesman Christian Vareika declined to break it when I called him. “We expect speculation,” he said.

You don’t need a crystal ball to know most of that speculation revolves around whether Flanders plans to pull the trigger and have Central Falls file for Chapter 9 bankruptcy early Monday. Governor Chafee briefed lawmakers about the situation on Thursday, the Projo’s Kathy Gregg reports.

Bankruptcy would help by giving the city more leeway in renegotiating contracts, but a Chapter 9 filing could also do further damage to the state’s image, Chafee said Tuesday during a taping of WPRI 12′s “Newsmakers.”

“So we’re trying to balance those two interests – what we can achieve in the laws of bankruptcy, with the perception of who is next and what bad things might flow from a bankruptcy in Central Falls,” the governor said. “We’re trying to balance those and avoid bankruptcy if we can.”

“It’s a high priority for the administration,” he added.

After the meeting with retirees earlier this month, Flanders emphasized that bankruptcy would be all but inevitable if he did not get most of them to agree to pension concessions. “If a substantial number say no, then bankruptcy becomes a much more likely option,” he said. “Then it’ll be up to the bankruptcy judge.”

Asked if there was another way to avoid Chapter 9 without the pension concessions, Flanders replied: “I don’t know of one right now.”

Not that Flanders has ever minced words about the situation in Central Falls.

Last month, he told me bankruptcy was “more likely than not” and that a decision would be made “certainly no later than the end of August … and perhaps much sooner.” In May, he said “the bankruptcy option looms much larger” unless state lawmakers provided a bailout (which they didn’t) or workers and retirees agreed to major concessions.

That doesn’t mean a bankruptcy filing is a certainty come Monday. Deadlines have a way of clarifying things in people’s minds, and sometimes a deal gets reached that wouldn’t have been possibly until the eleventh hour. And Flanders could decide Chapter 9 still isn’t the best solution there. But a filing does seem more likely than not.

If Central Falls does file for bankruptcy – which happens in federal court, not state court – the judge for the case will be appointed by Chief Judge Sandra Lynch of the 1st U.S. Circuit Court of Appeals in Boston, according to Flanders’ office. It won’t necessarily be Judge Arthur Votolato, the U.S. Bankruptcy Court judge for the District of Rhode Island.

For more on what would happen next, read my May Q&A with Chapter 9 attorney James Spiotto. “It is not a pleasurable experience,” he said. “It’s difficult and hard, and it’s stressful for everyone.” It’s also expensive – Vallejo, Calif., has spent more than $10 million since filing for Chapter 9 in 2008 and is still trying to get out.

More coverage of the Central Falls crisis on Nesi’s Notes:

• More than half of Central Falls pensions worth under $30K (July 21)
• Why Central Falls owes its retirees $80 million in benefits (July 19)
• What Chapter 9 bankruptcy would mean for Central Falls (May 11)
• Justice Flaherty rewrites history in Central Falls (March 31)

The pension advisory group sure has its work cut out for it.

Governor Chafee and Treasurer Raimondo’s 12-member volunteer panel met for the first time Monday for introductions, an overview of the problem, and a discussion of how the process will proceed.

It’s a formidable group. Alicia Munnell is a nationally known recognized expert on retirement issues. Harry Wilson oversaw the restructuring of General Motors for President Obama. Richard Licht, Bob Walsh and Mike Downey are political heavy hitters. Ernie Almonte and the General Assembly’s two fiscal advisors are trusted on numbers. And on and on.

They dove right into the weeds within an hour of the meeting’s start, too. How much of an employee’s pre-retirement income should a pension replace? 30%? 80%? 100%? More for lower-income workers? What the right “normal cost”? How about the legal questions? And how do you deal with the underfunding when most of it represents future benefits for retirees and veteran workers, who are harder to touch?

The group will need all its intellectual firepower to achieve the goal set out for it by RISD Professor Bill Foulkes, who’s leading its work. Their last meeting is scheduled for late September, about three months from now; by then, they are supposed to send Chafee and Raimondo a “final list of prioritized solutions” to the pension problem so the two of them can then write formal legislation for the General Assembly to take up this fall.

Foulkes may also find it challenging to corral the stronger personalities among the 12, though that would make having everyone on board for the final product an even bigger achievement. ”It’s a really complicated problem, but there’s only a finite set of solutions,” he said.

One thing Chafee and Raimondo have in common is their catch-more-flies-with-honey strategy. The treasurer bent over backward again Monday to praise everyone for agreeing to tackle this issue – she called the General Assembly’s fall special session “an extraordinary step” – and expressed concern about how any reforms will impact state employees who played by the rules.

“I was here as a state senator in the ’70s, probably causing the problem,” joked Director of Administration Richard Licht at one point. Raimondo smiled and shot back: “We’re not placing blame.” More seriously, Licht argued the support of two general officers, both General Assembly leaders and organized labor bodes well.

There’s a philosophical debate here, too. Raimondo has made retirement security a core part of her pension reform approach – meaning the final product has to provide a reasonable retirement benefit, however that gets defined. She wants to cut into the unfunded liability with a scalpel, not a chainsaw. And Munnell said she doubts retirement security can be provided by a system that expects workers to save on their own, because they won’t. “I don’t think the private sector is what we want to emulate,” she said.

A lot of people have pointed out that this is hardly the first time a high-powered group has gathered to fix Rhode Island’s pension system. (Chafee recalled two previous attempts, quoting a 2005 Projo article that began: “This appears to be the year for pension reform.”) Can this group find a way forward that the others didn’t, something politically achievable and financially sound, by September?

That said, the 12 don’t have to reach a consensus. In the end, Raimondo said after the meeting, it will be up to her and Governor Chafee to figure out what conclusions to draw from the group’s work and what proposal to put forward for lawmakers to consider.

(photo: Ted Nesi/WPRI)

If you’re like me, you probably feel more confused about the House Finance Committee budget the more you read about it.

It cuts more than Chafee but spends more than him, too? It eliminates most of his revenue programs but winds up with more money anyway? It slices, dices and chops?

I’m not going to claim to have mastered it all, but I thought I’d set out a few facts that I’ve gleaned from all the documents being released. This list isn’t complete or comprehensive, but here we go.

The House’s budget spends more than Chafee. You wouldn’t know it from the soundbites, but the House Finance Committee calls for the state to spend more money in 2011-12 than the governor did. The House budget totals $7.702 billion; Chafee’s totaled $7.661 billion. Small difference – $41 million – but there it is.

The House starts off with $108 million more than Chafee. That’s because the House expects to finish this budget year with a $58 million surplus, while Chafee expected only $16 million, and also  expects next year’s tax revenue to come in $67 million above the amount Chafee did. That extra money alone would cover one-third of the highest deficit projection we’d heard, which was $331 million.

The House raises a lot less new *state* revenue than Chafee. Taxes and fees in Rhode Island will rise $30 million under the House budget, much less than Chafee’s $178 million, mostly by sharply scaling back his high-profile changes to the sales tax system.

The House doesn’t cut social services much more than Chafee. The Finance Committee budget would cut human-service programs like Medicaid by $78 million from this year’s level; Chafee wanted to cut them by $71 million. So the House only made $7 million more in cuts than Chafee did in that area.

The House cuts local aid less than Chafee. The FinCom budget would reduce aid to cities and towns by $26 million; Chafee would reduce it by $30 million. Again, small difference – $4 million.

The House cut everything else much more than Chafee. FinCom Chairman Helio Melo’s explanation of how he balanced the budget includes a line labeled “Departments, Agencies, transfer/surplus change.” Chafee cut that line’s expenses by about $8 million; the House cuts it by $44 million, more than five times as much.

It’s important to note that none of this deals with the many, many changes the Finance Committee made in the structure of all that spending – there’s a lot of ways to dole out $7.7 billion, and they made all sorts of choices that differed from the governor’s. But these top-line numbers can be helpful to have in mind.

Here’s a chart contrasting the two deficit-closing plans, based on information from House Finance:

The striking blue bar in the middle shows how much extra revenue Chafee wanted to raise, mostly through his sales tax plan. But it shouldn’t be looked at in isolation; all three categories on the left side of the chart represent increases in state revenue. The difference is, Chafee’s new revenue came from taking a specific action – mostly raising more from the sales tax – while the House’s new revenue came passively – an improving economy is bringing in more money under the current system, without making any changes.

Got questions? Leave them in comments, send me a tweet or drop me in an email.

The advisory group on pensions put together by Governor Chafee and Treasurer Raimondo will gather for the first time next week.

The 12-member volunteer panel is set to meet next Monday, June 27, at 10 a.m., Raimondo spokeswoman Joy Fox said. The meeting’s location and agenda are still being finalized, but it will be open to the press, she said.

“The charge of the group is to vet and organize information for the Governor and Treasurer as they work to develop a comprehensive solution to submit to the General Assembly in October for the special session on pension reform,” according to the official announcement.

Raimondo’s office is asking members of the public to submit their ideas for changing the pension system at this website.

Update: The advisory group will hold its meeting at URI’s College of Continuous Learning in Providence. If you want to attend, it’s 80 Washington St., Room 242.

What Congress giveth, Congress taketh away.

Back in February, I put up this chart showing why the withdrawal of federal stimulus aid was going to make it a particularly painful process to put together the state budget for the fiscal year that starts July 1.

With House leaders inching closer to releasing their tax-and-spending plan, I thought it would be a good time to update the chart. These numbers are based on Governor Chafee’s proposal from March:

A couple things stick out to me.

Though it’s a little hard to tell from this chart, Governor Chafee’s 2011-12 budget calls for the first decrease in the total size of the state budget since the recession began. State spending grew by about $1 billion, from $6.9 billion in 2007-08 to $7.9 billion in 2010-11, over the past four years.

But that top-line growth masks a big change in where the money that pays for that spending came from.

Total general revenue (that is, regular Rhode Island state tax revenue) dropped 16% between 2007-08 and when it bottomed out in 2009-10, from $3.4 billion to $2.9 billion. But federal funds’ contribution to the state budget grew a whopping 50% between 2007-08 and 2010-11, from $1.9 billion to $2.9 billion.

Put another way, federal funds covered the entire billion-dollar growth in the state budget over the past four years. Much of that extra money is now disappearing; the federal contribution will decline from $2.9 billion to $2.6 billion in 2011-12. The state is making up some of the gap, but not all of it.

Put a third way, the state-covered share of the budget plunged from 49% in 2007-08 to 36% in 2009-10, but is now creeping back up. It’s expected to be around 40% in 2011-12 – higher than last year’s 38% but still far less than the pre-recession level. The federal share was 28% in 2007-08, peaked at 37% this fiscal year, and will decrease to 33% next year.

Why is Rhode Island’s state budget always out of whack?

That’s what I was wondering last week after taking a look at RIPEC’s latest study, which expressed concern about whether the state can afford some of the new policies in Governor Chafee’s budget proposal. But these are the numbers that really stuck out to me:

The General Assembly hasn’t even passed the budget for 2011-12 yet, let alone the one for four years from now, yet already we’re on course to spend $411 million more than we take in by the time 2015-16 rolls around.*

Put another way, revenue is supposed to grow from $3.2 billion to $3.4 billion, but spending is supposed to grow from $3.2 billion to $3.9 billion. That’s a problem.

But it also paints a different picture of how we wind up with chronic budget shortfalls – instead of lawmakers heading up to the Statehouse and adding new spending like drunken sailors, the main culprit is the fact that key cost drivers, like health care and employee pay, are on autopilot.

“It’s the social services and the cost of employees,” RIPEC’s John Simmons told me. “Pensions, health care, wage adjustments – they’re all rising faster than general revenue.”

Start with social services – notably Rhode Island’s Medicaid programs (RIte Care, Rhody Health Partners, Connect Care Choice, etc.). Like everything else in America that touches the medical sector, Medicaid costs are rising far faster annually than inflation and tax revenue. As Simmons points out, there’s no way 2% increases in revenue can keep up with 10% increases in health care costs, and medical programs make up around one-third of the state budget.

Rising medical costs hit us on the personnel side, too – the cost of providing health insurance for state employees and retirees rises steeply each year, just as it does for private-sector workers. On top of that, collective-bargaining contracts include a variety of mandatory wage increases and other payments like longevity bonuses that can outpace tax revenue even when it’s going up.

And then there’s the rapidly escalating cost of contributions to the state pension fund, which are calculated by the state’s actuaries based on a formula that doesn’t take into account how much the state can afford. (Note too that the chart above does not include the new, higher pension contributions required starting in 2012-13 after the Retirement Board’s big vote in April.)

Another recent RIPEC study compared the 2001-02 state budget with next year’s and broke down what accounted for the increase in spending, which rose from $5.2 billion in 2001-02 to $7.7 billion in 2011-12. Here’s what they found:

Nearly 70% of the increase in spending went toward social services (“grants and benefits”) and personnel costs. Local aid actually decreased.

“This is where you get into the problem of these built-in costs – things happen without changing it,” Simmons said. “It’s on autopilot.”

Another way to look at it is that many of these costs are determined separately from the annual budget process – state lawmakers decide who and what RIte Care should cover, but they don’t get to decide how much hospitals and doctors will charge us to do so. Employee compensation is decided in union talks that deal with multiple years, not based on what the House Finance Committee thinks the state can afford to pay each June. Nor is this just a problem for Rhode Island – Massachusetts, Connecticut and other states face the same pressures.

“We believe that the legislature, the governor, somebody has to step back at some point and say, wait a minute, this is no longer sustainable,” Simmons said. “We’re always in a structural problem that has to be reexamined. What do we really want to provide?”

* Update: A reader inside state government rightly pointed out to me that the numbers in the chart above, which came from RIPEC’s report, are a bit out of date. They use the projections included in Governor Chafee’s March budget proposal, which in turn are based on forecasts made at last November’s estimating conference.

New forecasts were done last month, and those would improve the picture a bit. For example, revenue would be about $68 million higher in 2015-16, which would narrow the projected deficit for that fiscal year. The Budget Office tells me they’ll do a full update of the figures after the actual budget is enacted.