By Ted Nesi

PROVIDENCE, R.I. (WPRI) – The Taveras administration acknowledged Saturday that Providence has no clear plan for closing the $22.5 million shortfall in the city budget, amid warnings of bankruptcy and with less than five months left in the fiscal year.

“Since taking office the administration has worked to close the gap on a $110 million structural deficit that was identified,” Taveras spokesman David Ortiz told WPRI.com. “Despite how far we’ve come, there is a $22.5 million shortfall remaining that is not within our ability to fix without help.”

“We are in conversations at the State House and with the City Council about the crisis that Providence is in, and at this point it’s not entirely clear how we get into the next fiscal year without facing the possibility of a supplemental tax increase or bankruptcy,” he said.

Brown University President Ruth Simmons, who’s been at loggerheads with Taveras since December over the school’s payments to the city, said in a statement Saturday there are “now productive and positive discussions with the city and state leadership to determine the exact nature of the University’s contributions.”

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Mount Pleasant High School

The Providence City Council gave preliminary approval last night to the city budget for the new fiscal year that started July 1. The Projo’s Phil Marcelo has a thorough overview of the budget, including a big hike in the car tax that’s going to affect a lot of drivers.

Mayor Taveras released a statement after the council vote that included this line: “We also owe great thanks to the members of Local 1033, firefighters, police, city employees, residents and taxpayers who all share deeply in the sacrifice needed to save our city.”

Missing from that roll call are Providence’s teachers – the last big group of city workers who haven’t reached a deal on concessions with the administration.

On first glance, that looks like a bad sign. But looks can be deceiving.

Taveras spokeswoman Melissa Withers declined to comment on the substance of negotiations between the teachers union and the mayor’s office except to describe them as “ongoing.” However, she confirmed that the budget passed by the council includes all the savings expected from an agreement with the teachers.

It’s unlikely the councilmen would have passed the budget if they weren’t confident there will be a deal, and Withers did not sound particularly worried. So an announcement could be coming before long.

(photo: Providence Public Schools)

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.

Let’s go to the mailbag. On the topic of Chafee’s sales tax proposal, commenter KoolKlyde asked:

Why does the new tax structure raise more taxes than the existing tax structure?

Good question – I was wondering the same thing when I heard Chafee’s plan included a reduction in the basic sales tax rate from 7% to 6%.

The answer is that the new revenue Chafee would get by taxing additional goods and services far outweighs the amount lost by lowering the rate a point on the items that get taxed now.

Remember, the proposal – which the Chafee administration calls “Sales Tax Modernization” – has three parts: lowering the base rate from 7% to 6%; adding more items to the list of those taxed at 6%; and creating a new 1% tax on some items currently exempt.

Here’s a chart that shows how the administration estimates each piece of the plan would change state tax revenue in the 2011-12 fiscal year, which starts July 1:

The state loses $118 million by reducing the rate to 6%, but then gets $198 million by taxing more items at 6% plus another $85 million with the new 1% tax, for a net gain of $165 million when all is said and done.

I posted the full list of items Chafee wants added to the sales tax last week; that’s available here.

Gov.-elect Lincoln Chafee will hold a daylong budget summit next month to kick-start discussions of how to close Rhode Island’s $300 million projected deficit for the fiscal year that starts July 1, WPRI.com has confirmed.

The tax-and-spending conference is tentatively scheduled for Friday, Dec. 17, but that date isn’t official yet, Chafee spokesman Mike Trainor told me on Tuesday. The presenters and participants will be “an interdisciplinary group” that will include legislative leaders and fiscal experts, he said. The event may be held at URI’s rustic W. Alton Jones campus in West Greenwich.

Chafee frequently said on the campaign trail that he would “fix the budget mess” if elected governor, and he blamed local aid cuts at the state level for rising property taxes in cities and towns across Rhode Island.

“The highest priority that Gov.-elect Chafee has is to address in a meaningful way is the systemic budget deficit that we are facing,” Trainor said. “That’s job one.” The new administration must submit its proposed budget to the General Assembly by early February.

New budget estimates released earlier this month project that Rhode Island’s $7.8 billion budget has a nearly $300 million shortfall for the state’s 2011-12 financial year, exacerbated by the expiration of federal aid from the 2009 stimulus law. Even larger deficits are projected in the fiscal years after that.

News of the budget summit comes as Chafee continues to put together the senior staff who will join his administration in January.

Chafee has picked Patrick Rogers, his campaign chairman and longtime ally, to serve as his chief of staff and top legal adviser, Projo.com reported this morning. He also tapped Stephen Hourahan to be his senior adviser, a new position, and Claire Richards and Joseph “Kenny” Alston to be his executive counsel. Richards and Alston will report to Rogers.