By Tim White
NORTH PROVIDENCE, R.I. (WPRI) – North Providence Mayor Charles Lombardi said he was “distraught” that he had to sign a check for unused sick and vacation time to a firefighter who missed nearly half his career out injured and is now collecting a disability pension.
• Related: Mollis hired 52-year-old as rookie North Providence firefighter (Nov. 26)
By Tim White
NORTH PROVIDENCE, R.I. (WPRI) – The hiring of a 52-year-old as a North Providence firefighter nine years ago has proved to be an expensive liability for taxpayers in the town and the state, Mayor Charles Lombardi told Target 12.
Stephen Campbell was sworn in as a frontline firefighter in 2003 under former Mayor Ralph Mollis, who is now Rhode Island’s secretary of state. Under the terms of his union contract, Campbell would have had to fight fires until the age of 72 to be eligible for a pension.
By Ted Nesi
EAST PROVIDENCE, R.I. (WPRI) – There’s more good news for East Providence leaders about the turnaround in the city’s finances. Moody’s Investors Services on Wednesday night restored the city’s credit rating to investment grade, citing the work of the budget commission that finished work last month.
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – A Rhode Island official who oversees the financial stability of cities and towns suggested Monday the state should explore having municipal retirees get their health insurance through the new marketplace being created under the federal health law.
• Related: Should RI move government retirees to the Obamacare marketplace? (July 19)
Jason Becker, an education policy wonk and Twitter must-follow, helped design Rhode Island’s new education funding formula when he was at Brown University. Now he’s out with a long essay on his personal blog proposing a number of changes that could be made, and it’s well worth a read:
After a little over three years since its establishment, I think we are ready to tackle several additional aspects of state education funding in Rhode Island. One thing you may notice is that few of these ideas impact the original formula. Part of why that is comes from my aforementioned preference for a simple formula, and part is because these include some non-formula issues that were not pursued in 2010 in an effort to keep the focus on the main policy matters.
First, and perhaps the most consequential change that can be made to state funding, is the teacher pension fund payments. …
Second, I would make a slight change to the way that we fund charter schools. …
Third, we excluded all building maintenance costs from the base amount of state aid. … I would like to see the state contribute to the maintenance of buildings more directly. …
All of these changes will require an even greater state contribution to education aid, but these increases would be an order of magnitude lower than what it would take to increase the state aid to covering 50-60% of all education expenditures.
• Related: Becker: Woonsocket, not the state, failed to fund city schools (July 12, 2012)
After Central Falls collapsed into insolvency in 2010, state leaders scrambled to contain the fallout and ensure the tiny city’s struggles didn’t cause a domino effect that would raise borrowing costs for other cities. House Democratic leaders quickly pushed through a new law giving bondholders first dibs for repayment if a city or town files for bankruptcy – which is what happened in Central Falls’ Chapter 9 case.
The law has won praise from big investors, but has been somewhat controversial locally: Governor Chafee rejected a call for its repeal by the AFL-CIO. One of the big unanswered questions, though, has been whether there was really a risk of contagion in the bond market – or if Central Falls wouldn’t impact other cities.
Stephen Eide, a senior fellow at the Manhattan Institute’s Center for State and Local Leadership, thinks the situation in Michigan since Detroit filed for bankruptcy may be vindicating Rhode Island leaders’ concerns. In a new post for Public Sector Inc, Eide writes:
[Rhode Island's] law was way more Wall Street-friendly than paying back the 38 Studios debt and incomparably harsher towards retirees, who took brunt of the bankruptcy cuts, than Gina Raimondo’s pension reform.
From a policy perspective, the deepest problem with the great Rhode Island bondholder bailout of 2011 is that many hold out hope that, someday, bondholders might play a more constructive role in holding state and local governments accountable for their fiscal misdeeds. But there’s little chance a bondholder will become a bond vigilante if he can be confident that, no matter how bad things get, his interests will never be harmed.
Anyway, the point is that events in Michigan have provided defenders of Rhode Island’s actions during the Central Falls meltdown (and also, for that matter, the 38 Studios affair) with strong evidence for their view that it’s never in the interest of a state government – who has a responsibility to all its governments and taxpayers – to let a locality jilt Wall Street. …
Whether one prefers Michigan’s approach or Rhode Island’s, fiscal distress is a state issue, and there are difficult choices to be made which must take into consideration the interests of all state taxpayers and local governments.
• Related: Q&A: Penn Law’s Skeel on RI pensions, bankruptcy and bonds (March 2, 2012)
As I reported back in 2011, the state’s municipalities have promised more than $3 billion in medical coverage to retired public-sector employees – but have set aside almost nothing to cover the costs. On paper, at least, the underfunding is actually worse for retiree health than it is for pension funds.
Detroit’s bankruptcy filing, however, suggests a new option for Rhode Island cities and towns – moving their retirees into the new HealthSource RI insurance marketplace being created under President Obama’s Affordable Care Act. Detroit thinks it will save millions of dollars a year if it does so with its roughly 19,000 retirees. Rahm Emanuel has already announced plans to move Chicago retirees to the exchange there.
“The big benefit to moving workers into the state marketplaces is that it shifts the burden of paying for health care from the city to the federal government,” The Washington Post’s Sarah Kliff notes. “That’s a benefit for the city, at least” – and likely for Rhode Island’s state government, as well.
Here’s a dirty little secret about Rhode Island’s state budget: it’s actually a pretty stable document.
The news media has a bias toward conflict – stability makes lousy copy – and so coverage of this week’s House Finance budget played up its differences from what Gov. Lincoln Chafee proposed back in January. No corporate tax change! $15 million less in local aid! 6,500 off RIte Care!
Each of those policy choices absolutely matter, especially to those who are directly affected by them. And when you’re talking about spending more than $8 billion over 12 months in a place with 1 million people, even relatively small changes can add up to many millions of dollars. The budget is definitely important.
Still, the year-to-year changes in the budget often aren’t as significant as the headlines imply, because much of the spending is effectively on autopilot. This year’s budget will probably be $8,101,600,000; next year’s will probably be $8,216,800,000. That’s $115 million more – a lot of money! – but still only a 1% difference:
Perhaps you are an average Rhode Island citizen. Perhaps you want to look through the full text of the budget House Finance approved last night on a 12-0 vote. So you go find the bill – H5127A. (The A stands for “Sub A,” or the first substitute – aka amended – version of the original bill.)
Alas, all you see is a list of budget articles but not the actual text. Crestfallen, you log off and decide it’s just not worth it to be an active citizen. Instead, you go look at cat videos on BuzzFeed.
Charlie Hunt and Katherine Gregg to the rescue!
Hunt, director of public affairs at the Mayforth Group lobbying firm, and Gregg, State House bureau chief of The Providence Journal, have mastered the strange digital customs of Smith Hill, and they shared with me two ways to read the text of the budget articles – that is, the actual taxing-and-spending legislative language.
Hunt’s method: go to the 2013 House Bill Text page and scroll down to H5127A – you’ll find all 26 budget articles posted as separate PDFs underneath the main PDF, which is just a table of contents. Gregg’s method: go to the House calendar for June 25, the day the budget will be debated next week, and you’ll find links there to all 26 budget article PDFs. Ah, the sweet smell of open government.
Well done, Charlie and Kathy!
Update: Page 4 of the budget’s Article 8 authorizes the hitherto secret “Department of Fluinan Services” to enter into a lease (line 9). It also refers to the “Department of Labor anti Training” (line 6), which may shed some new light on why Rhode Island’s economy is struggling.
• Related: Chafee loses on local aid, corporate tax in House budget (June 18)
By Ted Nesi
PROVIDENCE, R.I. (WPRI) – Rhode Island’s top lawmakers unveiled a proposed state budget Tuesday evening that would boost funding for education significantly without increasing broad-based taxes or fees, though they rejected a proposal by Gov. Lincoln Chafee to lower the corporate tax. It passed the House Finance Committee 12-0.
One big takeaway: Rhode Island gets a significantly smaller share of its revenue from income taxes (19%) than Massachusetts (30%) or Connecticut (27%). They rank fifth- and ninth-highest for income-tax share, while Rhode Island ranks 33rd. Here’s a map showing the comparison:
At the same time, Rhode Island is more reliant on property taxes (46%, or 4th-most nationally) than Connecticut (42%/9th) or Massachusetts (39%/15th), though all the New England states are in the top 15:
• Related: Making the case for property taxes across the pond (Sept. 26, 2011)
By Ted Nesi and Tim White
COVENTRY, R.I. (WPRI) – Elected officials in Coventry have taken an apparently unprecedented step by washing their hands of responsibility for one of their employee pension plans, saying taxpayers have no obligation to come up with enough money to stop it from running out of cash within 12 years.
All told, Coventry’s three local pensions plans – one for police, one for municipal employees, and one for non-teacher school personnel – have racked up a $121 million liability for promised benefits, with less than $23 million saved to pay the bill. In fact, just two years ago the newly elected Town Council voted to sweeten police officers’ pension benefits, adding roughly $9 million to the tab in one fell swoop.
Treasurer Gina Raimondo has a message for members of Congress: don’t tax municipal bonds.
Raimondo and 41 of her fellow state treasurers sent a letter [pdf] last week to the top Republican and Democrat on the U.S. House Ways and Means Committee, emphasizing “the importance of maintaining the current tax exemption for municipal bond interest” as they consider plans to overhaul the U.S. tax code.
The letter was organized by the National Association of State Treasurers, which describes itself as “a bipartisan organization of state treasurers and other finance officials with similar duties.” The group said tax-free municipal bonds save states and municipalities an average of 25% to 30% on interest costs.
“The tax-exempt bond market has worked effectively for over a century,” Virginia State Treasurer Manju Ganeriwala, the association’s president, said in a statement. “Let’s not dismantle something that works.”
Raimondo, a Democrat, is considering a run for governor in 2014. Here’s her signature on the letter:
• Update: Fox, Raimondo pitch $70M loan fund for repairs (March 21)
The Rhode Island Clean Water Finance Agency’s motto declares, “Clean Water for Rhode Island is Our Only Business.” But that won’t be true for much longer if Treasurer Gina Raimondo and House Speaker Gordon Fox have their way.
Raimondo and Fox will hold a press conference Thursday morning where they’ll propose adding a new Municipal Road and Bridge Revolving Fund to the water agency’s portfolio of programs. They’ll be joined by Senate President Teresa Paiva Weed and municipal leaders, making this as close to a sure thing as any new legislative proposal can be.
So, you ask, what is the R.I. Clean Water Finance Agency?
The short answer: RICWFA is a quasi-public state agency, similar to better-known entities like the R.I. Economic Development Corporation and the R.I. Airport Corporation. While the Clean Water Finance Agency has a relatively low profile, it plays a key part in financing the maintenance of Rhode Island’s water system. Its basic role is to provide subsidized and low-interest loans to local governments that they use to fund water-infrastructure projects of all sizes.
By Ted Nesi
WOONSOCKET, R.I. (WPRI) – Officials in Woonsocket on Monday asked the cash-strapped city’s retirees to agree to give up annual increases in their city-managed pensions and move to Medicare or else risk pushing the city into bankruptcy.
• Related: Woonsocket’s problems include debt, botched 2002 pension fix (June 14)
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):
Last week’s Target 12 investigation of Scituate’s absentee pension board has sparked a renewed conversation about how the state should handle its troubled locally run pension plans. “There is a concerning set of facts that you’re hearing about in Scituate,” Treasurer Gina Raimondo said on Newsmakers Friday. But, she continued, local officials need to negotiate with organized labor if they want to go into the state-run system (MERS).
Josh Barro, a columnist for Bloomberg View and longtime friend-of-Nesi’s-Notes, also sees a lesson in the Scituate investigation – most municipalities are just not equipped to handle the complicated task of managing a pension fund:
In most states, public employee pension systems are run either by the state government alone or by the state and a handful of the largest cities. For example, New York City is the only municipality in New York state with its own plans; all other cities and counties participate in two large statewide funds.
Pension systems are complicated, and overseeing them properly takes time and expertise. This is a heavy lift for municipalities overseeing small pension plans. …
Of the 110 statewide pension systems covered by the Public Funds Survey, the worst-funded is the Illinois State Employees’ Retirement System, with a funding ratio of 35.5 percent. Sixteen of Rhode Island’s 36 local plans are worse funded than Illinois SERS. …
The more promising long-term fix, floated by some Rhode Island lawmakers including State Treasurer Gina Raimondo, is to close municipal pension plans and have one pension system for municipal workers overseen by the state government.
• Related: Raimondo: Move 36 local pension plans into state-run system (Jan. 30, 2012)
By Ted Nesi and Tim White
SCITUATE, R.I. (WPRI) – Police officers in Scituate are criticizing a plan crafted by town officials that would make officers pay more for less generous pensions in order to help close an $8 million shortfall that opened up over the last decade.
• Interactive: Town-by-town map of local pension liabilities in Rhode Island (Feb. 4)
By Dan McGowan
PROVIDENCE, R.I. (WPRI) – City officials have asked the General Assembly to increase municipal aid to Providence by between $4 and $5 million to help cover the city’s remaining structural deficit, Director of Administration Michael D’Amico said Monday.
By Ted Nesi and Tim White
SCITUATE, R.I. (WPRI) – The officials charged with overseeing Scituate’s troubled police pension plan held next to no meetings for more than a decade, even as the plan’s cash shortfall quadrupled to $8 million, a Target 12 investigation has discovered.
• Interactive: Town-by-town map of local pension liabilities in Rhode Island (Feb. 4)
Rhode Islanders pay the 13th-highest state and local taxes in the country compared with their incomes, according to the latest analysis of Census data by the Massachusetts Budget and Policy Center.
The $6.9 billion in state and local taxes paid by Rhode Islanders in 2009-10 totaled 11.1% of their personal income, up slightly from 11.0% the prior year, the analysis shows. Just 12 other states took more of their residents’ income in state and local taxes, according to the group.
The national average was 10.6% of income, and Massachusetts ranked 25th at 10.2% of income, the analysis shows. Three other New England states – Maine, Vermont and Connecticut – took more of their residents’ incomes in taxes than Rhode Island did, while New Hampshire took the least.
The left-leaning Massachusetts think tank said it looks at taxes as a share of personal income rather than per capita because it “allows for a meaningful comparison among states.” Another group, the right-leaning Tax Foundation, ranks Rhode Island’s tax burden higher after making adjustments to the data.
• Related: Charts: Regressive RI taxes getting (slightly) more progressive (Jan. 30)
(chart: Massachusetts Budget and Policy Center modified by WPRI.com)
For more than a decade, state and local taxes in Rhode Island have been among the nation’s most regressive – meaning they’re structured to take a larger share of income from the poor than they do from the wealthy.
That said, a WPRI.com analysis of the last decade’s “Who Pays?” studies from the Institute on Taxation and Economic Policy shows the richest Rhode Islanders are paying slightly more of their incomes in state and local taxes than they were in 2002, while the poorest are paying a bit less.
That doesn’t necessarily contradict progressives’ argument that wealthier Rhode Islanders have gotten a tax cut: the studies show the share of income paid by the top 1% in income taxes fell from 5.8% in 2002 to 4.8% in 2013. But that reduction was offset by an increase in how much the top 1% paid in property taxes, which rose from 2% to 3.1%. Here’s how the tax mix for the top 1% has changed over the last decade:
The Institute on Taxation and Economic Policy is out with its latest look at how much of their incomes different Rhode Islanders pay in state and local taxes, and the big headline hasn’t changed: the state’s tax structure takes almost twice as much from the poorest 20% of residents as it does from the top 1%.
Rhode Island families making less than $18,000 a year will pay 12.1% of their 2010 income in state and local taxes under current law, according to the study by ITEP, a Washington-based research group that is affiliated with the labor-backed nonprofit Citizens for Tax Justice.
At the other end of the spectrum, Rhode Island families making $378,000 or more a year will pay 6.4% of their 2010 income in state and local taxes when the federal deduction for those taxes is taken into account. An analysis by WPRI.com of ITEP’s reports shows that since 2002, state and local taxes have gone up or stayed steady for the top 60% of taxpayers while decreasing slightly for the bottom 40%:
(The 2010 income for the lowest 20% was less than $16,000; for second 20%, $16,000-$27,000; for middle 20%, $27,000-$42,000; for fourth 20%, $42,000-$72,000; for the next 15%, $72,000-$141,000; for the next 4%, $141,000-$328,000; and for the top 1%, $328,000 or more.)
Rhode Island is among 10 states that levy the highest taxes on the poor and is the only New England state in that group, according to the study. It is also one of only three states in the U.S. where the Earned Income Tax Credit isn’t fully refundable, which means Rhode Island families with no income tax liability cannot receive the benefit of the credit, the study says.
Here’s a rare silver lining to Rhode Island municipalities’ financial troubles: it’s made so much news that a two-day conference on distressed communities is coming to the capital city.
The financial newspaper The Bond Buyer will hold its 2nd Annual Distressed Municipalities Conference on March 18 and 19 at the Omni Providence Hotel (formerly the Westin). Treasurer Gina Raimondo, who received an award at a Bond Buyer dinner in December, is one of the headliners.
Bond Buyer publisher Michael Stanton told WPRI.com its major events are usually held within the Northeast Corridor, where institutional investors are concentrated, and in places that are geographically accessible to government leaders.
Moody’s Investors Service is criticizing Providence leaders – and, implicitly, Superior Court Judge Sarah Taft-Carter – for running a $15 million operating deficit during the 2011-12 fiscal year, but softened its criticism based on other steps the Taveras administration has taken.
“The shortfall is credit negative as the city’s financial position has weakened considerably over the past four years,” Moody’s analyst Vito Galluccio wrote in a note to investors. “However, its balanced budget for [fiscal] 2013 indicates some progress toward restoring fiscal stability.”
Galluccio cited two big drivers of the $15 million operating deficit: Taft-Carter’s mathematically flawed ruling last year that the city didn’t need to move its retirees to Medicare, and various types of tax revenue failing to meet the city’s projections. The deficit would have been even larger if the city hadn’t shorted its 2012 contribution to the Providence pension fund by $5.4 million, he said.
“The 2012 results follow several years of operating deficits that have left the city in a precarious financial position,” Galluccio said. He blamed the fiscal crisis on a $125 million reduction in state aid during former Mayor David Cicilline’s second term and “rapidly growing expenditures related to employee salaries and benefits.”
Well, in the end Providence didn’t file for bankruptcy – an outcome that loomed as a very real possibility last winter when the city’s cash flow crisis was most acute (and a confused Judge Taft-Carter made things worse). The final audit shows Providence finished fiscal 2011-12 with an $11.4 million deficit.
The Taveras administration acknowledges the city budget still has a built-in $4 million structural deficit, though that’s way down from the $110 million shortfall his fiscal review panel originally found. So how did the mayor eliminate 96% of the structural deficit? Here’s a chart from the city with their breakdown:
(“Revenue enhancements” has to be one of my least favorite bits of political spin. I don’t expect press shops to switch to “Job-killing tax hikes,” but what about plain old “Revenue increases”?)
Fixing Rhode Island’s local pension plans is going to make the state overhaul look like a cakewalk.
The 36 locally run pension plans, many of them underfunded, have become a growing burden on municipal taxpayers and a source of concern for retirees thanks to years of shoddy management. Last fall the General Assembly ordered the communities to study the problem and deliver solutions to a new commission, but Democratic state legislators have refused to sign off on cost-of-living freezes, citing labor contracts.
In the long run, shifting troubled locally run plans into the state system would address many of the issues that got the plans into trouble in the first place. Retiree benefits would have to match those of other cities and towns in the state-run system, and cities and towns would have to make full “annual required contributions” each year to replenish low fund balances and keep up with annual payouts.
But as some members of the Locally Administered Pension Plans Study Commission noted Monday, forcing such moves would raise a host of potential problems. …
[T]he prospects for getting all of those plans adopted, and in some cases negotiating concessions from local unions, is far from certain.
“What we’re trying to figure out is what happens if that doesn’t work,” [commission Chairman Rosemary Booth Gallogly, director of the state Department of Revenue,] said. “Are we just going to keep meeting for the next five years and saying, ‘Well now you’re not 30 percent funded you’re only 22 percent funded, well now you’re not 22 percent funded you’re only 16?’ At some point we have to make people do something.”
To understand why Gallogly is concerned, look no further than Cranston, where Mayor Allan Fung wants the City Council to reduce benefits before its 18% funded pension plan runs out of money; Treasurer Gina Raimondo has suggested he should consider “a buyout scheme.” Yet lawyers for the retirees say the city can’t do what Fung is proposing, Mark Schieldrop reports for Patch:
The City Council met behind closed doors last night to talk with city lawyers about the mayor’s plan to cut pension benefits for police and fire retirees. …
The plan offers four possible options to save the failing pension plan, each recommending a freeze on cost of living adjustments (COLAs) for 10- to 15-years or a permanent freeze.
James E. Kelleher, a lawyer representing the retirees, told the council that the situation has echos of a legal dispute in 2003 that began when the city arbitrarily changed COLAs and other benefits for retired firefighters without going through the collective bargaining process. The city was taken to court and lost, Kelleher said. And the city did not appeal, which made the ruling a “final judgement,” he said. …
If the council acts, Kelleher warned, retirees would seek a Superior Court injunction ruling the City Council was in violation of a court order based on the Judge Daniel Procaccini’s ruling earlier in the decade that states any change to retiree benefits must be accompanied by collective bargaining.
Rhode Island’s early November deadline for cities and towns with underfunded local pension plans to file proposals for shoring them up has come and gone, but six municipalities failed to comply with the deadline.
The places with punctual pension plans: Bristol, Coventry, Cranston, East Providence, Newport, Portsmouth, Providence, Scituate, Smithfield, Tiverton and Warwick. You can download the PDFs of their funding improvement plans from this Web page. Seven others didn’t have to file a plan.
All these funding-improvement plans, and the earlier actuarial studies, were required under last year’s state pension law, which was signed a year ago Sunday. Governor Chafee’s office says state officials continue to work with the municipalities who haven’t produced a plan yet.
• Related: 13 local pension plans worse than RI’s; Cranston, Scituate lag (Dec. 5)