March 10, 2012

RISC Panel Discussion on Municipal Finance

Carroll Andrew Morse

[9:16] Good morning, from the Rhode Island Statewide Coalititon Winter Meeting, where a panel discussion on municipal finance in Rhode Island has been convened. Panel members are Woonsocket Mayor Leo Fontaine, Cranston Mayor Allan Fung, Central Falls Receiver Robert Flanders, and the multi-titled Gary Sasse.

[9:18] Central Falls Receiver Flanders is the moderator, and introducing the discussion. He says he'd like to spend some time focusing on the legalities of receivership.

[9:21] CF entered into many agreements with its public employees that were unsustainable over time. $16M in revenue was being collected to pay for $22M in benefits, and that's before the real costs for OPEB benefits kick in.

[9:21] Flanders reminds us that CF petitioned the state for a judicial receiver. The state responded, eventually, by passing the current fiscal stabilization law. Flanders reviews the triggers that allow the state to step in.

[9:23] The triggers, Flanders says he's been told, are present in Providence and Woonsocket.

[9:24] Flanders reviews the 3 layers of fiscal stabilization (overseer, budget commission, receiver).

[9:26] The two powers the receiver has are 1) to take a city or town into bankruptcy and 2) all of the powers that the city government has (this is Flanders' description),

[9:27] Flanders discusses chapter 9 bankruptcy. Little used, not many precedents, but it seems to be generally agreed that a receiver can start making changes immediately after bankruptcy is filed for. Motion to reject all of the problem contracts can immediately be filed.

[9:30] Chapter 9 also requires state authorization. The RI law makes a receiver the only official who can give this authorization.

[9:31] A judge can't appoint a trustee to manage a city in a different way than it is currently be managed, nor liquidate the city.

[9:37] Biggest lesson of Central Falls: It's possible to get over the stigma of bankruptcy, which is just a restructuring.

[9:39] Flanders is discussing "regionalization" and "consolidation" as longer term structural fixes, but it's the lite version of each, incremental sharing of services, school dept./muni consolidation within towns.

[9:40] Other perception problem: City and town officials have to lose all of their powers -- but that doesn't have to happen.

[9:41] In my opinion, Judge Flanders is trying to redefine the concept of receivership as it has so far been applied, so that Providence or Woonsocket would be able to ask for a receiver as a form of power sharing, not as a complete state takeover.

[9:42] Flanders goes on, receivership is the best way to short circuit court interference in the process.

[9:43] Flanders also says, rather directly, RI state judges are ruling on items that could affect their own pensions.

[9:44] Now talking about the bondholder law. Flanders defends it with conventional argument that one muni bond failure in Rhode Island would cause higher interest rates to spread to other communities. This "tempers" concerns that bankruptcy would be bad for Rhode Island.

[9:49] Woonsocket Mayor Leo Fontaine is up next. Starts with a reference to the Declaration of Independence. To have a Tea Party today, we'd need a permit, a detail police officer, and probably get fined by the EPA and start a conflict with the Tea carriers union.

[9:51] We're collapsing under the pressure of bunches of promises made with good intentions.

[9:52] This isn't a problem of one or two cities or towns, this impacts all of us.

[9:52] Woonsocket looked at the same corporate receivership option that CF originally pursued. Woonsocket wanted to wait until the GA was out of session, so it couldn't be quickly contravened.

[9:54] Current receivership law is trying to solve the problem of government by inserting more government.

[9:54] Woonsocket has been trying to solve its problems by cutting costs.

[9:55] Fontaine claims that Woonsocket is one of the highest-taxed communities in the state. (However, I have questions about this claim).

[9:56] Mentions that it's school-side spending that's nout of control in Woonsocket, because of the independence that school committees have been given, again with good and noble intentions.

[9:58] Doesn't think that receivership is the answer.

[10:00] (Note to commenter "John": Mayor Fontaine is making the people of Woonsocket look like they have taken to choosing responsible politicians (at least lately)).

[10:04] Cranston Mayor Allan Fung up next: Cranston is not in as bad a position as Woonsocket or Providence, but it's not out of the woods yet. Percentage of budget going into contracted costs is about the same in Cranston as in other distressed communities. Both the costs, and the "playbook" for dealing with those costs are the problem.

[10:07] Binding arbitration has imposed many structural costs that are now a problem. Serious fiscal analyses were not done, when benefits were offered.

[10:09] Gary Sasse, advisor to the Providence City Council: If we have a sick capitol city, we're not going to have a healthy state. Bankruptcy can be made more predictable -- in public decision making, predictability is very important.

[10:12] Two factors creating difficulties for Providence: #1 State mandates, which make it difficult to treat property taxpayers fairly. 20 pieces of legislation have been proposed to relieve this, they couldn't get a hearing.

[10:13] Factor #2: The payments needed to keep the city pensions solvent.

[10:14] Huge tax increases will be needed, under the current system, just to make pension payments (basically the same argument that Gina Raimondo has explained regarding state pensions).

[10:18] 3 options 1) bankruptcy 2) negotiating with the unions and 3) a supplemental tax increase. It's legitimate to ask, from a tactical perspective, how do you get the unions to come to the table, to renegotiate what are effectively guaranteed annual raises and other benefits.

[10:20] Concept of bankruptcy needs some more conversation.

[10:21] State Rep. Laurence Ehrhardt (whom I neglected in the intro) is the final panelist to speak.

[10:22] Mentions taking back longevity increases and, of course, state-system pension reform as two things the legislature has done, to help RI's finances, that in the past he wouldn't have thought possible. However, there were some unique circumstances of timing and leadership that allowed this to happen.

[10:24] Leadership of the House is facing organized opposition pressure, because of their decisions.

[10:26] "Haven't seen much in the way of requested legislation, to deal with the municipal problem". Legislation that has been filed is mostly taxes on non-profits, that just moves money from one pocket to another.

[10:28] Mentions binding arbitration -- it wasn't clearly dead last session until the last night of the session (suggesting it could come back again this year?)

[10:29] Flanders asks for specific examples of problem mandates. Fontaine: BEP mandates on the school side, DEM mandates impact Woonsocket's waste water plant, mandates on renovating historic buildings.

[10:31] Sasse: 2 types of mandates that unnecessarily drive up costs: Environmental regulations and mandates that public employee unions got added to the law, when they couldn't get them written into contracts.

[10:32] Fung: We need reform, not repeal of mandates, to get the public to understand that cities and towns need more freedom to reduce their costs, e.g. evergreen contracts aren't mandates, as much as they are bad laws.

[10:40] Audience Q portion, based on written questions:

[10:41] Q to Gary Sasse on the specifics of Providence's pension. Sasse explains the difference between statutorially awarded pensions, and contractually negotiated pensions. Mentions state judges are making decisions that set precedents for their own pensions.

[10:42] Would a Providence bankruptcy affect the state's bond rating? Sasse: Bond markets don't just look at bankruptcy. They also look at what will be done, with the new flexibility gained through bankruptcy.

[10:46] A tax-to-the-max strategy would be worse than bankruptcy (from the perspective of the bond markets, I think).

[10:47] Q: Why are there so many school department deficits? Should all school departments be consolidated with their municipal governments?

[10:48] Flanders: "I think so". There should more connection between the tax-raising power and spending on schools in cities and towns.

[10:49] Fung: Cranston was downgraded, with 2 reasons cited 1) the pension system 2) school spending. Cities can't be an ATM for the schools, cities need more accurate info for budgeting.

[10:50] Fontaine agrees with above sentiments. Fung: End the Caruolo act.

[10:53] Q: Can local plans be merged into the MERS plan? Flanders: Courts have ruled that whatever plan someone retires under cannot be changed.

[10:54] Fung: You also need a carefully considered transition plan, to make a move into MERS work.

[10:55] Sasse: In Providence, 16M of 60M in pension costs is to pay COLAs to retirees.

[10:56] Q: could RI become a right-to-work state? Fontaine: Why shouldn't employee service costs be put out to bid, like other costs that cities deal with.

[10:58] Harry Staley wraps up. Bad bills get defeated, but come back the next year. Can the legislature afford to waste time, reconsidering things like binding arbitration every year? Or trying to repeal something like voter ID, that was just passed last year, and hasn't even been implemented yet?

[11:00] The time should be used to consider the real issues that are critical to our future.

[11:01] There's either going to be a voluntary or an involuntary solution to RI's problems. He hopes it's voluntary.

Justin's liveblog of today's RISC event is available at the Ocean State Current.

Comments, although monitored, are not necessarily representative of the views Anchor Rising's contributors or approved by them. We reserve the right to delete or modify comments for any reason.

"A judge can't appoint a trustee to manage a city in a different way than it is currently be managed, nor liquidate the city."

Both New York and Boston have absorbed their suburbs. Virginia permits cities to absorb the county (see Suffolk City/Nansemond County). Not sure of the method, but I assume a plebecite. I don't know that a judge would (or could) interfere with a merger plan.
A bankruptcy judge's first concern is fair equitable treatment of creditors.

Posted by: Warrington Faust at March 10, 2012 9:53 AM

Thank you Mr. Carroll:

I am the city council president working closely with Mayor Fontaine on our solutions.

Posted by: John at March 10, 2012 10:14 AM

Great job, Andrew.

Posted by: Monique at March 11, 2012 10:12 AM

FINALLY someone with the interests of the TAXPAYERS at heart. Too bad it had to come down to a bankruptcy judge! What did Jefferson say about a people who discover they can vote themselves anything they want???

Posted by: paul marshall at March 11, 2012 10:23 AM

Профессиональная укладка плитки и кафеля.

Posted by: SornExenseten at March 12, 2012 3:14 AM
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