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Providence begs for mercy, probably won’t get it

Providence begs for mercy, probably won’t get it

The City of Providence, in my home State of Rhode Island and Providence Plantations, is in dire financial trouble, as I have posted here many times before.

The City, with its large tax-exempt university base and decades-long history of lush public sector benefits, has struggled under new Mayor Angel Taveras to cover large structural budget deficits inherited from then Mayor now Congressman David Cicilline.

The City of Central Falls, RI, which filed for federal bankruptcy protection, was a precursor to what could happen without major union give-backs in a state where the unions control the legislature and the State itself faces a pension cliff.

In Providence, the situation is reaching the breaking point, as the “B” word is openly being spoken:

Rhode Island’s capital city will be in bankruptcy by June if it doesn’t get help resolving its financial crisis.

That was the dire warning from Providence Mayor Angel Taveras during a Thursday [February 2] morning news conference at City Hall. With five months left before the end of the fiscal year and the capital set to run out of cash by the start of summer, the city still faces a roughly $22.5 million deficit in its budget for this fiscal year, which ends June 30.

The budget shortfall was projected at $110 million last March, when Taveras declared a “category five” financial emergency in Providence. It was reduced after he negotiated new contracts with unions, laid off workers, cut spending and won increased state aid.

Taveras, a Democrat who took office 13 months ago, told reporters Providence could be pushed to the breaking point without sacrifices from retirees and the city’s large tax-exempt institutions, including Brown University and the hospitals.

“Our firefighters, police officers, teachers and taxpayers have all sacrificed in the last year and helped Providence avoid catastrophe,” the mayor said. “However, not everyone has sacrificed. The failure of our tax-exempts to sacrifice has left a $7.1 million hole in our budget.”

Brown University, that bastion of über-liberality, does not appear willing to part with much of its cold, hard cash.

Neither do the public retirees.  The Mayor’s State of the City speech yesterday highlighted the problem of compound-COLAs:

Nor can our retirees be successful in a failed city. Central Falls taught us that lesson. An unbearable and unsustainable burden of 5 and 6 percent compounded pension COLAs – guaranteed annual raises for retirees – causes the black hole that we face to deepen with each passing day.

These guaranteed annual raises have resulted in the absurdity of each of our top 25 retirees collecting more than $109,000 a year in a pension. In fact, the retiree who collects the highest pension retired in 1991 with a salary of $63,500 and now collects $196,000 per year. Or, put more simply, $16,400 a month. He collects more than 5 times the income of an average Providence resident. And, he collects more money from the City as a retiree than any working Providence employee.

While our city workers, teachers, police officers and firefighters are foregoing raises, many of our retirees continue to collect 5 and 6 percent compounded raises every year. Taxpayers and business owners know that guaranteed yearly raises of this magnitude – or any magnitude in these economic times – make no sense. This must stop now!

Without structural reform, in the next 10 years, our annual pension payment will grow from $58.9 million to $98.7 million – a nearly 70 percent increase.

Added to these pension costs is the promise of free health care for life to our retirees. We spend over $30 million annually on retiree health care and have an unfunded obligation of $1.5 billion in other post-employment benefits, mostly related to health care.

Mayor Taveras is trying his best.  Unlike Cicilline, who swept problems under the rug and escaped the carnage by getting elected to Congress (information on his 2012 Republican opponent here), Taveras is tackling the problems.

But there’s only so much Taveras can do, unless the universities but most importantly the retirees give back:

Our retirees need to step forward and do their part just like our active employees have already done. They can join current city workers and forego their annual raises and help save our great city. Or alternatively, they will be forced to join in our sacrifice when we fall off the edge. If we fall, our retirees will be looking at much more than a simple suspension of their raise.

Providence has been reduced to begging for mercy.  My guess is that it probably won’t get it.

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Comments

This may look like a train wreck in slow motion, so I’m just gonna get out of the way.
“Give a man a fish bailout; you have fed collateralized him for today. Teach a man to fish economics; and you have fed him secured a clean balance sheet for a lifetime”

Professor, It seems the system MUST fail, before it will get better. If I were Mayor Taveras, I would sit back and wait for it to happen. Then when the system does break, which it will, he will be in a better position to renegotiate. I would also start CHARGING the school a use tax, like a road tax that the great Elizabeth Warren had mentioned not long ago. Seeing that the school, the teachers, the students are using the roads, they should pay a tax to the city to use them.

1. A tip of the hat to Mayor Taveras. Hopefully his facing up to the problem will not get him demagogued out of office. Hopefully the former mayor will not escape the voters’ retribution.

2. Brown University, that bastion of über-liberality, does not appear willing to part with much of its cold, hard cash.

Leftists are generous—with other people’s money.

I am not sure how these debts can be legally enforced. They seem to be political patronage codified into the pension system. Generally centrally obligated payments cannot be voided as services have been rendered, but this reeks of quid pro quo on a grand scale. I would like to see not only these payments stopped, but clawbacks against the looters enforced. Perhaps some sort of tax on excessive state retirement income retroactively applied.

I R A Darth Aggie | February 14, 2012 at 11:58 am

Does Providence provide utility service to Brown and the other tax exempts? if so, just tinker with their rates, and you’ll get that money out of them.

They’ll howl in protest, but I’m thinking the average tax payer in Providence will just tell them oh, boo-hoo.

A teacher friend retired at 55 with nice benefits. She was found with small problem with a 5% chance of cancer (found to not be cancer later). One of her big worries was that if she died, the pension providers would really get a good deal on her, since she would not be a 40 year encumbrance for them.

The entitlement mentality runs deep … some think it would be more fair if they continue to collect some benefits even from the grave. Democrats realize that playing Santa Claus to their political friends turns any responsible politician into the Grinch. Entitlement junkies need their fix … they will deny all fiscal realities in order to stay on the juice.

Although I think the country would be better off if Brown University shut down, it should be pointed out that requiring Brown and local hospitals to pay some local property taxes would only result in cost shifting from one set of taxpayers to a larger set of taxpayers. Like other colleges, most of Brown’s revenue comes either directly or indirectly from government grants, government student loan programs, and tax-exempt gifts from foundations and individuals.

MaggotAtBroadAndWall | February 14, 2012 at 12:55 pm

This is a great post and demonstrates why Legal Insurrection was recognized at CPAC.

BTW, anybody who does not click the “uber-liberality” hyperlink is missing a great read.

I’m certainly no fan of Brown University, but I don’t see how they’re responsible for Providence being bankrupt.

Seems like a typically Democratic tactic to me: Fail, then identify some rich guy to place the blame on.

Providence is bankrupt because public sector unions bankrolled Democrats in election campaigns and then received enormously generous pension and healthcare benefits when their union bosses negotiated with the union-owned Democrat politicians over their contract. Notice the taxpayers footing the bill didn’t have a seat at the table during the contract negotiation.

This is precisely why public sector unions should be outlawed nation wide.

    GrumpyOne in reply to Aarradin. | February 14, 2012 at 11:25 pm

    You have nailed it pretty well and I also as a native Rhode Islander saw the light twenty-two years ago and fled to Texas.

    Anything that happens in RI now comes as no surprise and in fact I would venture that the best route is the one of bankruptcy which is evidently the only way you can tame the unions.

    Train wreck indeed…

Aarradin,

You make excellent points, but I do disagree to a small extent.

Brown should have been paying the same taxes as everyone else, but I totally agree they are being made into a bogeyman.

The taxpayers were represented by their representatives – how well, or how poorly ….. that’s the rub.

Public sector unions do need to be outlawed. They have grown so corrupt and are such a corrupting influence that the “we just have to see” phase of their existance has been covered. Now it’s time to remedy the situation.

    GrumpyOne in reply to LSBeene. | February 14, 2012 at 11:28 pm

    To the best of my recollection, universities like churches like charities etc. are non-profits and as such have long enjoyed tax free status.

    Tax ’em and they’ll just pass on the increased costs to students.

    Simply put, there just is not a free lunch to be had and the moochers are the unions and politicians, not non-profits.

http://www.usatoday.com/news/nation/story/2012-02-13/rhode-island-powerball-lottery-jackpot/53070694/1
“…CRANSTON, R.I. (AP) – The winning ticket in Saturday’s $336.4 million Powerball jackpot was sold at a Stop & Shop supermarket in Newport, but no one has come forward yet to claim the prize, Rhode Island lottery officials said Monday…
The win means Rhode Island gets a little more than $12 million in taxes on the prize, Aubin said….”
Professor, if you won the lottery, your taxes would be half what Providence owes. How about you bailing those poor Demoncrats out?

Wonder if the folks already retired would be considered normal creditors if the city declares the BIG B. If so, they will most certainly regret not offering at least some consession. They might be thinking oh well, the city is going to declare so I will get what I can now and screw everyong else.

[…] In·sur·rec·tion –Providence begs for mercy, probably won’t get it submitted by The Mellow […]

[…] In·sur·rec·tion –Providence begs for mercy, probably won’t get it submitted by The Mellow […]

[…] In·sur·rec·tion –Providence begs for mercy, probably won’t get it submitted by The Mellow […]

I’ve always wondered about the debt aspect of pension systems. One legislature cannot obligate a future one without going through very delineated hoops to accept debt— meaning bonds. these procedures for bonds are normally spelled out in detail, often in the state constitutions. Although some states have enshrined public pensions in their constitution, but most have not. So the pension systems are a way to add debt without following the procedures enshrined in law.

Couldn’t this allow a state to disclaim the pension debt— “the past legislatures put the money they wished into the funds and we are not responsible for anything else not following the proper debt procedures.” Immediate services and goods under most government contract law has to use existing funds, but pensions make the appearance of paying as they go, but actually do not. Why can’t an enterprising state/city could just give the pensioners the pension fund and disclaim any other debt as not properly created?

[…] In·sur·rec·tion –Providence begs for mercy, probably won’t get it submitted by The Mellow […]

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