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Rhode Island Cities Turn to the State for Survival
Woonsocket, a city of 41,186 residents in northern Rhode Island, remains in the dark after the city deferred plans to turn its 1,200 street lights back on this month. The city's plans changed when local school officials announced an unexpected $2.7 million deficit left over from last year's school budget. The city turned off the lights temporarily last year until it could see better financial days. It is not the only city in Rhode Island confronting difficult financial realities. Cities and towns across the state are struggling to cope with revenue shortfalls, cuts from the state and growing pension and education bills, so city officials are turning to the state for assistance.
Gov. Lincoln Chafee asserts that keeping the state's municipalities afloat is one of his main priorities, but some state lawmakers say rescuing cities and towns will only delay inevitable decisions.
Chafee faces the challenge of closing the state's projected $120 million budget deficit on top of helping these cities and towns with their fiscal mess. The state has cut $193 million in aid to the state's 39 cities and towns in the past three years.
Rhode Island has already had to take over the finances of some cities. Central Falls gained national notoriety last August, when a receiver was appointed by the state to oversee the city's bankruptcy, and another city is East Providence, where the state appointed a budget commission to oversee East Providence's finances last month.
Chafee is requesting that the General Assembly approve $2.6 million for Central Falls to compensate for the deep cuts to the pensions of more than 100 retired police and firefighters. The city announced bankruptcy last August with $80 million in unfunded pension and benefits liabilities and $5 million deficits projected for each of the next five years.
East Providence asked lawmakers to advance $12.6 million in state education funds that were scheduled to be paid in April. The legislature approved the proposal in time for the city to meet its January payroll. Without the state's assistance, the city was expected to run out of cash at the end of the month. The budget commission overseeing the city's finances warns that the city will still run short on cash this spring. The city faces a $7.2 million budget shortfall and has seen its bond rating downgraded to junk status.
Several other Rhode Island cities have seen their credit ratings downgraded also, including Woonsocket which saw its credit rating reduced to "risky" last week by an investment agency.
In addition, unfunded pension and benefits liabilities remain a large cause of municipalities' fiscal problems. They face a total unfunded pension gap of $2 billion.
Many lawmakers said they are determined to help municipalities avoid bankruptcy, but some are skeptical of allowing city leaders to avoid the tough decisions to raise taxes, cut services or reduce pensions and benefits. State lawmakers are smart to be cynical of these temporary relief efforts. As the state tries to close its own budget deficit, they cannot continually come to the rescue of these cities. A bailout is not a panacea but rather a band-aid on a deep wound. Local leaders have not served their constituents with their best interest in mind.
The inefficiency of Rhode Island's local governments is best summarized by the words of Rose Marie Canavan, a 75-year-old retired teacher who served on the Central Falls city council in the early-1990s. She pointed to the city's poor management as a reason for the city's current situation. She said, "There were a lot of red flags raised," and continued, "The whole issue is mismanagement of funds and spending beyond your means. In the private sector, smart people see it coming and make adjustments. If they don't, they go under."