Metro

Bankruptcy looms as mayor threatens legal action

By
City & State Editor
Friday, February 3, 2012

Correction appended.

Providence Mayor Angel Taveras announced Thursday morning that the city could face bankruptcy in June unless it reins in its $22.5 million budget deficit, in part by increasing payments from nonprofits like the University. Later that day, Gov. Lincoln Chafee ’75 P’14 convened a meeting with President Ruth Simmons, Chancellor Thomas Tisch ’76 P’07 and Taveras to address the issue.

At the meeting, representatives from the city and the University agreed to “renew conversations regarding the University’s payments,” said Marisa Quinn, vice president for public affairs and University relations. Taveras has threatened legal action if an agreement with nonprofits cannot be reached cooperatively.

Taveras also demanded sacrifices from retirees at the morning press conference, calling for the suspension of cost-of-living increases in retiree pensions, and he said the city may need to increase residents’ taxes, though he did not specify when or by how much.

 

Success or failure

Taveras will again ask the University for an additional $4 million per year for the next ten years, he said at the press conference. Unless both parties come to an agreement voluntarily, the General Assembly will pursue a legislative alternative, Taveras said. The mayor will meet with the state legislature’s Providence delegation today to discuss legislative options.

“You cannot be successful in a failed city,” Taveras said.

In 2011, Brown paid more than $4 million in voluntary and tax payments to the city. If the University were taxed to the full-assessed value of its property holdings, its tax bill would total $38 million.

The city has recently been outspoken in calling for the University to make additional contributions to Providence. Taveras alleged last month that the University reneged on a deal to provide $4 million in additional contributions to the city each year. The University countered that such a deal was never reached, let alone presented to the Corporation, the University’s highest governing body, for approval.

Together, Providence’s nonprofits would pay $105 million if taxed to the value of their properties, Taveras said at the press conference, adding that he is seeking for nonprofits to contribute an additional $7.1 million toward paying down the city’s deficit.

The Providence City Council passed a resolution Jan. 19 that would strip Brown of its tax-exempt status. It also issued a report that recommended increasing payments to the city made by local universities and hospitals.

“If Brown were to increase its current contribution by $4 million, that would fall within the range of what we’re recommending,” said City Councilman Sam Zurier, Ward 2.

The meeting with Chafee and University administrators yesterday was “productive,” said David Ortiz, the mayor’s press secretary. But “this is not only about Brown,” he added. The mayor has requested that all tax-exempt institutions pitch in to help the city, he said.

The University maintains that it already contributes enough to Providence, but that it would consider making additional contributions to the city if such payments aligned with its educational mission. If the city government pursues legal strategies to make Brown pay more, the University will argue that targeting institutions of higher education is detrimental to Providence’s economic well-being, Quinn said.

“I think it’s a very challenging time for the city,” Quinn said, adding that the University depends on Providence’s success.

Simmons spoke briefly about the meeting an event honoring University employees yesterday. “I had a very, very good meeting with the mayor, where happily he reaffirmed that he really wants to work with us to develop the right ideas for how Brown can continue to support the city,” she said.

 

Pension problems

The mayor will hold a town hall style meeting March 3 to discuss suspending yearly increases in employee pension payments. Retiree pensions increase by 5 to 6 percent annually to adjust for inflation.

“As a city, we no longer have the ability to sustain these benefits,” Taveras said at the press conference. “It must stop now.”

The Rhode Island Superior Court ruled Monday against a motion by the city to shift eligible retirees from private insurance to Medicare, which would have cut costs. The city will file an appeal against the ruling, Taveras said.

Paul Doughty, president of Providence firefighters Local 799, said the mayor has not yet asked retirees to make a change. “I’m adamant that there has to be conversation,” he said, adding that he is confident the retirees will be willing to work with the mayor.

The mayor has taken the first right step by announcing the town hall meeting, he said.

While suspending cost-of-living increases would hurt retirees, Doughty said it would be worse for everyone if the city declares bankruptcy.

Taveras said he will let the courts take care of pension costs if he cannot work with the retirees. “Either the retirees will accept the suspension of their guaranteed yearly raises and changes in health care, or they will follow the path of Central Falls’ retirees, who have had their full pensions slashed drastically in bankruptcy courts,” Taveras said.

 

—With additional reporting by Phoebe Draper and Sona Mkrttchian

Due to an editing error, an earlier version of this article stated that the University pays $1.2 million in voluntary payments to the city. In fact, the University pays more than $2.4 million in voluntary contributions alone and a total of more than $4 million in combined voluntary and tax payments to the city. The Herald regrets the error.

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