President Ruth Simmons and Providence Mayor Angel Taveras joined state and local leaders Tuesday morning to announce the result of months-long negotiations concerning the University’s payments to the city that were spurred by Providence’s fiscal crisis. Under the new agreement, the University will pay the city an additional $31.5 million over the next 11 years, a payment plan that amounts to an increase of $3.9 million for the current fiscal year, bringing the University’s total annual contributions to about $7.9 million through 2016.
The University will pay an additional $3.9 million over the next five years and an additional $2 million annually over the subsequent six years until 2022. The memorandum of understanding signed between the city and its institutions of higher education in 2003 – under which the University currently pays more than $4 million to the city in annual voluntary payments and property taxes – will remain in place.
Taveras announced in February his intent to seek $7.1 million in increased payments from the city’s nonprofits for the fiscal year 2013. The mayor has now reached agreements with nonprofits that amount to over $5 million of the goal, leaving less than $2 million at stake in ongoing negotiations. At the press conference, the mayor said he would not comment on the status of conversations with other nonprofits.
Taveras and Gov. Lincoln Chafee ’75 P’14 applauded the University for its contribution. “I felt that there was a catch. And there was no catch,” Taveras said at the press conference. “It was one of my most pleasant days as mayor of the city of Providence.”
As part of the agreement, the University will receive four blocks of streets that currently run through campus – Brown Street between George Street and Charlesfield Street, Olive Street between Brown Street and Thayer Street and Benevolent Street between Brown Street and Magee Street. The University can use the land as it wishes, though no plans have been determined yet, said Richard Spies, executive vice president for planning and senior adviser to the president.
The city will also give the University 250 new parking spaces to lease over the next 20 years to its employees and students, allowing them to park longer near campus, with the option to renew the license for two additional 10-year periods.
Finding the money
The Corporation reached a final decision regarding payments Sunday, and members cast votes of approval yesterday at 4:30 p.m., Simmons told The Herald.
The University Resources Committee, the entity that makes recommendations for the University’s budget, built in $2 million in anticipation of increased contributions to the city, but the committee will now need to adjust the budget to fit the higher contribution amount, Spies said. For this year, the $3.9 million increase could result in a budget deficit, forcing the University to draw from its reserves, Spies said. “But those kinds of things happen all the time,” he said. “We’ll deal with that.”
The University’s budget for the 2012-13 academic year draws $9 million from its reserves.
If making room in the budget for increased payments for one year is difficult, doing so for recurring payments over the course of 11 years is even more problematic. The University’s budget plan moving forward is necessarily vague, Spies said, but “it’s going to work its way through the system.” He said he could not pinpoint the source of the funds, but he said all University priorities have the potential to be affected.
“What it means is that there will be that much less money when the University Resources Committee sits down next fall,” which will have an impact on items including professor compensation and recruitment, as well as sustained investment in capital projects, Spies said.
The University will not be forced to lay off faculty members or take other severe measures, Simmons said, but the payments will require the University to think about certain trade-offs.
Prior to today’s announcement, some critics of the city’s demands expressed concern that increased payments could strain the University’s financial aid budget.
When asked if she thought increased payments could affect financial aid, Simmons pointed out that in 2008, when the University had to significantly reduce its expenditures, the University’s financial aid allowance was not touched. The budget allotment for financial aid relied mostly on donations rather than tuition, she added.
A rough start
The negotiation process began with a myriad of misunderstandings and less-than-friendly relations. In January, Taveras publicly called on Brown to pay more, saying the University had reneged on a plan to increase payments by $4 million annually. The University at the time maintained that it had not agreed to a $4 million increase, which would have required Corporation approval.
At today’s press conference, Simmons recalled a moment early in her presidency that set a tone for future relations with the city. She said when she first arrived, then-mayor David Cicilline ’83 threatened to hold a press conference in front of the Van Wickle Gates to pressure Brown to pay more. She said if it were not for this “introduction to the city of Providence,” the University and its host city would be farther along with tax agreements.
Considering her own experience, Simmons noted the University and the city must ensure incoming president Christina Paxson has a better working knowledge of city government. “Let it not be 11 years before she can understand what’s transpiring here,” she said.
Simmons said both her and the Corporation’s understandings of the University’s role in Providence have evolved since negotiations began. She said that while initially the University’s primary question was “How do we respond to this impossible request from the mayor, which is not at all reasonable?” the guiding question later became, “How do we respond in a time that requires that we step up?”
“And once we started talking about that, the Corporation felt that it was important to make a statement beyond what the city was trying to negotiate,” she said.
“I think we will have a tough time explaining that to our constituencies,” Simmons said, but she added that the University will be thankful to be located in a city that is in good financial standing.
Simmons told the Undergraduate Council of Students April 11, “I don’t think it’s reasonable for the city, having made mistakes and having become insolvent because of those mistakes, to turn to institutions that are successful and to demand that they pay for those mistakes.”
At the press conference, Taveras said her perspective pointing to the mistakes made by the city may be correct, but added that the city has shown it is taking steps to correct its failures. “We have made mistakes,” Taveras said. “We’re trying to address this structurally.”
‘A long way forward’
Addressing the concern that today’s payment plan would set a precedent for incoming mayors seeking a bailout from the University if the city is in a precarious financial position, Taveras and Simmons said they do not anticipate the need for further negotiations in the near future. “We hav
e a very satisfactory solution that we hope will take us a long way forward,” Simmons said.
A bill that would tax nonprofits at 25 percent of their assessed value was slated to be heard by the Rhode Island Senate Finance Committee this afternoon, but the hearing was postponed shortly after the announcement Tuesday morning.
State Rep. John Carnevale, D-Providence and Johnston, the bill’s primary sponsor, told The Herald that Brown’s increased payments are “a move in the right direction,” but he added he would like to see nonprofit payment plans in law eventually so that the city and its tax-exempt institutions could avoid revisiting the issue.
“The wind is out of the sail,” said House Speaker Gordon Fox, D-Providence, of the legislation, adding that a “blanket solution” is not optimal when considering the resources of the city’s various nonprofit institutions. The city must continue to negotiate payments with its nonprofits, he said.
The Taveras administration announced a three-year agreement with Lifespan yesterday, under which the hospital system agreed to make annual payments of $800,000. The city has not announced agreements with any other health care providers.
In March, the city announced that it had reached an agreement with Johnson and Wales University – the other university looking to expand its presence in the Jewelry District – under which the university has agreed to triple its payments to the city to nearly $1 million.
With Brown’s $3.9 million increase, Johnson and Wales’s $958,000 and Lifespan’s $800,000, the city has just over $5 million pledged of its desired $7.1 million.
While the increased contributions represent a move toward greater financial stability, the deal with Brown also coincided with Standard and Poor’s credit downgrade for the city – they moved its rating from BBB+ to BBB Tuesday, following in the footsteps of other major credit ratings agencies that have given the city near-junk bond status. In a statement, Taveras said the downgrade “is not surprising given the city’s fiscal crisis this past year.” But he added that the ratings agency failed to take into account increased payments from Lifespan and Brown, as well as the mayor’s pension reform approved by the Providence City Council last week – projected to trim $19 million in costs on the $422.8 million pension system through the suspension of cost-of-living increases.
This February, Taveras said Providence could face bankruptcy in June if it did not secure increased payments from the city’s nonprofits and reduce its unfunded pension liability. While the city has acquired $5.3 million of the $7.1 million Taveras said was needed from the nonprofits, negotiations are still ongoing with the city’s other major universities and hospitals. “The mayor has reached out to the nonprofits in the last couple of days and we expect the conversations to continue,” said David Ortiz, the mayor’s press secretary. The mayor has until June 30 to announce whether or not the city will be financially stable in the coming fiscal year.
– With additional reporting by Sona Mkrttchian and Adam Toobin