U. raises payments to city in budget deal

By
City & State Editor
Tuesday, September 4, 2012

After months of tense negotiations, then-president Ruth Simmons and Providence Mayor Angel Taveras joined state and local leaders May 1 to announce an agreement on the University’s payments to the city. Under the new agreement, which was spurred by Providence’s fiscal crisis, the University will pay the city an additional $31.5 million over 11 years, a payment plan that amounted to an increase of $3.9 million for the 2011-12 fiscal year. 

This brings the University’s total annual contributions to about $7.9 million until 2016, since it has been paying $4 million in voluntary payments and property taxes every year under a 2003 agreement signed between the city and its institutions of higher education. 

The University will pay an additional $3.9 million over the next four years and an additional $2 million annually over the subsequent six years until 2022. 

The negotiations between the city and the University were first made public in January and intensified a month later, when Taveras announced his intent to seek $7.1 million in increased payments from the city’s nonprofits for the 2013 fiscal year. Prior to reaching the deal, Taveras had already finalized agreements amounting to $1.45 million with two nonprofits, Lifespan and Johnson and Wales University. 

After Brown pledged an additional $3.9 million, less than $2 million remained to reach Taveras’ goal. The mayor subsequently cut deals with nonprofits CharterCARE Health Partners, Care New England and the Rhode Island School of Design early in the summer, leaving him more than $1 million short of his goal.

The city requested additional contributions from the University, which does not pay taxes on the property it uses for educational purposes, because about 40 percent of the city’s land is held by tax-exempt nonprofits. The University already paid taxes on land not used for educational purposes, such as parking lots, prior to the May agreement.

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 received four blocks of streets that currently run through campus – Brown Street between George and Charlesfield streets, Olive Street between Brown and Thayer streets and Benevolent Street between Brown and Magee streets. The University can use the land as it wishes, though no plans have been determined yet, said Richard Spies, former 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 for longer near campus, with the option to renew the license for two additional 10-year periods.

 

Finding the money

The Corporation, the University’s highest governing body, voted to approve the measure in the days immediately preceding the May 1 press conference, Simmons told The Herald.

The University Resources Committee, the entity that makes recommendations for the University’s budget, had allotted $2 million for increased contributions to the city, but the committee will now need to adjust the budget to fit the higher contribution amount, Spies said. 

The $3.9 million increase resulted in a budget deficit for the 2011-12 fiscal year, wrote Executive Vice President for Policy and Planning Russell Carey ’91 MA’06 in an email to The Herald. The University was forced to draw $9 million from its reserves to cover some of the increased payments, and the rest of the deficit will be spread out over the coming years.

The University’s budget plan moving forward remains 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 now going to the city, but added that all University priorities – including professor compensation and recruitment, as well as sustained investment in capital projects – have the potential to be affected by the new expenditure. 

The University will not be forced to lay off faculty members or take other similarly severe measures, Simmons said, but the payments will require the University to think about certain trade-offs. 

Prior to the May announcement, some critics of the city’s demands expressed concern that increased payments could strain the University’s financial aid budget. But Simmons pointed out that when the University had to significantly reduce its expenditures in 2008, the University’s financial aid allowance was not touched. The budget allotment for financial aid relies mostly on donations rather than tuition, she added. 

“It’s not taking away from anything that’s already been committed,” Carey told The Herald. “Student access and support has always been an ongoing priority.”

 

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 maintained it had not agreed to a $4 million increase, which would have required Corporation approval.

At the May 1 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 her successor, 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 at the press conference.

Simmons told The Herald both her and the Corporation’s understandings of the University’s role in Providence have evolved since negotiations began. 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?” she said 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 at the press co
nference, adding that the University will benefit from being 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 the new payment plan would set a precedent for incoming mayors to seek 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 have 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 the afternoon of the press conference. The bill has not been touched since.

The bill’s primary sponsor, Rep. John Carnevale, D-Providence and Johnston, 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.

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. The company moved its rating from BBB+ to BBB the day the deal with Brown was announced, 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 a week earlier – projected to trim $19 million in costs on the $422.8 million pension system through the suspension of cost-of-living increases. 

The city reached an agreement with the city’s policemen, firefighters and retirees over the summer. The deal will save the city $18.5 million this fiscal year and reduce the city’s unfunded pension liability by $170 million. The agreement – pending approval by the police and firefighter unions in the coming weeks- will save the city over $40 million over the next decade.

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. June has come and gone, and the city remains solvent. The prospect of increased contributions allowed Taveras to propose a balanced budget to the City Council in April.

“The work that the Taveras administration has done in the past almost two years to pull the city back from the brink would not have been possible without every stakeholder in the city stepping up and doing more,” said David Ortiz, Taveras’ press secretary. “Brown University’s commitment to Providence has been a big piece in the puzzle.”

“Brown made that commitment under President Simmons, and we give the University and President Simmons all the credit they deserve,” he said, adding that the Taveras administration is now looking forward to working with Paxson.

“The idea of this fairly long-term 11-year agreement allows the city to work with the University in a constructive way,” said Marisa Quinn, vice president of public affairs and University relations.