Taveras: Pensions still have city on a precipice

Providence Mayor Angel Taveras. / PBN FILE PHOTO/FRANK MULLIN
Providence Mayor Angel Taveras. / PBN FILE PHOTO/FRANK MULLIN

Providence Mayor Angel Taveras last winter warned that the city was on the brink of bankruptcy and faced another large tax increase or state takeover without givebacks from employees and larger payments from nonprofit institutions. Three months later, the city passed new pension rules expected to save $16 million annually. In addition, Brown and Johnson & Wales universities agreed to increase their yearly contributions and Lifespan signed a deal to start making payments to the city. But Taveras says his warnings about bankruptcy were not idle threats, and Providence is still one successful legal challenge away from the precipice. Hours after the Brown and Lifespan announcements last week, Standard & Poor’s downgraded Providence’s credit rating from BBB to BBB-, the lowest investment-grade rating.
Taveras and city Director of Administration Michael D’Amico discuss Providence’s financial footing and the high-stakes fight over employee pensions.

PBN: With Brown, Johnson & Wales and Lifespan contributing more to the city, plus the pension changes passed this spring, has Providence avoided bankruptcy at least for this year?
TAVERAS: We may have moved it further away from the edge, but until there is a final resolution of our Medicare legislation, and what I anticipate will be pension litigation, [bankruptcy] just simply can’t come off the table. If we can’t come to a resolution with our pensions, there just are no other options. I believe bankruptcy is very bad for the city. It will cause property values to plummet and prevent people from investing in the city. Some people look at it as a panacea, but I look at it as a Pandora’s box. By the end of this fiscal year, I anticipate we will have a ruling from the Supreme Court on the Medicare legislation. How they decide that case will be indicative of how they will decide a COLA case. If we are not successful with the Medicare case, it is unlikely that we would be successful in some of the other things we are trying to do.

PBN: In February you warned of a potential mid-2012 or fiscal 2013 tax increase. With the city still in financial crisis, why didn’t you propose one? TAVERAS: We raised taxes 10 percent last year. We did it and it hurt a lot of people. Our commercial tax rate is one of the highest in the country, second to Detroit. I don’t want to increase that any more because I need investment in the city and need to attract people into the city. I am worried that people are on the edge – unemployment is 11 percent. What we did last year is passed an ordinance that said if you claim the homestead exemption, you need to show that your vehicle is registered here in Providence. Two things happened: we got a whole lot of cars registered in Providence, and landlords and investors who weren’t eligible for the homestead aren’t getting it.

PBN: When the pension ordinance was passed, some police and firefighters complained that their COLAs were being taken away while they were still at the table and willing to talk. Is that fair?
D’AMICO: We were actually in three negotiations: active police, active firefighters and retirees. Active police indicated that they did not think they could get their members to agree to any changes because of the concessions they had made last year. Active fire were presented with a proposal and [they] said: Have you got anything else? They never said their people would not accept anything, but we never received a counter-proposal. … With retired police and fire, we had several sessions, and the city made more than one proposal. They made one counter-proposal and the savings were a fraction of what we needed, maybe 20 percent of what we needed to achieve. … So, yes we were talking, but the discussions were not going very far.

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PBN: Do you get the sense that the unions and retirees are just taking a tough negotiating stance or do they not understand the severity of the problem?
TAVERAS: I think our current unions do, there is just so little more they can do to assist. I think our retirees don’t.

PBN: In January you were not happy with Brown. What changed to make this deal possible? TAVERAS: Gov. [Lincoln D.] Chafee deserves a lot of credit. The reason we [announced the agreement] at the Statehouse is he is the one that brought us back together. He convened a meeting with me, Brown Chancellor Thomas Tisch and President Ruth Simmons and said we need a way to work this out. … Plus [Simmons’] commitment to get this done before the end of her tenure made a huge difference.

PBN: Originally the former I-195 lands were part of the discussions with Brown, but they are not in this deal. Are you still talking to them about property there?
TAVERAS: They were originally part of the discussion and to simplify it, we excluded them. They are interested in several parcels. I have an interest in them obtaining them. I look forward to working with them on it, but that would require an additional agreement. We said: Let’s just work on what we can agree on now and then work together on that part later. I think you can expect to see a lot more cooperation between the city and Brown. If they are able to obtain it, then there would be another agreement with respect to the parcels they obtain.
Our interests are aligned. We think Brown is a very good investment for the city and state. They have been around for almost 300 years and we think they are going to be around for a lot longer. So we want to see that growth in a way that makes sense for Brown and makes sense for the city.

PBN: The budget and pension measures you have taken have avoided bankruptcy and a property tax increase, but left the city’s financial fate up to a judge. Is that necessarily a better situation?
TAVERAS: The way I see it, bankruptcy is a last resort. A lot of people say you can overcome the stigma of bankruptcy. I agree, but I think it is going to take us at least a decade. We don’t have a decade. We have 11 percent unemployment, we have foreclosures going on. We see what is going on across our city and state. I think you can get over a stigma, but do we have that time to waste? No. We may end up in Chapter 9, but I feel that it is my obligation to do everything that I possibly can to avoid it. •

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