Providence mayor warns of possible bankruptcy

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By ERIKA NIEDOWSKI, Associated Press

PROVIDENCE, R.I. (AP) — Mayor Angel Taveras painted a bleak picture Thursday of the city's finances, saying Providence faces "devastation" and could go bankrupt if retiree benefits aren't cut and tax-exempt institutions like Brown University don't pay more in lieu of taxes.

Taveras said he cut a projected $110 million deficit for the current fiscal year to less than $30 million but that the city is on track to run out of money by June. He said taxpayers and city workers have already sacrificed — taxes and fees have gone up, several schools were closed and there are 200 fewer people on the city's payroll compared to a year ago — and he called on retirees and nonprofit hospitals and universities to do the same.

"Everyone must sacrifice or everyone will suffer the consequences," he said at a news conference at City Hall. "We need everyone to be part of the solution."

He said the city can't afford retirees' guaranteed annual cost-of-living increases — about 600 retirees get increases of 5 and 6 percent — and that benefits will be cut one way or another, either voluntarily or possibly through court action. He suggested the city could go the way of Central Falls, which was taken over by a state-appointed receiver in 2010 and where pensioners' benefits were unilaterally slashed. The receiver declared bankruptcy on behalf of the city in August.

"Let me be clear: We will reduce retiree benefits," he said.

Taveras has scheduled a town hall meeting with city retirees for March 3.

Taveras has also been at odds with the city's non-profits over payments they have agreed to make to the city in lieu of taxes. He wants the hospitals and universities here — including Brown — to shell out $7.1 million more this year.

The mayor said he wants the Ivy League university to make an additional $40 million in payments over 10 years. According to the city, Brown owns more than $1 billion in property that would bring an estimated $38 million to Providence if it were taxed as a private entity.

Brown currently pays $4 million a year to the city — voluntarily — in lieu of taxes, said Marisa Quinn, vice president for public affairs at the university. She said a committee of the Brown's governing board approved an increase of $2 million a year over five years with plans for the full board to consider additional payments.

"We regret that the mayor rejected this offer and hope that we can continue our discussions and reach an equitable and sustainable solution," she said.

Taveras said the city will support state legislation that could compel the institutions to pay up. He supports another bill under which the city could collect property taxes on buildings owned by the nonprofits that are used for purposes unrelated to education or health care.

The city's budget is $614 million for the current fiscal year, 4 percent less than last year. The city's bond rating was downgraded in March, from A1 to A3, by Moody's Investor Service. The downgrading made it eligible for state intervention under a law that allows the state to take over struggling cities' finances.

One development that prompted Taveras' dire warning Thursday was a court ruling this week that the city cannot force police and fire retirees to switch to Medicare at age 65 — what the mayor called a "reasonable" effort to save $8 million a year.

The retirees sued last year after the city won approval to move them from the life-time Blue Cross coverage provided for in their contracts. They asked the judge to stop the city from implementing the change, and the judge issued a preliminary injunction on Monday.

The city is appealing the decision to the state Supreme Court.

House Speaker Gordon Fox, who attended the news conference, said the state would do whatever it can — with what he called "dire urgency" — to help Providence. He said Providence is the center of the state's economy and that its financial failure would have serious ripple effects throughout the state.

"This state depends on this city being fiscally healthy," he said. "Providence cannot fail."

Taveras said a supplemental tax increase would be a last resort, but it was not clear if even that would help stave off a possible bankruptcy.

A year ago, Taveras described the city's fiscal situation as a "Category 5 hurricane."

"Unfortunately," he said Thursday, "the hurricane has not yet passed."

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