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Providence mayor's budget freezes pension increase

By Erika Niedowski
Associated Press / April 23, 2012
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PROVIDENCE, R.I.—Saying Providence can become the "next great American comeback story," Mayor Angel Taveras on Monday unveiled a proposed budget for the financially struggling capital that relies on a freeze of automatic pension increases and a sizeable hike in voluntary contributions from the city's tax-exempt institutions.

The first-term Democrat -- who is facing fiscal woes that have left Providence on the verge of bankruptcy -- submitted a $638.4 million budget for fiscal year 2013 to the City Council on Monday night in which city spending is essentially flat and no new taxes or tax hikes are proposed.

The spending plan hinges on a suspension in cost-of-living adjustments to public pensions, which would save nearly $16 million in the fiscal year starting in July. But that step is likely to be challenged in court by retirees who say the city can't go back on collective bargaining agreements already in place. The city says it still is in talks with retirees but that it will implement the freeze even if no accord is reached.

The budget also relies on $7 million in additional payments from Providence's tax-exempt universities and hospitals, including Brown.

The mayor has been negotiating for months with those institutions and said Monday he expects to reach an agreement with them. If he can't, the city will back state legislation that compels the institutions to pay more.

"Rarely in government do we have two cut-and-dried choices: This is one of those rare times," Taveras said. "We can choose to act and position Providence to be the next great American comeback story. ... Or we can do nothing, cling to the unreasonable hope that this will resolve itself and watch the city that we love fall into a black hole and make negative national headlines because of our plight. I choose to act."

The city still has to close a $22.5 million budget shortfall for the current fiscal year. Taveras has said bankruptcy is a real option if pension benefits are not pared back and tax-exempts don't pay more.

The mayor's total proposed budget for fiscal 2013 is about $25 million more than the current one, but the increase consists mostly of a $19.7 million hike in state and federal education aid he expects to get. It also includes a contribution to the city's rainy day fund.

The City Council subcommittee on pension sustainability last week issued seven recommendations for overhauling the pension system, and Taveras' budget assumes all of them will pass. They include the cost-of-living adjustments freeze -- until the system is 70 percent funded -- and a cap on pensions at around $78,000, or one and a half times the annual median household income in Rhode Island.

"It's a heavy lift, but I think this council is up to the task," Council President Michael Solomon said after the speech.

Paul Doughty, head of the local firefighters union, called it "a dangerous practice" for Taveras to build the cost-of-living adjustments freeze into the budget plan while negotiations with retirees are ongoing. He said any unilateral action all but guarantees a legal challenge.

"We will not negotiate with a gun to our head," he said.

Taveras earlier set a May 1 deadline for an agreement. The city concedes it would have to go back to the drawing board if it lost a court challenge -- and its anticipated pension savings.

Taveras' proposed budget does not assume any savings from what Gov. Lincoln Chafee has called his municipal relief package. It gives cities and towns the authority to cut pension benefits and waive certain state mandates if they meet the criteria for being labeled "highly distressed," as Providence does.

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