Providence’s precarious finances are once again the top topic at City Hall. RIPR political analyst Scott MacKay says capital homeowners should be prepared for a tax increase this year.
A river of red ink is flowing through Providence’s finances. The warning flags are everywhere, even though the city’s troubles aren’t new.
Last December, Moody’s Investors service, which tracks the credit worthiness of states and cities,, trimmed the Providence outlook to negative, citing weak cash flow and the city’s pension and health care liabilities.
Now comes a new study of the capital city, this one a comprehensive look from Public Financial Management , which is helping Mayor Jorge Elorza’s administration assemble a long-term strategy to make the city solvent.
This new report doesn’t contain anything that will come as a surprise to Providence residents who have been paying attention. Yet it does lay out the fiscal challenges with a useful comparison to other New England cities with similar populations and financial hurdles.
As is the case with too many other communities, Providence politicians have had a history of short-term thinking when it comes to budgets. The tactics have usually been somewhat akin to dealing with potholes – patch them and hope for the best.
Over the years, the pols skimped on making adequate contributions to the pension system. They bought the votes of city workers by giving them pension and health care benefits taxpayers couldn’t afford. And in election years, they declined to raise taxes to keep up with costs.
This attitude isn’t novel either. A.J. Liebling, the great 20th Century journalist, began his career at the Providence Journal in the 1920s. He found Providence a ``lovely place to work’’ , but also said, ``There was nothing you could do about anything, but then nothing was so bad that you felt a burning urge to do anything about it.’’
That attitude isn’t going to work anymore. There are no big manufacturing companies left to tax; the anchors of the city’s economy are such major non-profits as the Lifespan hospital system, Brown University and Providence College. The middle-class has eroded and Providence is increasingly a place of the wealthy and the poor.
Under the way Rhode Island finances government there are few sources of money the city can tap. Property taxes are obviously one. Politicians don’t like to raise levies on homeowners because they tend to be voters. But as this new study shows, Providence homeowners are not overtaxed compared to other New England cities of similar size, such as Bridgeport, New Haven, Springfield, Hartford, Waterbury, Worcester and even suburban Warwick.
Commercial tax rates are among the nation’s highest, so a city that wants to attract business must be careful about hiking that rate. And motor vehicle taxes are in the stratosphere, compared to cities throughout the region.
Not all of Providence’s troubles can be traced to lax management and political expediency at City Hall. The Statehouse has slashed money to the capital city; Providence gets about $30 million less in state aid than it did in 2007. This too, has much to do with politics – state lawmakers look great when they cut taxes at the state level on businesses and social security recipients. But too often they accomplish this by squeezing cities and towns, which are then forced to raise property taxes to cover the cuts.
City Council President Luis Aponte says Elorza probably make a mistake last year by failing to bump up property taxes. The year before, then-Mayor Angel Taveras, who was running for governor, didn’t raise property levies. These policies may have been popular, but the day of reckoning always comes.
Providence may get a break on school aid this year with changes in the state education formula yielding an extra $6 million or so. But Elorza and the council must come up with ways for Providence to put the city on a path that stabilizes taxes, cuts spending and honestly lays out to taxpayers the consequences of harnessing some city services. If taxpayers on the East Side, say, rebel against higher taxes, they’d better be willing to close a fire station or two in the neighborhood.
And the state should loosen the purse strings to help Providence and other communities deal with the soaring car tax, which Rhode Islanders view as a nettlesome levy that is a burden, especially to low and middle-income motorists.
If the Rhode Island do-nothing syndrome persists, Providence will be faced with the least tenable of options: municipal bankruptcy. Some business leaders, such as former Hasbro CEO Alan Hassenfeld, have already mentioned this route.
Let’s put a flashing yellow light on that. How many businesses will want to come to a bankrupt city? Do we really want our capital to be mentioned in the same national headlines with Detroit?
Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:40 and 8:40 and on All Things Considered at 5:44. You can also follow his political reporting and commentary at our `On Politics’ blog at RIPR.org