Rhode Island state officials are working with leaders in Woonsocket to resolve a $10 million school deficit after the mayor warned that the city could face bankruptcy.
So far, however, the city of 41,000 has avoided becoming the third municipality to come under state financial oversight. That could change if the state is forced to step in to keep the city solvent, according to Christine Hunsinger, Gov. Lincoln Chafee’s spokeswoman.
“There’s been no decision but the situation is pretty dire,” Hunsinger told The Associated Press. “The governor has been very clear that the state must do what it can to help the cities and towns.”
Mayor Leo Fontaine announced earlier this week that city schools are grappling with a $7.3 million deficit in this year’s budget and a $2.7 million deficit left over from last year. He said the city could run out of money next month and face bankruptcy.
The news prompted Fitch Ratings to lower the city’s bond rating to junk status, a move which is likely to hurt its ability to borrow.
State Rep. Jon Brien, D-Woonsocket, said the city may not be able to avoid bankruptcy. He said a supplemental tax bill wouldn’t provide enough revenue in time to avert the crisis.
“There’s a distinct lack of time and there’s a distinct lack of cash,” he said. “It just comes down to the fact that you can’t rely on the taxpayers to bail out the city at this point. You simply can’t draw blood from a stone. I don’t know what other alternatives are left.”
State revenue officials continue to meet regularly with city leaders to find possible solutions, Hunsinger said. She said Chafee would consider more aggressive intervention if state officials decide to contribute money to help the city’s bottom line.
Woonsocket has already laid off teachers and turned off 1,200 street lights to save money. Last month school officials warned all 600 teachers in the district that more layoffs are likely.
The state is empowered to appoint budget commissions, a fiscal overseer or a receiver to take control of a struggling municipality’s finances. To be eligible for intervention, a city or town must meet criteria including back-to-back years of deficits or recent rating downgrades.
The state has already intervened in Central Falls, which is seeking bankruptcy protection, and in East Providence.
Dan Beardsley, executive director of Rhode Island League of Cities and Towns, predicts Woonsocket will join the list.
“Unfortunately the outlook doesn’t look good,” he said. “They need to do something and do something quickly.”
State officials will do everything they can to avoid the black eye of having two municipalities filing for bankruptcy, according to state Rep. Lisa Baldelli-Hunt, D-Woonsocket.
“Bankruptcy is obviously not beneficial to the state as a whole,” she said. But she added that lawmakers may be unwilling to bail out another city. “It’s a tough sell to find millions of dollars to hand over to a municipality.”
State lawmakers voted earlier this year to advance East Providence its school finance funding to resolve a cash-flow crisis
Lawmakers also helped out Pawtucket by giving that city permission to borrow up to $12.6 million to meet its payroll last month.
Providence also meets the criteria for state intervention. Mayor Angel Taveras has warned that the city could be forced to seek bankruptcy protection if it can’t resolve its $22.5 million deficit. Taveras has asked retired city workers to negotiate pension and health benefit concessions and is seeking more in voluntary payments from large tax-exempt institutions, including Brown University.
Brien said that Central Falls, which was taken over by the state in 2010 and which filed for bankruptcy in August, has provided lessons for other struggling municipalities that might be subject to state intervention. If the state intervenes in Woonsocket, he said, he hopes the receivership would be in place for less time and for less money.
Total receivership costs in Central Falls are expected to reach $2.26 million by July – which the state is billing back to the city.