Conservative ideologues aren’t bankrupting Rhode Island
In his New York Times column yesterday, Joe Nocera laid the blame for the fiscal catastrophe in Woonsocket, Rhode Island on Jon Brien, a state legislator who blocked a bill that would have plugged a massive hole in the town’s budget by raising property taxes on its residents by 13.8 percent. Nocera argued that Brien took these actions to shrink the local government because he’s a conservative ideologue, further highlighted by the fact that Brien is also on the national board of ALEC, an advocacy group that pushes for smaller government.
Maybe it’s true that Brien was primarily motivated by ideology, but if Nocera had taken even a cursory glance at the financial statement for Woonsocket, he would see Brien’s position has some merit. Spending on retiree benefits and municipal debt are drowning Woonsocket. The city is in a death spiral.
Let’s start with what Nocera got right: Municipal pensions, the traditional whipping boys for conservative critics of out-of-control government spending, are not Woonsocket’s big problem. The town’s pensions are actually 60 percent-to-90 percent funded, pretty good by Rhode Island standards (page 77). Maintenance of the pension funds required a contribution of only 2.2 percent of the 2011 budget.
The real deficit sinkhole for the town lies in its Other Post Employment Benefits (OPEBs) and expenses for its debt service. OPEBs, or health and dental benefits provided to city retirees, cost the city $4.5 million, or 3.2 percent of the budget. That amounts to $10,135 for each of Woonsocket’s 450 retirees. Debt service cost the city $16.9 million in 2011, or 12.2 percent of its $139 million annual budget. Those costs will jump to $21 million for 2012 and remain at that level through 2016 (page 47).
Add it all up, and total pension expenses, OPEBs and debt service consumed 17.6 percent of the town’s budget last year and will consume 20.4 percent of its 2012 budget. That means less than 80 percent of the budget goes to tangible public services for Woonsocket residents. On top of all that, the town’s fiscal situation was dealt another blow late last year when it was discovered that an unqualified school budget administrator lost track of $10 million in school funds.
I can see how Brien makes an easy target: In addition to his affiliation with a polarizing group like ALEC, he also told Nocera that he didn’t know how bad Woonsocket’s pension problems are. But Nocera glosses over the biggest issue in this story: In 2010 the Rhode Island General Assembly passed legislation that protects municipal bondholders by exempting them from creditor writedowns in bankruptcy proceedings. Rhode Island is the only state in the U.S. to prohibit haircuts for bondholders. The General Assembly’s actions have not been challenged yet in a federal bankruptcy court, which traditionally treats creditors on an equal basis.
Because the state’s General Assembly has exempted bondholders from renegotiating their terms, about 15 percent of Woonsocket’s budget cannot be adjusted. The city runs a pretty lean government already. From Julie Steiny at Education News (emphasis mine):
For much of her tenure ending in 2009, the 7-term, ex-Mayor Susan Menard delivered on her promise not to raise taxes. Rhode Island is a super-high-tax state, so this was much appreciated. The headquarters of the big drugstore chain CVS was expanding in her backyard, along with other blossoms of economic development. So increasing revenues worked in her favor.
But she also kept taxes down by cutting substantially among her city departments, including fire and police.
And for the decade ending in the mid-2000s, she level-funded the School Department, despite its growing expenses. School employees accepted contract concessions including a 20 percent co-pay on their medical insurance and what is considered in public-employee circles a massive deductible, $500.
Woonsocket’s per-pupil spending is 5th from the lowest. This is a bit of a feat when fully 21 percent of its student population need special education – the State average is 16 percent.
Two years ago, the City Council hired auditors to sharpen their scalpels and tackle the School Department budget. But they reported finding little fat. Middle-school sports were already gone, so they offered up guidance counselors, school nurses and other student supports. But even the auditors, born fiscal conservatives, recommended the City reinstate all-day kindergarten. Not that they did.
Nocera’s claim that ALEC has taken over Woonsocket is far-fetched. It’s Rhode Island’s Democratic General Assembly that has sentenced Woonsocket and other Rhode Island towns to death by taking debt restructurings out of the equation. Democrats thought they were protecting their state’s credit rating by outlawing haircuts on bondholders. But instead they have saddled their citizens with a big burden of debt.