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80-cent tax hike in Mayor's budget

May 10, 2012

PAWTUCKET — Driven by a drop in revenue and property values as well as increased expenses —including pension obligations for police and fire personnel — Mayor Donald Grebien is proposing a city budget that includes a tax increase of about 80 cents per $1,000 of assessed valuation.
At Wednesday night's City Council meeting, Grebien unveiled the annual operating budget that he and his administrative team believe is needed to run the city for the upcoming fiscal year.
The proposed $178 million budget for FY13 is roughly 3.25 percent higher than the $169.3 million figure for FY12, and includes the proposed School Department budget of almost $98.8 million.
On the city side alone, the general fund rose from approximately $106.9 million for FY12 to $109.3 million for FY13, while the school budget changed from $91.2 million in FY12 to the $98.8 million amount. If the budget remains intact and is approved as presented by the City Council, the average homeowner will see an increase of about $109 in their property tax rate.
“That's a lot of money, but we must meet the tough challenges that lie ahead,” stated Grebien, in his budget remarks to the council. He noted that the increase and the new property tax rates are based on the recently mandated revaluation and the “equalized” tax rate that was necessitated by the drop in values on most city properties.
Grebien added that his budget proposal does not include concessions that could come from the city's unions when the new bargaining agreements are finalized, or any other types of state or federal aid that might be forthcoming. “We did the budget strictly by what we need to operate the city,” he noted.
The mayor added, “Overall, the drop in revenue is a problem,” and said that finding new sources of revenue is one of the city's biggest challenges. He also noted that the reserve accounts are largely drained while the required pension contributions for municipal employees have increased.
The mayor reiterated that he thinks it is vitally important to keep the city out of the bankruptcy or near-bankruptcy scenarios that have occurred in neighboring communities.
He added that since his election, municipal staffing levels were cut by 10 percent.
He also cited as accomplishments a freeze on hiring and non-essential purchases, a 25 percent increase in medical co-pays for non-union employees and changes in the municipal health care package that saved $700,000.
Grebien also noted that almost $2 million of the spending plan goes toward avoiding default on the city's municipal pension obligations, and that this amount doesn't even include the OPEB requirements.
He spoke briefly of the importance of pension reform and commended Gov. Lincoln Chafee for his legislative proposals aimed at helping cash-strapped municipalities deal with the pension funding crisis.
On a related note, Grebien said his “one disappointment” as mayor is having bargaining talks break down with the firefighters' union (both the police and fire contracts are up on June 30). He added that the city “can't afford the contracts” as they now exist.
Grebien urged the council to support his budget proposal, despite the unpopularity of the 80 cent tax increase. He acknowledged that in an election year, “the easiest thing to do would be to step back. But this is a course we can not and should not take.” He said the budget is designed to “restore fiscal stability and pride” in the city. “This budget is about our financial survival,” the mayor stated.
The City Council will be holding budget work sessions on Tuesday, May 22 and Wednesday, May 23 at 4 p.m. in the City Council Chambers. A public hearing will then be held on the proposed budget on Wednesday, May 23 at 7 p.m. in the City Council Chambers.
On a related issue, city officials have released information to property owners showing how the proposed property tax rate for the new fiscal year is affected by the state mandated revaluation of property. Because the value of average properties in the city dropped by about 20 percent in the 2011 revaluation, the city must rely on a new “equalized” tax rate in order to raise the same amount of tax dollars as last year to run the city.
According to city officials, it is estimated that property values will see an overall decrease, and when coupled with the proposed budget increase, the estimated tax rate will be $23.06 per $1,000 of assessed valuation for residential real estate and $30.88 per $1,000 of assessed valuation for commercial/industrial/mixed use property.
Prior to the revaluation, the tax rate was $17.78 per $1,000 of assessed valuation for residential property and $24.54 per $1,000 of assessed valuation for commercial/industrial/mixed use.
That equalized rate of $22.26 per $1,000 is the base of what is needed to simply level fund the operating budget—an amount that would be inadequate due to contractual obligations, losses of revenue and other increased costs.
As an example, for a house valued at $100,000 before the revaluation, and taxed at the current rate of $17.78 per $1,000 of valuation, the tax bill would be $1,778. After revaluation, if that same house is now valued at $79,870, the equalized tax rate would be $22.26 per $1,000 to generate that same amount of tax revenue of $1,778 that is needed for the city's coffers.
Therefore, the mayor's proposed 80 cent increase on the dollar (or any amount of increase that the City Council opts to approve) would have to be added on to the equalized base figure of $22.26 per $1,000 figure. With the 80 cent increase, that brings the residential rate to the proposed $23.06 and the commercial rate to $30.88.
Prior to the council meeting, one speaker, Richard Muggles, complained about the equalized tax rate and suggested that a citizens' tax revolt should occur, similar to the Proposition 2 ½ tax cap in Massachusetts.
Later in the council meeting, the council voted to approve a resolution for the city's finance director to contribute the actuary's recommended contribution of $11.3 million into the police and firefighters' pension fund in FY13. Several councilors noted that by approving this additional funding for the pensions, it was also giving the nod to a property tax increase before they even had the chance to review and discuss Grebien's budget proposal.
Councilor Jean Philippe Barros asked about just level-funding the pension contribution to the $10 million level in the current budget. However, Finance Director Joanna L'Heureux told the council that the state would look unfavorably on this state, because the city's pension obligations might turn out to be higher than a previous actuarial study had showed.
Barros and Councilor Christopher O'Neill voted against the contribution, but the rest of the council voted for it. Councilor John Barry noted that while “people are not going to be happy” with a tax increase and an equalized tax rate, to not increase the pension fund payments “will make matters worse.”
Councilors Thomas Hodge and Mark Wildenhain also noted that the increased contribution, while personally unpopular, was necessary to keep the city out of bankruptcy. Council President David Moran concurred, saying that the council has “the fiduciary responsibility to fund the pension arc at 100 percent.”
The proposed FY13 capital budget was also submitted to the council by Grebien, detailing bonds and borrowing status for projects that include school building renovations and Public Works projects that include renovations and improvements to public buildings, parks and recreational facilities, sewers, roadways and sidewalks.
Also, the council approved a request from Schools Supt. Deborah Cylke to increase the $3 million bond that goes toward school building improvements to $5 million in order to make building improvements having to do with health and safety issues. She told the council that if the proposed projects are approved by the Rhode Island Department of Education, the city will be reimbursed by the state for 75 to 80 percent of the cost of the work.
The council's approval paves the way for the $5 million bond request to be placed on the November ballot, where it will be up for a citywide vote.


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