PAWTUCKET â Convinced that there were no other realistic options to avoid the state taking over control, the City Council voted 7 to 1 Wednesday night to allow for the borrowing of up to $11.6 million in Tax Anticipation Notes (TANs) to address its current fiscal year budget deficit.
On Monday, the City Councilâs Finance Committee had voted to recommend approval of borrowing up to $12 million in the short-term notes. However, the topic was the subject of lengthy debate that spilled over to Wednesdayâs nightâs meeting. Three city residents who are active in city government, John Sawyer, Joel Tirrell and David Graham decried the borrowing plan during the public input session at the outset of the meeting.
Yet, Mayor Donald Grebien and City Finance Director Ronald Wunschel outlined a limited scenario for dealing with the current yearâs estimated $13 million structural deficitâand said the infusion of borrowed cash will allow the city to pay its bills until more significant savings mechanisms can be implemented in the upcoming fiscal year.
Grebien told the council that the TANs borrowing will not âsweep the problems awayâ and admitted that a longer-term debt bond will eventually be needed, even with another $843,000 in state aid promised to the city in Governor Lincoln Chafeeâs just-released budget proposal. However, he stated, âThis short-term investment will keep our city afloat so we can address our long-term problems.â
As he told the council two weeks ago, Grebien added that the state Department of revenue is âwatching us very closelyâ and said that a state takeover must be avoided at all costs. He pointed out that if the state took control, it could immediately enact a property tax increase along with a lowered car tax exemption amount similar to what took place under the receiver in Central Falls.
Wunschel concurred, saying that while the TANs would cost the city about $122,000 in interest (at an expected borrowing rate of around 3 percent), there was really no other way to keep the cityâs payroll and services intact. He added that if the $843,000 in state aid actually materializes by the end of the fiscal year, and if other factors result in a more positive revenue picture than he projected, the actual borrowing amount needed could turn out to be less than $11.6 million.
Grebien noted that while substantial cuts had been made on both the city and school side, there was really no other means of attacking the bigger structural budget issues until the municipal contracts, all in place until June 30 of 2012, expire and new bargaining agreements are forged.
Addressing those who questioned his campaign pledge of 10 percent budget reductions, Grebien said he had asked all municipal department heads to come up with 10 percent budget cut plans and also asked them to explore a consolidation of some services. He said he will be asking residents for money savings ideas as well, at an upcoming series of community meetings, such as cutbacks in street sweeping and trash pick-up. âIâm asking you to go on faith We are borrowing off the first payment (of the upcoming 2012 budget), but thatâs where the debt bond comes in,â noted Grebien.
Councilors didnât approve the TANs resolution easily. Councilor Thomas Hodge argued that the administration should only be allowed to borrow up to $10.5 million in order to âhold their feet to the fireâ and force more budget cutting. However, his motion to this effect failed after councilors were advised by bond counsel that it could be more costly if the city didnât borrow enough and had to go back for a supplemental TAN at a later date.
Councilor Christopher OâNeill suggested that the car tax exemption be immediately lowered to the $500 exemption for the last quarter of the current fiscal year, saying that the revenue that would be generated would reduce the amount that the city has to borrow by an estimated $6 million. However, several other councilors objected to this plan, saying it would be the same as a supplemental tax increase.
In the end, all councilors but Hodge (Councilor Lorenzo Tetreault is vacationing) voted to allow the TANs, as well as a related resolution asking the General Assembly to authorize the city to issue the TANs payable in fiscal years 2011 to 2012.
However, all voiced concerns about the need to make serious changes in the coming year and the next four years after that to stave off a structural deficit that has been projected to loom as large as $80 million in five years.