PROVIDENCE — With cities on the brink of insolvency and joblessness stubbornly high, Rhode Island lawmakers returning for a new legislative session say 2012 is shaping up to be a pivotal year.
Just as they spent last year finding ways to fix the state's fiscal problems, lawmakers say 2012 must be devoted to helping cities and towns weather a fiscal crisis that shows few signs of abating.
“The fiscal integrity of the municipalities is going to be the year's big issue,” said House Speaker Gordon Fox, D-Providence. “This is make-it or break-it time.”
The work gets under way Tuesday when the House and Senate convene.
Look for lawmakers to debate legislation to help cities tackle chronic municipal budget deficits and runaway pension costs even as they look to plug another state budget shortfall. Lawmakers say they will also explore ways to boost the state's economy and educational system, and they will be voting on new political district lines and myriad other issues.
Legislators begin 2012 after a year of heavy lifting. In 2011 lawmakers eliminated a budget deficit of more than $300 million and passed sweeping changes to the state's pension system that will save billions in future years.
The focus on finances will continue as the state limps out of the economic downturn. Unemployment remains at 10.5 percent, compared to 8.6 percent nationally. The state lost 1,900 jobs in November, a 0.3 percent decline.
Laurie White, president of the Greater Providence Chamber of Commerce, said lawmakers need to focus on improving the business climate by cutting unnecessary regulations and keeping taxes low. Her organization was a leading supporter of the pension overhaul, and White said the chamber is just as serious about improving the state's business climate.
“The economy has been priority No. 1 for the last couple of years and I don't think we've really solved our problems in any significant way,” she said.
Gov. Lincoln Chafee argues that improving the health of the state's cities and towns is a necessary step toward improving the state's overall economy. He state cannot afford to see another city slip into a fiscal morass.
“The fiscal health of the state of Rhode Island is directly linked to the fiscal health of our cities and towns,” he said.
The city of Central Falls is seeking bankruptcy protection, and East Providence's finances are under the control of a state budget commission. Moody's Investors Service downgraded nine Rhode Island municipalities in 2011, including Providence, East Providence and Pawtucket. The loss of nearly $200 million in state aid to local governments over the last three years only makes the money crunch worse.
A key factor driving the municipal fiscal crisis is the rising cost of pensions. Collectively, Rhode Island's municipalities need $2 billion to meet promised pension payouts.
Mayors around the state warn that without the ability to reduce benefits or suspend annual pension increases, their cities will have to raise taxes or slash services to keep up with the ever-escalating cost of providing the retirement plans for municipal employees.
“Our finances are so precarious right now. It just can't continue,” said Cranston Mayor Allan Fung, whose city faces an unfunded pension liability of $256 million, slightly larger than the city's entire annual budget.
Last fall, lawmakers passed sweeping changes to the pension system that covers 66,000 state workers, teachers and many municipal workers. The new law is designed to save billions of dollars in future years by suspending annual pension increases for retirees, raising retirement ages and creating a new hybrid system that combines a 401(k)-style investment plan with a traditional pension that guarantees workers a specific payout upon retirement
Despite pleas from Chafee and several mayors, lawmakers chose not to apply the changes to the 36 municipal pension plans. Instead, they asked the cities to submit reports on their pension problems. The reports are due this spring.
“Look at Central Falls, East Providence and all the cities on the verge,” said state Sen. Juan Pichardo, D-Providence. “The cities have to tackle this problem soon or they will be in real trouble.”
Chafee is also wants lawmakers to approve $2.6 million to make up for deep cuts to the pensions of retired police officers and firefighters in Central Falls. The General Assembly will once again grapple with its own finances, as next year's budget is projected to have a deficit of $120 million. While that may sound like a formidable shortfall, lawmakers note that they eliminated a nearly $300 million deficit last year in a $7.7 billion budget.
Chafee said he is “considering” a proposal to eliminate part of the deficit through tax increases, but he offered no details. Senate Minority Leader Dennis Algiere, R-Westerly, said that would be a mistake.
“We need to focus on making it easier to live and work in Rhode Island, not harder,” Algiere said. “It's time to look at streamlining government.”
Expect more politics than usual as lawmakers redraw the state's political district boundaries and prepare for fall elections. State Rep. Doreen Costa, R-North Kingstown, said the session will be a failure if politics take center stage.
“People need to forget that it's an election year,” she said. “We need to put the fundraising and the campaigns aside and instead worry about getting people back to work.”
Chafee and legislative leaders said they know the public is anxious to see signs of progress. Sixty-three percent of Rhode Islanders surveyed in a recent Brown University poll said the state is “on the wrong track.” Recent census numbers show Rhode Island is losing population faster than any other state.
If there's an upside to the state's predicament, it's that tough times have galvanized state leaders, Fox said.
“To make real change you almost have to hit bottom,” he said. “People realize that we are in crisis. Central Falls showed that a public pension system can fail. This is real and it's going to take all of us working together to fix it.”