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Is bankruptcy really the answer for Providence?

March 4, 2012

Should Providence city government address its deficit mess by declaring bankruptcy? RIPR political analyst Scott MacKay says this is no panacea for the red ink in the city budget.

As Providence staggers under the weight of  crushing pension and health care liabilities for retirees, the temptation for Mayor Angel Taveras and the embattled city council is simply to declare bankruptcy. Blow up city government and start fresh, goes this theory. Bankruptcy would give the city the right to break union contracts and put its finances in order for the long slog toward a balanced budget.

Those supporting the bankruptcy option point to Central Falls, which has been in receivership since last year and is shuffling its way to solvency under the direction of receiver Robert Flanders.

Yet, no matter how high Taveras waves the bloody shirt of bankruptcy, Providence is not Central Falls. Central Falls is Rhode Island’s Third World country, a place that has long been a ward of the state. Its schools were taken over by the state years ago. There isn’t much of a commercial tax foundation in  Central Falls, a once-proud industrial center that time  long ago passed by.

Providence is not only Rhode Island’s capital. It is a storied New England port, one of America’s oldest cities, steeped in our nation’s history and an industrial and intellectual powerhouse. Nearly 400 years old, Providence a century ago was the Silicon Valley of its time, awash in such iconic companies as Brown and Sharpe Manufacturing, the machine tool innovator.

While the recession has taken its toll on Providence, our largest city is still home to Citizens Bank, Textron, GTECH, our region’s top law firms and restaurants and such non-profit job generators as Rhode Island and Miriam hospitals and Brown University and Providence College. And one of the state’s wealthiest zip codes, 02906, is on the city’s East Side.

We can’t sugar coat the city’s challenges, particularly the pension liabilities and the reality that Providence’s grand non-profit colleges and hospitals cannot be tapped for taxes. The cause of   the city’s financial problem was diagnosed in the 19th century by French writer Alexis de Tocqueville, who said that the “American Republic will endure until politicians realize they can bribe people with their own money.’’

For too many years, Providence politicians traded generous pensions and cost of living allowances for support on election  day. To the point that Gilbert McLaughlin, the fire chief who retired in the early 1990s with a salary of about $60,000 is now collecting a pension of nearly $200,000.

Bankruptcy carries a cost, says John Simmons, executive director of the Rhode Island Public Expenditure Council, the government-research group. “It has ramifications for the entire state and a serious long-term impact.’’

What business would want to invest in a bankrupt city? Why would anyone want to move here? Who would want to lend the city money at reasonable interest rates? The national and even international media attention a bankrupt Providence would attract would be an eternal black eye upon our city and state.

Rhode Islanders seem to get this. A recent public opinion survey by WPRI Channel 12 television showed that 71 percent of registered voters are against bankruptcy. (The poll carried an error margin of about 5 percent).

There is a way out for Providence. Governor Lincoln Chafee is poised to help; State House sources say he will soon propose measures to help the city. And the General Assembly can approve legislation to help the city control its soaring pension and health care costs. By slashing millions in state aid to Providence and other cities and towns, the Assembly became a big part of this problem. Now is the time for the State House crowd to stand up and be part of the solution. Or the proud city founded by Roger Williams in 1636 will celebrate its fourth century under the grim cloud of bankruptcy.

Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:40 and 8:40. You can also follow his reporting and analysis at RIPR’s `On Politics’ blog at RIPR.org

8 Comments leave one →
  1. Jan permalink
    March 4, 2012 5:21 pm

    Check the title. Answer is not spelled correctly.

  2. Jan permalink
    March 4, 2012 5:27 pm

    While I agree that the 200k pension is overly generous, why is it that the media always focuses on the top of the scale? I am sure that there are many who receive a lot less and who will be severely impacted by a cut. This is not balanced reporting and it is unfair to everyone else. It just adds to the attack on workers in this state.

    • Mister Guy permalink
      March 6, 2012 9:06 am

      Not all of the City’s retirees are getting COLAs of 5-6% for sure. While this & some of the overly generous health care benefits are indeed a key part of why Providence is struggling financially, the City just can’t remove those negotiated & agreed upon benefits willy-nilly. Any attempt to do so will just rack up the City’s legal fees over time. Bankruptcy is not the answer at all, and it’s mention is just being used now by City officials as a scare tactic.

  3. March 4, 2012 6:09 pm

    Sorry, I have to disagree with Jan. City and state employees enjoy unrealistic, politically-motivated pension benefits that are typically only reserved for Wall Street fat cats. One of my friends just retired from the Providence Police Department at the ripe old age of…. 47. My question for Jan is, how long have those collecting “a lot less” been collecting it? How many jobs did they have while they were “retired?”

    We’ve got an unsustainable system that needs to be fixed. If bankruptcy is the answer, then so be it.

  4. March 4, 2012 9:17 pm

    Providence should learn how to fly an American flag.Then it can teach Rhode Island how.
    The MIA head is a federal law, not state.
    Makes the money nervous.

  5. Craig O'connor permalink
    March 5, 2012 3:00 pm

    I am continually disappointed that commentators focus so much on cutting pension and health care benefits, without looking into some of the REAL reasons these two items are a problem. First, if people want to control cost of government, then they need to start working to control the growing cost of health care and health insurance – asking retirees and workers to pay more is a tiny little band-aid for a gigantic problem. Governments, businesses, families – we all need to pitch in and support health care reform that actually controls costs and improves quality. As for pensions, why aren’t we all demanding recompense from the financial institutions that obliterated public pensions by crashing the economy? In all the tortured debate about the state pension, people seem to forget that it lost $2 BILLION in value in one year, and it is the fault of Bank of America and JP Morgan, not Joe six-pack’s pension benefits. i am not saying the contracts can’t be improved, but going after the little guy is the easy way out, and it is high time we had some political leaders willing to stand up and take on the real culprits in the financial messed faced by cities and towns and states and the federal government – skyrocketing health care costs and out-of-control financial giants who own the system.

  6. March 5, 2012 8:51 pm

    Scott, good piece

    Bankruptcy is not the answer we want, we will regret. It will be a monumental black eye on the city’s reputation. We must work it out and the city can if all other parties co-operate.

    Bankruptcy is for those who want an easy way out, we are not yet at that
    point.

  7. Mister Guy permalink
    March 6, 2012 8:58 am

    “Those supporting the bankruptcy option point to Central Falls, which has been in receivership since last year and is shuffling its way to solvency under the direction of receiver Robert Flanders.”

    Putting the incompetency of Judge Flanders aside, CF is a little over 1 square mile with just under 20,000 residents. Providence is RI’s capital city. It’s more than 15 times the size of CF with over 9 times as many people as CF. CF is basically one big slum…Providence is far from that. Where are the hospitals & institutions of higher learning in CF? Don’t look too hard, cuz you might go blind in the process. CF shouldn’t even be a city in the first place…it’s obviously waaaay too small & poor to take care of itself.

    In CF, the median household income is around $22K & the per capita income for the city is around $11K. CF’s annual city budget is only around $17 Million. In Providence, the per capita income is around $15K & the median household income is around $27K.

    “By slashing millions in state aid to Providence and other cities and towns, the Assembly became a big part of this problem. Now is the time for the State House crowd to stand up and be part of the solution.”

    Exactly.

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