Providence, Rhode Island—On March 3, Providence Mayor Angel Taveras stood before hundreds of retired city workers—former teachers, firefighters, police officers and many others—who had gathered for a town hall meeting in a ballroom overlooking the Pawtuxet River. Having warned that the city could face bankruptcy, he said, “I’m here because I want to make sure that we save your pensions.”
As his chief of staff explained soon thereafter, retirees could see their pensions cut by 73 percent if the city files for Chapter 9 bankruptcy. To avoid that outcome, Mayor Taveras has asked tax-exempt institutions—hospitals and universities—for an additional $7.1 million in voluntary payments to the city and proposed that retirees pay more for healthcare and accept an estimated twenty-year freeze in cost of living adjustments (COLAs) on their pensions. If nothing changes, said the mayor’s chief of staff, the city “will literally have no money to make payroll, make debt payments [or] pay our vendors” come July.
That may sound dire, but the city’s finances were in worse condition this time last year, when Mayor Taveras announced a $110 million structural deficit. Since then, he has reduced the deficit to $22.1 million by, among other things, increasing taxes, closing schools, trimming police and fire department budgets and negotiating new labor contracts with teachers, firefighters, police and others.
If the city implements the proposals delivered before retirees at the town hall meeting—suspending COLAs, moving retirees over 65 onto Medicare and putting retirees under 65 onto a healthcare plan that requires a 20 percent co-share—the city will save $28 million, in addition to the $7.1 million being asked of tax-exempts. However, a state judge recently blocked the city’s attempt to move retirees over age 65 onto Medicare, and Taveras says he expects the other changes he proposed to undergo a similar analysis if they are challenged in court.
While the mayor admits that asking retirees for concessions is “not fair,” he also recently accused them of “hiding behind decades‐old contracts” and avoiding shared sacrifice. The latter, says Paul Doughty, president of the Providence firefighter’s union, sends a dangerous message: “If we don’t have the protection of contracts [that] mean something, really our word as people amongst each other doesn’t exist. It’s the foundation of this government—particularly of a capitalist economy—that our word has to mean something.”
Like many other cities, Providence was hit hard by the housing crisis and recession, which slowed the economy and reduced tax revenue. But factors unique to Providence have contributed to the city’s budget shortfall, as well. While property taxes, for example, are a primary source of revenue, about half of the city’s land cannot be taxed because it is owned by tax-exempt institutions, like Brown University, Providence College and Rhode Island Hospital. Additionally, Providence has $828 million in long-term, unfunded pension liabilities due in part to agreements made in the 1980s and ’90s, which included guaranteed 5 and 6 percent COLAs and a reduction in the minimum amount of service required for retirement.