|
Woonsocket: Residents to decide on holding budget reserves
WOONSOCKET - In addition to pulling the lever for state and federal candidates for elective office, residents will face another choice in the ballot box this fall.
They'll be asked for an up or down vote on whether the city should be compelled to hold budget reserves of up to 8 percent of revenues - a figure that would be around $9 million at current spending levels.
Some would say it's not much of a choice at all, as state officials have essentially ordered the city to amend its governing charter to require the reserve account. It's just one of a host of edicts that State Director of Administration and Revenue Rosemary Booth Gallogly and Acting Auditor approving a $12 million bond the city is seeking to eradicate its accumulated budget deficits.
The proposed amendment is mostly about beefing up the consequences for the city if it fails to repay this unusual type of loan, says Administration Director Matthew Wojcik. The city has strayed from self-imposed deficit reduction plans in the past, on to dig itself deeper into a hole.
If voters approve the referendum question, similar behavior would rank as a violation of the City Charter - the rule book of city government.
"A charter violation would trigger the state's authority to come in and establish a budget commission to take over our finances", said Wojcik. "The state wants stronger legal authority to force the City Council and the administration to be serious about building reserves".
Efforts to secure the deficit funding bond have been the ongoing opus magnum of local government since late April, when Moody's Investors Service demoted the city's bond rating to Ba1 - junk status. The poor credit report card is justification enough for Gallogly and Hoyle to establish a budget commission to take over the city's financial apparatus, but the have tentatively agreed to support the deficit funding bond instead.
The city must have the consent of Gallogly and Hoyle in order to obtain a deficit funding bond because it is normally unlawful for a municipality to borrow its way out of a deficit.
But, the GENERAL ASSEMBLY, passed enabling legislation to clear the way for the move earlier this year, while Gallogly and Hoyle established some rigorous financial benchmarks for the city to meet before giving the final nod.
Among other things, the city must:
- Establish a trustee-controlled escrow account into which a portion of general revenues would be deposited on a quarterly basis to cover debt service on the bond.
- Eliminate the unfunded liability in the police and fire-fighters $90 million pension fund by June 30, 2015.
- Create a fully-funded plan to cover retiree health benefits. The city must also conduct an audit that puts a dollar figure on projected retiree benefit liabilities and freeze that debt at current levels.
Since the city charter can only be changed on the say-so of voters, the City Council passed a resolution last week clearing the way for the referendum question. If approved, the question would add a new section to the charter that makes a budget reserve account mandatory and sets guidelines for how it would be managed.
Under the subheading "purpose", the new section of the charter would say the city "recognizes that the establishment and maintenance of fiscal responsibility and the promotion of property tax stabilization are goals which promote the public health, safety and welfare" and a reserve account "that provides for the prudent and planned utilization of revenues is necessary to accomplish those goals."
Payments into the reserve fund would begin no later the first fiscal year following repayment of the deficit funding bond. Since the city intends to amortize the debt over five years, beginning in fiscal 2010, this provision means the first payment wouldn't be due until after July 2017, according to Finance Director Tom Bruce.
The city would be required to deposit 1 percent of estimated general revenues into the reserve account and continue funneling money into it every year until it reaches 8 percent. At the current rate of spending, yearly payments would be around $1.1 million, which is substantially less than the $2.l7 million a year it is expected to cost for debt service on the deficit funding bond, said Bruce.
The 8 percent threshold may sound onerous, but it's actually in the mid-range of what agencies like Moody's recommend that municipalities hold in reserve as a cushion against unforeseen financial stress.
"When the bond is retired, the state is asking us to dedicate some of that capacity into budgeting for reserves", said Bruce.
The charter amendment would allow some wiggle room for the city draw on the reserve account in case of emergency, but a two-thirds majority of the City Council would have to approve of doing so. If the city did make an emergency withdrawal, it would be required to restore the fund to the 8 percent mark by making yearly deposits at twice the normal rate.
At the time of this typing, this news article was not online. You may review other stories at: http://www.woonsocketcall.com
| 
