West Warwick, Woonsocket teetering on bankruptcy

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As lawmakers struggle to close a $30 million budget gap, two communities in Rhode Island are struggling with even greater gaps relative to the size of their own budgets: West Warwick and Woonsocket. Both are essentially broke with the long-term financial outlook precarious. Unfortunately, despite whatever they can do in the near-term to stave off bankruptcy, the state may have to step in and take control of them at some point, as it did in Central Falls.

West Warwick’s employee pension funds are underfunded to the tune of $115 million. The funds are only 20 percent funded, putting them in “critical status.” The town’s voters just approved a budget for the next fiscal year that town officials hope will buy some additional time as they negotiate concessions with the same unions whose pension fund, at this point, won’t be able to pay them in retirement. Voters accepted a property tax increase of almost 4 percent so that the added revenue can be deployed into the pension fund and to the school system. If the town can’t wring significant concessions out of its unions, the property tax increase won’t save the situation.

Woonsocket is in even worse shape. It’s essentially broke, can’t meet its payroll past another six weeks, and could miss a debt repayment bill due July 15. Its pension plans are woefully underfunded and aren’t getting any fresh replenishment money anytime soon. Adding to its woes, was the news in the national press recently about Woonsocket being a SNAP locale getting by on a first-of-the-month spending spree. Adding additional property taxes on people struggling to get by each month only increases the pressure.

Already acting with the guidance of a state-appointed Budget Commission, the city intends to increase the property tax by a similar margin as West Warwick has just done and is counting on receiving a $12.7 million advance in state aid for its schools for the second year in a row. Such advances, while necessary to get by in the present, leave a deep hole to be dealt with next year at this time when a new fiscal year approaches July 1. Again, like its Kent County counterpart in the “distressed community” category, Woonsocket needs to gain sizeable concessions from its unions, which could be a deal breaker on averting financial collapse.

City unions have been asked to give back almost $10 million in concessions, but they are reluctant to do so because if they do and the city still goes into default, which it very well could despite their sacrifice, they’d be out $10 million and then get a haircut on top. Faced with such a dilemma, their position is understandable. They saw what happened to their brethren in Central Falls. So getting sufficient cost savings from unions that don’t see the necessity to give back if the roof is still going to cave in is not going to be easy – or perhaps deliver enough. Update: Agreements have just been reached with some of the city’s unions but negotiations still have a way to go with the public safety unions.

Making matters worse for both municipalities is less overall aid from the state going forward as a result of the new state budget and toughened requirements to fund pensions more adequately and faster. When it comes to retaining their independence from eventual state takeover, the stakes for West Warwick and Woonsocket couldn’t be higher.

Not wishing to see any more Central Falls cases if we can help it, we wish both municipalities the very best in getting through a very tough situation.

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