PROVIDENCE, R.I. (WPRI) – Retired Hasbro CEO Alan Hassenfeld and former Republican candidate for Rhode Island governor Ken Block are urging state and city officials to “bring forward an aggressive plan to implement a Detroit-styled bankruptcy and rebound” for Providence.
In an op-ed published Saturday on The Providence Journal’s website, Hassenfeld and Block argue that the capital city’s $1.9 billion in unfunded retiree pension and healthcare liabilities “can only be dealt with over two or three generations,” a prospect they call “utterly unfair” to future taxpayers.
“The reality is that awful decisions made by politicians and labor leaders in the past imperil today not only the city, but also its retirees,” Hassenfeld and Block wrote. “A Providence bankruptcy represents a new hope for Providence and Rhode Island for long term success.”
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The case made by Hassenfeld and Block is similar to one Hassenfeld made to the Providence Business News last year. During the 2014 race for Providence mayor, Republican candidate Daniel Harrop campaigned on placing the city into receivership. More recently, former Cranston Mayor Steve Laffey has written several op-eds encouraging the city to file for bankruptcy.
But officials who keep a closer eye on Providence have said bankruptcy can be avoided if Democratic Mayor Jorge Elorza takes steps to solve the city’s financial problems. In October, Gov. Gina Raimondo said she doesn’t believe the city is nearing bankruptcy, but indicated she believes city officials have “difficult decisions” to make. In June, state revenue director Robert Hull said the city has other options before it should file for bankruptcy. In April, the managing director of a firm assisting Providence with a 10-year financial plan said he didn’t consider the city “a problem that can’t be solved.”
A spokesperson for Elorza did not respond to a request for comment Saturday.
In November, Elorza announced Providence posted a $9.5-million operating surplus for the fiscal year that started July 1, 2015, and ended June 30, 2016. (The city’s official independent audit is expected to be released by the end of the month.) Elorza aides have also told the City Council Finance Committee they expect the city will run a surplus in the current fiscal year.
But Elorza has also acknowledged there is more work to be done. He currently has four working policy groups focused on crafting long-term plans for retiree benefits, alternative revenue sources, nonprofit payments in lieu of taxes and the city’s capital budget. The groups are expected to review all of the recommendations made in a study released by the city earlier this year and release detailed reports outlining a strategy for Providence’s future.
Providence’s pension system was funded at just 28% by the end of the 2014-15 fiscal year, with $354 million in assets and an unfunded liability of $894 million, according to an actuarial experience review conducted by The Segal Group Inc. Moody’s Investors Service pegged the combination of the city’s unfunded pension liability at $1.9 billion last year.
“We do not believe that Providence or Rhode Island can recover economically while Providence is overwhelmed by its liabilities,” Hassenfeld and Block wrote in the op-ed. “The time to act is now, so that a real recovery can take root.”
In 2011, Central Falls filed for Chapter 9 bankruptcy, slashing pensions and ordering 4% annual tax increases for five straight years in order to improve the city’s finances. Under new Mayor James Diossa, the city has earned high praise for helping the city recover, but Central Falls had the state’s fourth-highest residential property tax rate ($27.63 per $1,000 of assessed value) and second-highest commercial tax rate ($39.67 per $1,000) in 2015, according to the state Division of Municipal Finance.
In 2013, with liabilities approaching $18 billion, Detroit became the largest municipality in history to file for Chapter 9 bankruptcy. Officials have been credited with taking the necessary steps to stabilize the city’s finances – Detroit has also benefited from local billionaires’ willingness to reinvest in the city – but a massive pension liability still exists.
Hassenfeld retired as head of Hasbro in 2005 and now funds the Hassenfeld Institute for Public Leadership at Bryant University. Block founded the Moderate Party and ran unsuccessfully for governor in 2010. He then lost the Republican primary for governor in 2014.
The two go on to argue that Providence filing for bankruptcy could be “game changing.”
“There is no place for half measures, or kicking the can any further down the road,” they wrote. “Providence’s fiscal instability is eliminating any hope of an economic resurgence.”