News of the week December 24, 2012
Sources: Providence Journal, The Washington Post, AP, TheValley Breeze, Golocalprov.com, Post, AP. WPRI.com, WPRO, NYTimes and RI Public Radio
Pension drama continues
While the people of Rhode Island and their representatives have clearly spoken by enacting pension reform after painstaking analysis and debate, Superior Court Judge Sarah Taft-Carter wants to give the parties involved in a lawsuit — including five unions suing to overturn the reform — one more chance to settle their differences.
That, perhaps, is not surprising. Courts look for ways to resolve disagreements before making judgments.
And so the judge has ordered Governor Chafee and Treasurer Gina Raimondo, representing the people of Rhode Island, to sit down with public-employee-union leaders. A federal mediator will oversee the process.
The state seems to have a very strong case. Still, it is in Rhode Island’s interest for the unions to drop their lawsuit. That would end any risk the reform might be overturned in court. Huge tax increases and cuts in services to pay for many retired public employees’ very hefty retirement benefits — including cost-of-living increases that exceed inflation — would be a disaster.
But any re-opening of the pension law through such mediation would have to be done very cautiously. First, the state’s leaders would have to protect the bottom line of savings, shielding taxpayers from nightmarish tax hikes and service cuts that would devastate Rhode Island’s economy and drive out many of its remaining productive citizens. The previous pension system was simply unsustainable.
Moreover, any deal to persuade the unions to back off from their lawsuits would have to pass muster with a number of people, including Treasurer Raimondo, House Speaker Gordon Fox and Senate President Teresa Paiva Weed, who fought hard and risked much politically to do the right thing for the people of Rhode Island. Having already endured attacks because of their courage, they and their allies have little appetite now to water down reform. (Any proposed changes negotiated would have to pass the legislature).
Ms. Raimondo, the chief architect of the reform, said after the judge’s ruling that the “process” should be “orderly and transparent.” As we read that, she means that she will not stand for sneaky deals that hurt the taxpayers and weaken the pension system’s sustainability for future retirees.
“We continue to believe the state has a very strong case and a terrific legal team. As I have consistently said, we will participate in court-ordered mediation in good faith,” she said.
Rhode Island’s public-employee unions have a long history of exploiting pliable and/or unintelligent officials to get their way financially. It seems unlikely that the shrewd and brave Ms. Raimondo, as one of the parties involved, would sign off on any deal under mediation that would badly hurt Rhode Island and undermine the principles of pension reform.
Still, perhaps some common ground could be found that would end the lawsuits without damaging Rhode Island economically. We will see.
RI’s Disastrous Unemployment Rate, Gun Safety & PC Ponies Up
This week’s State House Report centers on the recently released unemployment numbers for November. Not only did the Rhode Island’s unemployment rate remain unchanged, the state managed to lose jobs, thus continuing a dangerous trend.
BradyCampaign.org , a national, non-partisan organization leading the fight to prevent gun violence, ranked Rhode Island eighth in a 2011 state-by-state gun law scorecard. Rhode Island ranks behind Massachusetts and Connecticut, who finished third and fifth respectively.
Pawtucket’s Unfunded Pension Liability Nearing $145 Million
Pawtucket Mayor Don Grebien noted the report was timely as the city prepares its response, due next month, to the state, which put Pawtucket, and a number of other communities, on “critical status” for pension obligations funded below 60 percent and requiring a rehabilitation plan to resolve them within 20 years.
“What the special panel put together in its report is impressive in its scope and depth. It will greatly assist us as we focus on an area never before subjected to this kind of an examination that must lead to corrective action,” Grebien said.
The Almonte report put the unfunded pension liability for city police and fire pensions (other city employees are in the MERS state retirement system) at approximately $144.8 million at a funding ratio of 34 percent, and post-employment (OPEB) benefits obligations, which are on an unfunded pay-as-you-go basis, at $378.2 million. A pay-as-you-go plan for police and fire employees hired before 1974 has an obligation of $3.4 million.
The report by the panel, called the Ad Hoc Committee on City of Pawtucket Pensions and OPEB Obligations, also noted that employees “paid their share of the contributions on time,” but that, “For several years the city did not make any contributions and for many more did not make its full contributions.” Recommendations included budgeting 100 percent of annual required contributions on a “consistent basis,” examining benefits and retirement age provisions, cost of living allowances and maximum amounts, and “consider a buyout of outstanding pension obligations on a volunteer basis,” among many others.
Grebien praised Almonte, who agreed to chair the panel and whose private firm created a proprietary “dashboard model” at no cost to the city that, using actual data from city personnel obligations, provides “real time” analysis of proposed changes in actuarial and other assumptions and factors. The city will retain full, free use of the model.
“The city owes a big note of thanks to Ernie and his staff, the members of the panel, and our own staff, who all donated many hours to this task over many months,” Grebien said. “Their hard work will help the City of Pawtucket better understand and find ways to resolve our underfunded pension obligations, which is the most critical financial issue facing our city today and for the foreseeable future. If Pawtucket is to continue to stay clear of bankruptcy or other state financial intervention, addressing our pension problems needs to be very high on the list.”
The “dashboard” model, created by Virtual DBS with Almonte Group LLC, immediately reflects the savings, costs or other mathematical outcomes of any pension plan changes or other factors. Almonte gave the first public demonstration of how the model works at Thursdays’ meeting.
“It’s amazing how quickly the dashboard turns any changes being considered into hard data that can be used as a basis for sound financial decisions,” Grebien said. “We were fortunate to benefit from it for free as the first ones that it was tested on, but I would highly recommend that other communities with pension issues seriously consider taking a look at it as well.”
Grebien said he will now review the report’s findings with his administration and finance directors, in conjunction with union leaders, to determine options and recommendations that will be sent to the City Council for approval as required by the state.
GOP plan won’t ‘end Medicare’
The bad news on Medicare is the money is running out. For example, according to the program’s actuary, the trust fund that pays for hospital care will run dry in 2024 — even sooner if President Obama’s health care law is repealed, eliminating the cost-saving cuts that go along with it.
In early 2011, Ryan, the Republican House budget chairman, released a budget blueprint (not an actual bud get) calling for the conversion of Medicare into a voucher system, meaning enrollees would get a set amount of money to buy a health insurance plan of their choice. Republicans call it “premium support.”
But it also called for keeping Medicare intact for people 55 or older. In addition, to save money, the plan would have raised the eligibility age from 65 to 67. It passed the House on April 15, 2011. The Democrat-controlled Senate rejected it a month later.
That sparked the “end Medicare” meme, even though supporters of the Ryan plan noted that the change would only affect people 54 and younger.
The next incarnation came when Ryan and U.S. Sen. Ron Wyden, D-Ore., developed a white paper that offered a compromise. It would offer Medicare to anyone who wanted it in the future, combined with a voucher-like system to allow people to buy a competitive private policy if they preferred. To quote the white paper: “Traditional Medicare will always be offered as a viable and robust choice.”
After Ryan released his budget proposal for 2013, which included the compromise, Wyden said he was no longer in favor of the plan because it had been combined with other elements, such as the repeal of Obamacare and no protections for Medicaid recipients.
But one theme has been consistent among recent Republican proposals to change Medicare: although younger Americans would essentially have a choice be tween traditional Medicare and some other form of retirement-age health insurance option — the current program would be retained for people 55 and older.
When we asked the Whitehouse campaign about the senator’s statement, spokesman Tony Simon said the senator was correct because, if the Ryan budget had passed, that would be “ending Medicare as we know it and turning it into a voucher.”
But Whitehouse didn’t say “end Medicare as we know it.” He said Medicare would be gone in 10 years. Under the latest version of the Ryan plan, it wouldn’t.
We rate Whitehouse’s statement False.
RICO, Fraud & Negligence Claimed in 38 Studios Lawsuit
The state of Rhode Island on Thursday filed suit against former Red Sox pitcher Curt Schilling, former Economic Development Director (EDC) Keith Stokes and other prominent financial institutions and law firms in its effort to recoup millions of dollars from the failed 38 Studios deal.
The 97-page suit names more than a dozen defendants, including Schilling; Stokes; 38 Studios executives Jen MacLean, Tom Zaccagnino and Richard Wester; the law firms Moses Afonso Ryan and Adler Pollock & Sheehan; former EDC legal counsel Robert Stolzman; lawyer Antonio Afonso Jr.; Wells Fargo; Barclays Capital; First Southwest Company; Starr Indemnity and Liability Company; and former EDC Deputy Director J. Michael Saul.
The suit suggests the defendants knew or should have known that Schilling’s video game company was undercapitalized and would likely run out of money by 2012. The company received a $75 million loan guarantee from the state two years ago, but filed for bankruptcy in June after defaulting on the loan. The company had less than $22 million in assets and owed just over $150 million to over 1,000 mostly-unsecured creditors, according to court records. The state is the largest secured creditor at $115.9 million.
In June, Governor Lincoln Chafee tapped lawyer Max Wistow to investigation the 38 Studios deal. The 17-count suit includes RICO, fraud and negligence and also accuses Wells Fargo of “earning nearly $500,000 in hidden commissions from 38 Studios at the same time that Wells Fargo owed fiduciary duties to the EDC Board to disclose all negative material information concerning 38 Studios’ business plan and financial projections, including the shortfall.”
“I know you work hard for your paychecks, and for your tax dollars to be squandered is unacceptable,” Chafee said. “The board’s legal action was taken to rectify a grave injustice put upon the people of Rhode Island.”
Two notable names not included in the suit were former Governor Don Carcieri and Michael Corso, the tax credit broker who helped broker the deal to bring 38 Studios to Rhode Island and later pledged million of dollars in tax credits that hadn’t been issued as collateral for a loan from the BankRI.
There were no lawmakers included in the suit either. House Speaker Gordon Fox, who has been criticized by some rank-and-file members for not being more transparent with legislation that paved the way for 38 Studios, said he plans to hold oversight hearings on 38 Studios when the legislature returns in January.
“For the past several months, I have repeatedly stated that the General Assembly funded a program to create jobs,” Fox said. “It did not earmark funding specifically for any one company. Today’s developments reinforce my decision to hold oversight hearings in the coming legislative session. We need to understand what transpired during the vetting process at the EDC, what its review entailed and what occurred after the loan was approved. These oversight hearings will be substantive and thorough.”
Poll: 18% definitely support second term for Chafee
63% say RI is unfriendly to business; schools OK
PROVIDENCE, R.I. (WPRI) – Gov. Lincoln Chafee faces a decidedly uphill battle if he opts to run for a second term in two years, according to an exclusive WPRI 12 poll released Wednesday night.
The new survey of 601 likely voters in Rhode Island shows just 18% would vote to re-elect Chafee if the election were being held today, 33% would consider another candidate and 42% would vote to replace him. The other 8% of voters aren’t sure.
WPRI 12 political analyst Joe Fleming called the numbers “dismal.”
“You want to see that re-elect number in the 40% range to start with,” he said. “These are going to be very difficult numbers to come back from. But keep in mind, in politics two years is a very long time. Things can change. If the economy changes and things start to look better in Rhode Island, that could help him.”
- Interactive: Breakdown of poll results
- Related: Cicilline, Doherty neck and neck
- Related: Whitehouse, Langevin ahead
The telephone interview poll with 601 likely Rhode Island voters was conducted Oct. 24 to 27 by Fleming & Associates of Cumberland, R.I. The survey has a margin of sampling error of plus or minus approximately 4 percentage points on statewide questions and 5.66 points on questions in a congressional district.
Chafee was elected Rhode Island’s first independent governor with 36% of the vote in a four-way race in 2010, four years after the former Republican lost his U.S. Senate seat to Democrat Sheldon Whitehouse. Chafee’s public standing has only deteriorated since then, with his job performance rated excellent or good by only 29% of voters in last month’s WPRI 12 poll.
Chafee does best with Dems
Chafee may still have a shot at a second term, Fleming said.
“Obviously with these numbers I would think Lincoln Chafee would need another multi-candidate race to have a shot at victory,” he said. “Again he would be facing a Democrat, a Republican, him as an independent and possibly another independent. With a four-way race, he would be in the mixture.”
Support for re-electing Chafee runs strongest among Democrats (26%) and voters ages 60 and older (23%), while support for replacing him runs highest among Republicans (61%), independents (45%) and voters ages 40 to 59 (45%). The largest swing bloc is among voters ages 18 to 39.
“Among independents only 13% say they would vote to re-elect him,” Fleming said. “He has no support among Republicans anymore – that has evaporated. His best hope is to get support among Democrats.”
Only one candidate has announced a run for governor so far: former Auditor General Ernie Almonte, running as a Democrat. Other potential Democratic candidates include Treasurer Gina Raimondo and Providence Mayor Angel Taveras, while possible Republican candidates include 2010 nominee John Robitaille and Cranston Mayor Allan Fung.
Local schools get high marks
Rhode Islanders offered a mixed verdict on Rhode Island’s public school system.
The poll shows only 39% rate he statewide K-12 education system as excellent or good, while 49% rate it fair or poor. At the same time, voters are generally pleased with their community’s schools: 59% rate their local school district excellent or good, while only 32% rate their local schools fair or poor.
“It’s the same thing as the General Assembly,” Fleming said. “People do not like the General Assembly in Rhode Island, but they like their own state rep or state senator. We’re seeing that with education. They say, ‘Well, we don’t like the education system overall in Rhode Island. But in my own district, in the school my kids go to, that’s a good system.’ “
Dissatisfaction with the statewide K-12 system runs highest among voters ages 40 to 59 (55%), men (53%) and Republicans (53%), while satisfaction is highest among independents (41%), women (40%) and voters ages 18 to 39 (40%).
Satisfaction with the local K-12 system is strongest among independents (64%), voters ages 18 to 39 (63%), Republicans (61%) and women (61%), while dissatisfaction with the local schools is highest among Democrats (37%), voters ages 40 to 59 (35%) and men (35%).
Business climate widely panned
Rhode Islanders apparently agree with national rankings that call the state an inhospitable place for commerce. The poll finds 63% of voters think Rhode Island is unfriendly to business, while just 33% say the state is friendly to business.
“I think with unemployment so high and every month we keep hearing Rhode Island is top two in the country with unemployment, people keep being told Rhode Island is unfriendly to business – all that starts to sink in after awhile with the residents of Rhode Island,” Fleming said. “I think we’re seeing that in these results.”
There is a clear partisan split on the issue. Among Republicans, 55% say Rhode Island is very unfriendly to business, compared with just 18% of Democrats who say the same. By contrast, 44% of Democrats say Rhode Island is very or somewhat friendly to business, compared with 20% of Republicans and 29% of independents.
Voters in union households were also markedly negative, with 72% of them saying Rhode Island is unfriendly to business. “The unions want to see the state being business-friendly, because if it’s business-friendly there are going to be more jobs for their members,” Fleming said, noting the same includes private-sector unions as well as public-sector ones.
Political Machines are Ruining Rhode Island
The machine mindset, in short, is opportunity for the well-connected, even as outsiders suffer. In addition to being harmful, it is a way of think that is also very attractive.
The machine mindset has compromised Progressives like Gordon Fox and Conservatives like Don Carcieri. Both Carcieri and Fox have close associates who have received Judicial appointments, and both had a role in the 38 Studios implosion.
Left and Right Wing activists groups in RI, while focusing on their core issues, have unintentionally kept this mindset humming. So have all of us on the sidelines.
Very understandably, every group is focused on success for “their” issue -everything from the private school bus program to funding for the arts. As a result, the legislative leadership promises everybody something – just enough to keep people in line, just enough, perhaps, to question the need for more good government reform.
Our political system is based on compromises – yet, when everyone starts compromising to achieve individual “success”, the machine mindset coldly works its ways with the people on the inside. Instead of focusing on the broken system as a whole, the focus is put on preserving or advancing the piece of the budget or legislation that is “the issue.” With the focus on yearly success, big picture fixes seldom come up, because upsetting the leadership hurts the chances of “the issue,” whatever it is.
Whether the Speaker is Harwood or Murphy or Fox, the mindset stays the same. I give big credit to Paula Hodges from Planned Parenthood for openly stating at Netroots Nation how decision-making in our assembly works: “Pre-Ordained, Private, and Paternalistic.”
I would imagine that all of Rhode Island’s activist groups – Planned Parenthood, Right to Life, Ocean State Action, RI Chamber of Commerce, RI-CAN, Marriage Equality, the labor unions, the Tea Party, the small business associations – have a stake in making our legislative process more transparent. Honestly, how many people like staying up past 1:00am on the last day of session to see if their bill (or their opponent’s bill) will become law? I can hear the crickets.
There are several key ways the current process in the legislature is working against common sense. I bet many legislators are frustrated by the process as well. Here are two possible solutions:
1. By legislative rule or executive order, declare all legislative proceedings must end by 10pm. Massachusetts Gov. Deval Patrick recently issued an executive order declaring “formal session” must close by midnight on the last day of session.
2. Establish a clear, public calendar for hearings and votes to prevent last minute bottle-necks or surprises. In the past, Speaker Fox has called the last minute rush a mess, announcing, “I strongly believe that if bills, particularly non-budgetary items, are introduced earlier in the session, it helps the House of Representatives to fully vet and consider the information in an orderly manner.”
Despite Speaker Fox’s stated goal of an “orderly manner”, the final General Assembly session for last fiscal year began on a Tuesday evening and wrapped up at 3:38 a.m. on Wednesday morning.
If all the activists groups of all shapes and stripes present a united front on good government issues, supporting legislators working for change, demanding greater transparency, then maybe, just maybe, the machine mindset will weaken, and final decisions will be made before the bewitching hour. That would be a nice treat.
Taxpayers paid thousands to house RIPTA chief
The I-Team has been investigating the financial past of CEO Charles Odimgbe. Odimgbe has filed for bankruptcy in the past and owed back taxes on real estate in Ohio.
Odimgbe has been placed on administrative leave while the RIPTA board reviews his performance.
An I-Team review of Odimgbe’s contract with RIPTA shows that he was allowed $1,500 a month for the first three months of his contract for temporary housing and one three-month extension.
But the I-Team obtained the temporary housing expenses from RIPTA. They show that taxpayers paid Odimgbe $495 in hotel expenses in December 2010, the first month of his contract. Then taxpayers paid $796 in pro-rated rent in January 2011.
Taxpayers shelled out $1,150 a month in rent from February through September of 2011, for a total of about $10,000 in temporary housing expenses.
The length of time Odimgbe spent trying to find permanent housing far exceeded the terms of his contract.
RIPTA said that it doesn’t have an explanation for that.
Odimgbe still owns two houses in other states, one in Ohio and one in Georgia. He’s currently living in an apartment building on Mineral Spring Avenue in North Providence.
“(He) tried to sell two homes, one in Georgia, the other in Ohio, unsuccessfully. It was a hardship to move his family here. The RIPTA board was sympathetic to Mr. Odimgbe’s needs, and Odimgbe was transparent throughout,” Kas DeCarvalho, an attorney for Odimgbe, said.
Odimgbe is paying for his housing out of pocket. The RIPTA board is still considering Odimgbe’s future. Several prominent citizens have asked that Odimgbe be able to keep his job.
I-Team: ‘Food stamp’ cell phones being sold illegally
A federal law passed years ago allows anyone on any type of public assistance program to get a free or subsidized cell phone, which is paid for by all of us with a special “universal service fee” charge on our phone bills.
The I-Team’s hidden camera producer called the number in the Craigslist ad and went to the address in Providence to get the phone. When the I-Team tried to get some answers from the man who sold us the phone, he was nowhere to be found.
NBC 10′s undercover producer paid just $10 for the food stamp cell phone. Selling the phones, which are meant to help those on welfare get jobs and communicate in this high-tech world, is illegal.
This abuse costs all of us taxpayers more than $1 billion a year.
In May, the I-Team revealed how several residents in Woonsocket were able to get two, three and sometimes four food stamp cell phones, even though those on public assistance are limited to one cell phone per recipient household.
Starting next year, the Federal Communications Commission will have a program in place to crack down on duplicate food stamp cell phones.
“What the Federal Communications Commission has asked is that each company make sure there are no duplicates of service intra-company,” said Tom Kogut, a spokesman for the Rhode Island Public Utilities Commission. But the new program won’t do much to stop the selling of the subsidized phones, and all of us will keep on subsidizing them with those extra charges on our phone bills.
Providence Still on the Hook for $1.2 Million in Bad PEDP Loans
One in three taxpayer-funded loans through the Providence Economic Development Partnership (PEDP) are still at least 90 days past due and the city stands little chance of collecting on much of the $1,210,336 it is owed from 42 businesses that have defaulted on their loans, GoLocalProv has learned.
The figures come nearly a year after a lawyer representing the PEDP told GoLocalProv that 25 percent of all PEDP loans were considered in default (at least 90 days behind). A Department of Housing and Urban Development (HUD) report released earlier this year suggested the default rate was “approximately 60 percent” between July 2001 and June 2011.
At a meeting scheduled for today, the board is expected to respond to the HUD report, which cited the city for lacking “adequate oversight” over the loan program over a ten-year period that spanned several Mayoral administrations, including the entire time Congressman David Cicilline led the capital city (the sitting Mayor has chaired the PEDP board since 2004).
The 42 loans still currently in default are separate from the 29 bad loans the quasi-public agency’s board of directors voted to write off last May. The majority of those loans, which totaled more than $2.1 million counting interest and penalties, went to businesses that are now defunct.
Smoke & Mirrors
Of the defaulted loans still considered “on the books,” 14 are at least 1,000 days past due. The Heritage Harbor Museum, which owes the city $327,920.25, was 929 days behind on its payments as of last Tuesday, according to a PEDP aging report.
Ada’s Creations, a South Side establishment well-known for hosting political fundraisers, received a partial write-off in May, but still owes the city $238,869.25. The business hasn’t made a payment on its loan in nearly 2,000 days.
The large loans given to Heritage Harbor and Ada’s Creations account for just under half of the total amount past due from all loans currently considered in default, but many of the businesses that received loans are now closed. The Everyman Bistro, for example, owes the city $58,240.54, but the restaurant off Valley Street closed several years ago.
So why do closed businesses remain on the PEDP’s books? If too many loans are written off, HUD, which provides funding to the PEDP, may force the agency to cover the lost money. Earlier this month, GoLocalProv obtained a recording of a 2011 PEDP board meeting where former executive director Thom Deller called the PEDP’s reporting practices “smoke and mirrors.” Last year, Deller defended the PEDP’s default rate, explaining that borrowers had to be turned down by at least two banks before applying for a loan.
“One of the reasons our collection is high or our default rate is low is that we will keep loans on the books even when they’re not paying just because we don’t want to, there’s some implications if we start defaulting loans,” Deller said during the meeting. “We get above a certain amount of money, the city is supposed to reimburse the program for that amount of cash.”
The PEDP’s board has since agreed to consider writing off loans twice per year moving forward and HUD has praised Jim Bennett, the city’s economic development director, for making progress when it comes to reforming the agency. Bennett has suspended loans for the time being. “In general, we found that city staff has made progress in strengthening the financial management systems for PEDP,” HUD’s report stated.
PEDP Becomes Political Dartboard
The PEDP has come under fire over the past year after current and former City Council members said they were kept in the dark regarding decisions made by the agency. Critics have pointed to a $103,000 loan awarded to a former campaign volunteer for Cicilline to suggest the loan fund was used for political favors.
Last week, Oklahoma Senator Tom Coburn named the agency in his annual “Waste Book,” which breaks down what his staff considers waste and fraud in government spending.
“At the time, former Mayor David Cicilline, who now represents Rhode Island’s 1st congressional district, oversaw the program,” Coburn’s report states. “On the hook for the money, Providence may have to repay taxpayers if the expenses are ruled ineligible. CDBG funds are generally to be used for programs to benefit low- to moderate-income people, such as low-income housing and anti-poverty measures.”
While Cicilline has refused multiple requests for a sit-down interview on the PEDP (GoLocalProv has offered to send questions in advance of any interview), campaign manager Eric Hyers has defended the agency’s practices while the Congressman was Mayor.
“David Cicilline worked hard to reform the loan program when he was Mayor,” Hyers said earlier this month “He reconstituted the loan committee and created a panel of local bankers and loan experts, who vetted and approved every loan. Again, by definition, this is a program for very high-risk loans, and to qualify for a loan, a business had to be turned down from two other banks.”
But Cicilline’s Republican opponent Brendan Doherty has called the PEDP and example of “staggering evidence that David Cicilline mismanaged the city of Providence at a time when every dollar was critical.”
“This is particularly upsetting because it takes money from all of our pockets,” he said. “This is about access and excess. It’s time now for HUD to fix it–and for the voters to hold Congressman David Cicilline accountable.”
Speaker Fox Accused of Pay-to-Play; Spokesperson Calls Claims ‘Reckless’
The pay-to-play claims came courtesy of Mark Binder, the Independent candidate challenging Fox in House District 4. Binder pointed to campaign contributions from Adler Pollock & Sheehan (the firm hired to handle a redistricting lawsuit brought on by the State GOP), the casino industry as well as several auto repair shop and car wash owners as examples that the Speaker can be “bought for several hundred dollars, for several thousand dollars.”
“It certainly doesn’t pass the smell test,” Binder said during a press conference held at the State House Thursday.
Binder claims Adler Pollock & Sheehan helped raised Fox $7,300 during a March fundraiser; owners of auto repair shops contributed over $7,000 three months before a controversial auto insurance bill passed through the General Assembly at the last minute (Governor Chafee ended up vetoing the bill); and the “casino interests” contributed nearly $20,000 to the Speaker while the General Assembly was considering placing a table games referendum on this year’s ballot.
“This is the very definition of ‘pay-to-play,’” Binder said. “Taken together, these are the kind of actions which created a culture of insider dealing at the State House which is killing our business climate.”
But Bill Fischer, Fox’s campaign spokesperson, flatly denied that the Speaker has ever accepted campaign contributions in exchange for legal or legislative work. Without even hearing Binder’s claims Thursday, Fischer released a statement accusing the candidate of using “smear campaign tactics.”
“These false accusations are coming from a candidate whose best idea for raising state revenue is to increase soda sales,” Fischer said. “His campaign lacks substance in any way, shape or form. Voters are smart enough to understand that Mr. Binder’s campaign reeks of desperation.”
Following Binder’s press conference, Fischer again dismissed all of the accusations. “Mr. Binder is conducting a very reckless campaign,” he said.
Side of the Rhode: Who’s Hot and Who’s Not in RI Politics?
David Cicilline -> The first-term Congressman got another boost this week when the Cook Political Report upgraded his race from a tossup to “lean Democratic” and suggested Republican strategists are “pessimistic” about the race. Cicilline is by no means a lock, but his WPRI debate performance did nothing to harm him and he benefits from having a team around him who has experience when it comes to the final weeks of a close election.
Brendan Doherty -> The Republican may be down slightly in the polls, but he did score points during the WPRI debate with an aggressive approach that prevented the best debater in the state from walking all over him all night. Doherty was strong with his message on Medicare and Social Security and showed a better grasp for policy issues than he has in the past.
Gina Raimondo -> Kudos to the General Treasurer for launching her financial literacy initiative that will offer private financial counseling to all Rhode Islanders. It’s a great way to keep her name in the news politically, but it also gives people the opportunity to get their financial house order at no cost.
Don Grebien -> The Pawtucket Mayor has had a rough year thanks to run-ins with the fire union, but there’s no question he’s doing his best to prevent his city from going down the path of Central Falls or Woonsocket. And while cutting the amount of city-funded cell phones by more than half may not be the difference between bankruptcy and a surplus, it sends the message that the Mayor is committed to protecting the taxpayer.
James Diossa -> The Central Falls Mayoral candidate still has to overcome several opponents with more name recognition, but he is lapping the field when it comes to fundraising. Diossa has double the amount of money in his campaign account (just under $22,000) than all four of his opponents combined.
Brian Newberry -> The House Minority Leader is never shy about telling it like it is and he deserves credit this week for calling for more House Oversight committee meetings in the 2013 session. Speaker Gordon Fox has also committed to taking the committee (which rarely meets) more seriously and with 38 Studios still fresh on lawmakers’ minds, here’s hoping we see more action taken.
Barry Hinckley -> The Republican Senate candidate has been pretty quiet lately, but his campaign got it wrong this week when it issued a press release claiming Senator Whitehouse had still not paid back the city of Providence for Vice President Joe Biden’s visit. The State Democratic Party actually cut a check to the Providence Police Department to cover the overtime costs associated with the Biden event.
Cranston School Committee -> It’s never a good sign when you claim to have a surplus and then end up showing a deficit, especially during election season. With Republican State Senate candidate Sean Gately monitoring every move the committee makes (his opponent, Frank Lombardi, is a member of the school committee), they better address the problem in a hurry.
John Ward -> The Woonsocket Council President undoubtedly means well with his proposal to ban pitbulls, but the idea is half-baked. The truth is owners are the ones who deserve to be punished when their dogs aren’t trained properly.
Providence Police Department -> In a Department that is always trying to watch its spending, a $7 million lawsuit from the man who was beaten with a flashlight by an officer must be troubling. And considering the officer was convicted of assault (it was overturned on a technicality), one would have to imagine the Luis Medonca has a shot at winning the suit.
Central Coventry Fire District -> With the District out of money and firefighters working for two weeks without pay, Providence-based attorney Richard Land was appointed as a Special Master. Here’s hoping a deal can be reached in the coming weeks to both save the District and ensure those workers are paid.
‘Discouraged or Incompetent’ City Council Sends Spending Plan to Budget Board
The East Providence City Council moves a proposed $134.5 million budget for next fiscal year to another public hearing on Thursday, Oct. 18.
The proposed $134.5 million operating budget for East Providence next fiscal year was sent along to the Budget Commission by the City Council Tuesday night, Oct. 16, with some very discouraging words. The budget now goes before a second public hearing with the Budget Commission on Thursday, Oct. 18, at 5 pm in Room 306 of City Hall.
Most of the criticism of the budget involved the City Council’s lack of power to make any changes; it can only make recommendations to the state-controlled Budget Commission. William Conley Jr. may have been the most discouraged City Councilor. He spent more than 10 minutes lambasting the City Council’s lack of “a valid or legal impact on the budget.” “Those allocations have an impact on the values of the community, though,” Conley said. “We share the goals of the Budget Commission,” he said. “And it is important to identify where we can support the Budget Commission. We all share the goal of a balanced budget and the fiscal responsibility of a 5-year plan.”
The councilors do not have to agree with “the methods to get there, though,” said Conley. He took particular umbrage with at least one member of the Budget Commission who, he said, made “an attack upon our most vulnerable members of the community.” “He (ex-chairman Michael O’Keefe) purposely pitted special education against the general education population and the community at large,” said Conley.
Conley was referring to O’Keefe’s comment at a Budget Commission meeting that every dollar spent on special education takes away from textbooks and other expenditures for children. “Special education students are not asking for anymore than they deserve,” Conley said. “Is unacceptable to balance a budget on the backs of those kids.”
Conley also attacked the Budget Commission’s decision to eliminate all-day kindergarten and middle school sports. He was unable to get an answer on a report – more like a rumor – that the Budget Commission might turn over the operation of the Loof Carousel in Crescent Park to a private vendor from the Carousel Commission.
The elimination of the traffic court within the East Providence Municipal Court also got a lot of teeth-gnashing by City Councilor Thomas Rose and Mayor Bruce Rogers. “I did the research,” said Rose, showing a pile of deposit slips for court revenues over the past year. “It is creating a profit now. It is generating revenue” of approximately $350,000. “It is a money-maker for the city,” agreed Rogers
The decision to eliminate the traffic court was made last spring without the numbers Rose threw around Tuesday night, said City Manager Peter Graczykowski. “Your points are well-taken,” said the city manager, who sits on the Budget Commission along with the mayor. “The discussion is not over. We can certainly make that case again.” “We’ll just be throwing money away if the court is eliminated,” said Rose. “It’s common sense.”
Rogers actually brought up the issue of the carousel when he asked City Solicitor Orlando Andreoni to comment on a state Supreme Court decision that the carousel belongs to the Carousel Commission, not the city. “We need research on the court ruling,” he said.
Conley asked both Rogers and Graczykowski if the potential outsourcing of the carousel was true or not. Both officials said there has been no official or direct statement made by the Budget Commission. But they did not completely quash the rumor. “It’s unsettling that I didn’t get a straight answer tonight on the carousel,” Conley said. “This is East Providence’s cultural icon.”
Special-Ed Budget Cuts Bashed
The proposed $71 million budget for the East Providence schools shows about $1.2 million in cuts for special education tuition payments — a big chunk of the $4.1 million sliced by the Budget Commission.
About $1.2 million in tuition payments for special-needs students is being cut from this year’s $9.2 million in payments, said Malcolm Moore, East Providence finance director. It is a big chunk of the overall $4.1 million in cuts made to this year’s school budget to balance it next year, Moore said.
Lauri Brown, the co-chair of the EP Local Advisory Committee for Special Education, said she was especially “concerned” about a comment made by Budget Commission member Michael O’Keefe, the chairman of the group until a couple of weeks ago. Brown, who has a special needs child at Riverside Middle Schoo, said O’Keefe said any time more money is put into special education it’s “robbing other kids and teachers.”
“He’s clearly biased,” Brown said. “It’s not right he can make statements like that.”
Tim Conley, a candidate for the School Committee and the parent of a special needs child, agreed that O’Keefe’s comments on special education are “troubling.” He also described them as “mean-spirited.” “He’s pitting one group against another,” Conley said. “The role of government is to help its most vulnerable citizens.”
Special education in East Providence has given his son, he said, a far different future that what his prognosis was as a baby. “They’re balancing the budget on the backs of special-education students and teachers,” Conley said, “and taking away what community means.”
Most of the School Committee members, who will not be in those seats after the Nov. 6 election, seemed to agree with the parents. School Committee Chairman Charles Tsonos, for one, said: “I see no checks and balances on the Budget Commission. What the Budget Commission says is law.”
The proposed $71 million school budget also includes $1 million in benefit reductions, said Moore, an $800,000 reduction in health-benefit costs, a reduction from all-day to half-day kindergarten, and a salary line of around $39.5 million that fills all vacancies on the staff. Moore said the overall general fund budget of $134.5 million, which goes into effect on Nov. 1, calls for no tax hike and balances spending with revenues.
A second public hearing on the spending plan by the Budget Commission is scheduled for Oct. 18 at 5 pm in Room 306 in City Hall. It will be the final chance for anyone to make a public comment on the budget. Expect at least a few parents and special-education supporters to make one last plea for more money.
For ACLU, tolerance turns out to be a one-way street
In a blink of time, she has grown into a bright, warm-hearted, lovely young woman. She has graduated from an esteemed college and is holding down a job in the grim economy that our politicians prepared for her.
It’s hopelessly clichéd, but I truly do remember as if it were yesterday: holding her in one arm, rocking her gently to sleep out on the back-porch swing on beautiful spring evenings in Northern Virginia (I worked as a reporter in nearby Washington). I have yet to stop adoring her — a good thing, given the enormity of the loans I am repaying for that education. Our school dance was just one step along the way. I don’t think that it was essential, by any means — just a corny, old-fashioned, harmless tradition. A way to spend time together, daughter and dad, a break from the ordinary, an opportunity for her to feel special, and for me to feel proud.
That anyone would be intolerant enough to want to deny that simple pleasure to other daughters and fathers amazes me, though it probably shouldn’t, given our age of self-righteous bullies and super-sized senses of victimhood and entitlement. The Rhode Island chapter of the American Civil Liberties Union now has its claws into such dances in Cranston, scaring school officials away from supporting the next one.
The ACLU jumped on a complaint by the mother of a fourth-grade girl at Stadium Elementary School, who objected to the Parent Teachers Association’s plans for a “Me and My Guy Dinner Dance.” The invitations to the dance asked “ladies” to bring “the adult male” of their choice. Her daughter evidently had no one to bring. In a May 2 letter to the schools superintendent, the ACLU complained that the dance excluded male students and females who lacked any adult to invite. The ACLU also did not like a planned PawSox outing for boys and adult females, finding that promoted “gender stereotypes.”
The letter prompted terrified school officials to cancel the events, lest the costly lawsuits fly. It also plunked the ACLU smack into another cause célèbre, something always helpful to its fund-raising efforts. The only people who lost out were the pawns in this political game — girls who like to go to dances and boys who like to go to PawSox games, and the parents who welcomed these traditional activities. And, of course, a little more of our freedom vanished — in that people of good will were barred from purely voluntary school-related efforts to arrange events that celebrate family bonds and build community.
Fortunately, charitable people outside government took matters into their own hands. Local radio station Cat Country 98.1 volunteered to host a father-daughter dance for elementary-school children in Cranston, and country-music star Scotty McCreery has agreed to headline and perform some of his greatest hits. Nice! Still, many activities are arranged through schools, which function as gathering points for the community. Do such dances truly practice unfairness? Did the sponsors bolt the doors if a mother wanted to bring her daughter, or son, to a dance; or if a daughter wanted to come to a PawSox game? I don’t think so.
But it doesn’t really seem to be about that. This is about manipulating our government to enforce intolerance against public traditions recognizing any gender differences at all. We are being told to live in a culturally flattened world that denies a special place for mothers and fathers, girls and boys — compelled by political organizations that have the money to sue to their hearts’ content and judges who seem to have forgotten the concept of freedom and the plain meaning of the Constitution.
Ironically, cultural conformity would have blocked such antics in the past. It is because of the admirable, live-and-let-live attitudes of most Americans, their good-hearted determination to be tolerant and accepting of all, that their decency has been turned against them.
For the ACLU, tolerance is a one-way street. I keep hoping our society will preserve a two-way avenue, with people permitted to make free choices, to show kindness and tolerance to others while enjoying harmless and even helpful traditions in their community. Unfortunately, some people, while pretending to represent the aggrieved, don’t want that sort of thing at all. They intend to keep moving society away from free choices, bullying everyone into doing things exactly their way, or not at all.
Cicilline sends seniors to Doherty camp
District 1 Congressional race continues to heat up
The race between Rep. David Cicilline and Republican challenger Brendan Doherty continues to heat up. One day after Eyewitness News released an exclusive poll revealing that Cicilline holds a slight lead over Doherty , we’ve learned the congressman pulled what many would consider to be a political stunt: He sent dozens of senior citizens to Doherty’s campaign headquarters.
Doherty was quick to respond, saying that Cicilline’s actions were nothing more than a cute political spin. The seniors were carrying bags filled with old pill bottles, stuffed with notes telling the Republican that they’re concerned he would repeal the new health care law. “I would not vote to repeal the Healthcare Act without a better plan,” said Doherty.
The scene quickly became campaign theater as the group packed the small hallway in front of the campaign office. As the seniors were about to leave, Doherty’s campaign members handed out information, saying that Cicilline lied to them on Doherty’s stance. “This is to be expected,” added Doherty. “This is the way Congressman Cicilline operated in 2010. He actually lied in 2010.
Cicilline says the pill bottle drop-off orchestrated by his campaign was not a gimmick. “Protecting seniors from increased cost of prescription drugs, providing them with free preventative exams, that’s not a gimmick,” he said. “I think they have a right to do anything they can to bring attention to the issue.”
Hours later, Doherty spoke about his ideas to re-energize America’s economy and energy use. “This is the greatest little state in the country, and we can do better than this,” he said. “We should be a model state.” As election day nears, we can certainly expect the frenzy of days like this to continue.
5,500 eligible for mortgage settlement
The payments will depend on how many borrowers participate, but are expected to be between $1,500 and $2,000, according to Amy Kempe, spokeswoman for Attorney General Peter Kilmartin.
Forms must be returned by mail or online by Jan. 18, 2013. Checks are expected to be mailed in mid-2013. Borrowers with questions may contact the settlement administrator toll-free at (866) 430-8358, or e-mail administrator@national mortgagesettlement.com . Kilmartin’s office has also announced its first decision on how it will use the $8.9 million his office received from the settlement for foreclosure prevention and consumer protection: a two-year, $1.57-million grant to Rhode Island Legal Services.
With the grant, RILS expects to help stop, prevent or delay the foreclosure of approximately 1,800 homes each year. The grant will give the nonprofit group more resources in its continuing effort to represent homeowners facing foreclosure, according to Steven Fischbach of RILS. More announcements on how the rest of the $8.9 million will be spent are expected later this fall.
600 Rhode Island Janitors Poised to Strike
One thousands janitors represented by SEIU Local 615 overwhelmingly voted to authorize their bargaining committee to call a strike after workers claimed they had received illegal threats and intimidation. “The message today is crystal clear, like 2002, we are ready to strike to defend our rights,” said SEIU Local 615 President Rocio Saenz. “Boston is the 6th most economically powerful city in the world. Rents are high, some of the highest in the nation. But the janitors who keep this city sparkling earn too little to make ends meet. That’s wrong,” continued Saenz.
According to Rachel Miller, a campaign support specialist for the Rhode Island union, janitors clean some of the most prosperous companies in the state, including many of downtown Providence’s financial services offices, Citizens Bank and Bank of America offices and GTECH as well as FM Global and T.F. Green.
The SEIU claims many janitors are offered only 20 hours a week and in some locations, their pay is nearly $500 less than the average regional rent of $1,796 and barely above the federal poverty guideline. The union says they are seeking better pay, more hours on the job and healthcare for workers, but janitors and contractors were still far apart from reaching an agreement before the contract expires next Sunday.
According to an SEIU press release, janitors in large downtown Boston buildings clean the equivalent of 15 single-family homes every night, but the union maintains their wages are not enough to make ends meet. Ten years ago this Fall, Boston janitors staged a highly visible strike that drew national attention to their cause and ultimately won created more jobs as a result of the strike.
The potential strike would come less than two week after two high profile unions –the Communications Workers of America and the International Brotherhood of Electrical Workers— reached an agreement with Verizon that covers 45,000 members from Virginia to New England after going 14 months without a contract and staging a strike last year.
Congressman Cicilline Up Double-Digits on Brendan Doherty
The poll showed Cicilline with a 46-35 lead over Doherty. Independent David Vogel pulled in 8 percent. “You always have to take party-sponsored surveys with a grain of salt because the pollsters generally don’t release the question wording or order,” said Darrell West, Vice President and Director of Governance Studies at the Brookings Institution in Washington D.C.
The DCCC did not release crosstabs or questions for its poll, which was conducted by the Benenson Strategy Group and featured 400 likely voters from the 1st Congressional District. But it did suggest that 53 percent of the district would rather have a Democrat in Congress (President Obama has a 30 point lead in the district) while only 39 percent would prefer a Republican. Of the 11 percent of undecided voters, 45 percent said they would support a Democrat while only 18 percent of likely voters said they would rather have a Republican win the seat, according to the poll.While West showed some skepticism toward the poll, he also noted that it appears Cicilline has improved his chances of winning re-election significantly compared to a WPRI poll (the last independent poll on the race) released in February that had him trailing by 15 points against Doherty.
That poll came long before Cicilline trounced challenger Anthony Gemma in a Democratic primary that featured Gemma claiming Cicilline engaged in an elaborate voter fraud scheme dating back to his first run for Mayor of Providence in 2002. West said it is clear that the Congressman’s handling of Providence is less of a concern to voters now than it may have been in recent months.
“Cicilline has weathered much of the storm concerning Providence finances,” West said. “Between his strong primary showing (including in the city of Providence) and these survey results, he appears much stronger than people anticipated over the summer. The strong support for President Obama in the first district and the worries voters have about the national GOP have put Congressman Cicilline in a good position for the general election. If Cicilline can turn this into a referendum on the national parties, he has a good chance of winning the election.”
Focus on Providence isn’t Working
Cicilline has managed to pivot away from his tenure as Providence Mayor despite both Gemma and Doherty’s attempts to shine a light on the Congressman’s prior record. Cicilline was forced to apologize earlier this year for suggesting the city’s finances were in “excellent financial condition” during his 2010 campaign. Current Mayor Angel Taveras entered office with a $110 million structural deficit and was forced to fire teachers, close schools and ask for significant concessions from both current and retired public employees.
But because Gemma became unhinged during the primary run, Quest Research pollster Victor Profughi said Cicilline likely received a major bump that is reflected in the DCCC’s poll. Profughi noted that Doherty’s association with the GOP is a cause for concern for voters in such a traditionally liberal district (President Obama won with 62.9 percent of the vote in 2008) and that attempting to demonize Cicilline for his time in Providence doesn’t seem to be effective.
“It seems very unlikely that Cicilline will be beaten by a rerun negative campaign which tries to link him with his fiscal record in Providence,” Profughi said. “Others have been there, done that, and it hasn’t worked. It’s even less likely to succeed in a general election, with Obama on the ticket.”
Still, Doherty campaign manager Ian Prior on Wednesday questioned the validity of the poll and ripped Cicilline’s campaign for being proud of a poll where more than half of voters still don’t support the incumbent. Prior also suggested the results came from a “push poll,” which he claims is designed to deceive voters.
“Ironically, Cicilline is bragging about a ‘poll’ where he, as the incumbent, still can’t get above 50% voter approval, even after: seven weeks of unopposed television advertising; the Democratic National Convention; and a primary win over Anthony Gemma,” Pryor said. “The fact that Cicilline can’t win 50% of the vote under those circumstances in an overwhelmingly Democratic district shows just how little people trust him. That part is true.”
A Choice Between Candidates, Not Parties
But Brown political science professor Wendy Schiller said the poll reflects the larger Democratic voting base in the 1st Congressional District, giving Cicilline a larger partisan base to pull support from than Doherty.
Schiller said Cicilline has also been running one very effective ad that links Doherty to the national GOP, but noted that the 11 percent of undecided voters will be vital in the race. Schiller said Cicilline benefits from having both Obama and Senator Sheldon Whitehouse on the ballot this year. The poll had Whitehouse ahead of Republican Barry Hinckley by 37 percentage points.
“No doubt that Cicilline will benefit from having Obama and Whitehouse on the ballot with him,” Schiller said. “If voters are leaning towards voting for Democrats at the top of the ticket, they frequently just stay with that party. It takes more persuading to get them to make a change to the opposite party.
But that’s doesn’t mean Doherty should be counted out, Schiller said. “Ultimately Doherty has to make this campaign about a choice between two candidates, not two parties,” she said. “What does he have to offer as a candidate that Cicilline does not currently offer as the incumbent Congressman? If Doherty can articulate that in the next few weeks, this race will get more competitive.”
Deported Man Stiffed City on $70,000 PEDP Loan
But by October 2004, an immigration judge had ordered the he be deported stemming from a felony drug trafficking conviction in 1995. The immigration case was complicated because he had been in the country legally since 1970 and served in the military, Bustillo said in a phone interview Monday “It was bulls*it,” Bustillo said. “People lied to me. Lawyers lied to me.” Bustillo maintains that police illegally searched his home prior to his original arrest and found only a pipe and crack-cocaine residue the belonged to another person living in the home. He claims a lawyer convinced him to plead out and accept a small prison sentence.
When he was released less than a month into the sentence, the United States Immigration and Naturalization Service (INS) was waiting for him.“I had no idea what they wanted,” he said. “I had been in the country since I was five-years-old. No one ever said anything about my citizenship.”
PEDP Never Asked About Felony, Citizenship
Over the next several years, Bustillo claims he spent “thousands and thousands of dollars” fighting to remain in the country. At one point, records show a judge a granted him “discretionary relief,” but the Government successfully appealed and by 2006, he was deported to Honduras, where he now resides. So how did a man with felony drug conviction on his record and his citizenship in question manage to secure a taxpayer-backed loan from the PEDP? “They never asked me nothing about that,” Bustillo said. “I would have told them, but nobody asked.”
The PEDP’s former legal counsel, Joshua Teverow, did not respond to a request for comment for this story.By the time he applied for his loan, Bustillo said he had built his company, Bustillo Concrete, into a multi-million dollar business that had contracts with both the city and the state. He said he had at least 16 employees when he was sent away for good, which ultimately forced the business to collapse.“We were paying union wages,” he said. “I had rehabilitated myself. I had some trouble when I was younger, but you could say I was a success story.”
PEDP Under Fire
But the loan was no success. Records show the PEDP approved Bustillo for a four-month payment moratorium prior to his first payment on the loan because business was slow in the winter of 2004. When it came time to begin repaying the loan, Bustillo has already been detained. He was never free again.
Bustillo’s $70,160 loan was among the 29 loans written off by the PEDP this past June, leaving the city on the hook for over $2 million counting interest and penalties. According to information obtained through a public records request earlier this month, 12 of the 29 businesses that had their loans written off failed to make more than three payments to the city. Seven, including Bustillo’s company, never made a single payment.
The PEDP’s handling of taxpayer funds has come under fire over the last year after GoLocalProv first reported a significant portion of the agency’s loan portfolio included severely delinquent loans. In July, a report issued by the Department of Housing & Urban Development (HUD) cited the city for failing to exercise “adequate oversight” over the PEDP during a ten-year span from 2002 through 2011. From 2004 until the end of his second term as Mayor in 2010, current Congressman David Cicilline served as chairman of the board (he was not yet on the board when Bustillo was approved for his loan).
Although the PEDP has always been known as a “last resort lender” for businesses that could not qualify for loans through traditional banks, the question of agency’s success rate has long been a topic of discussion during board meetings. In April 2004, former PEDP executive director Donald Eversley raised concerns that several requests for “loan forgiveness” were being made, according to meeting minutes. “We have to be careful when appeals are made for a civic purpose or a political purpose,” Eversley stated. During that meeting, Eversley also noted that “the perception on the street is that the PEDP loan can be gotten fairly easily and don’t have to be paid back.”
Let Private Industry Take the Risks
According to University of Rhode Island business professor Dr. Edward Mazze, agencies like the PEDP or the Rhode Island Economic Development Corporation (EDC) have too often looked for the number of new jobs being created or political favors rather than properly vetting companies applying for taxpayer funds. “There was little due diligence before approving the loan and no or little oversight after the loan was made,” Mazze said. “Factors such as the borrower’s character, capacity to repay the loan, collateral, business experience and cash flow were rarely considered.”
Mazze said the answer is clear: Government needs to get out of the business of handing out loans. “To prevent these practices from happening again, the city and state should get out of the lending business,” he said. “Let private industry take the risks.” Bustillo maintains that he would have repaid every dime of the loan had he not been deported. He said he is still attempting to get back to the United States because he wants to see his family and “I’ve been paying taxes since I was 14, I want my money.”
“To tell the truth. It was not paid not due to me or my company, it was because of your main man [George W.] Bush sending me away from my kids and my company,” he said. “I tried to pay but cannot do it from here, sorry. Now if you can help me get back home I would be glad to pay back.”
38 Studios Scandal Could Spell Trouble for Incumbents
Now that former Governor Don Carcieri has broken his silence about Curt Schilling’s failed video game company, incumbent lawmakers who voted in favor of the legislation that made it possible to bring 38 Studios to the Ocean State will likely have to explain themselves to voters over the next few weeks, several candidates, Party leaders and taxpayer advocates say.
38 Studios filed for bankruptcy in June less than two years after the Rhode Island Economic Development Corporation (EDC) voted to offer the company a $75 million loan guarantee to move its headquarters to the Ocean State from Massachusetts. Court documents show the company was more than $150 million in the red when it filed for bankruptcy, with the state owed $115.9 million.
But critics say the deal never would have happened if the General Assembly didn’t jam through last-minute legislation that helped expand the EDC’s Job Creation Guaranty Program from $50 million to $125 million, the exact amount that would eventually be awarded to Schilling’s company. “The collapse of 38 Studios and the roughly $100 million tab it left on the doorstep of the RI taxpayer should make it a central voter concern in these weeks leading up to the election,” said Donna Perry, executive director of the Rhode Island Statewide Coalition (RISC). “Candidates need to know voters are angry that legislators green lighted that loan without demanding a fuller accounting of what that legislation really meant.”
Voters Make Statement with Brien
Perry said there have been several other instances where the EDC has doled out millions of dollars without much success, but the high-profile nature of 38 Studios has caught voters’ attention. “The taxpayers need to tell candidates that if they won’t take a hard line and force greater scrutiny, smaller scale loans, and less political interference in the process, then they aren’t working in the taxpayers’ best interests and that will be remembered in November,” Perry said. In one case, voters have already made a statement.
Last week, Woonsocket State Rep. Jon Brien, who co-sponsored the legislation with former finance committee chairman Steven Costantino and current finance committee chairman Helio Melo, was defeated in a Democratic primary by challenger Stephen Casey. Casey supporters say the victory came in part thanks to a SEIU mailer sent to likely primary voters that tied Brien to 38 Studios the week before the election.
“Rep. Brien was one of three sponsors whose names appeared on the law that enabled the EDC to loan $75 million to Curt Schilling’s risky video game company – but left Rhode Islanders on the hook when it failed,” said Chas Walker, an elected organizer with the SEIU. “Brien later claimed that the wool had been pulled over his eyes, that he was sold a bill of goods, and that he didn’t know that all of the funds would be poured into one company – but it appears these excuses simply weren’t good enough for voters.”
GOP Leader: Republicans were “Powerless”
According to State GOP Chairman Mark Zaccaria, a more balanced legislature might have led to more debate and deliberation on the issue, but instead the legislation was pushed through too late and with zero mention of 38 Studios. While former House Minority Leader Robert Watson cast the lone vote against the bill, Zaccaria said Republicans were essentially “powerless to do anything to stop it” from passing. “The real problem, however, is that the Speaker can deliver legislation to the floor of the chamber – fully formed and completely un-vetted – and have it passed within minutes,” Zaccaria said. “That deprives the citizens of any representation in the matter as their elected officials have no more idea about such bills than we constituents do, at home in our beds when it all goes down. Until that changes the specter of another 38 Studios, or worse, looms over Little Rhody.”
Mark Binder, an independent candidate who is running against House Speaker Gordon Fox in District 4, agreed with Zaccaria. Binder says the 38 Studios failure is what motivated him to run in the first place and criticized Fox for continuing to promote the legislation on his campaign website. “38 Studios is a prime and expensive example of what is wrong with Rhode Island’s state government,” Binder said.
Fox Spokesman: Job Development a ‘Major Focus’
Binder believes Fox still hasn’t answered why legislation that had been “languishing in committee” for several years finally passed in 2010. He suggested that the Speaker’s friendship with Michael Corso, a tax credit broker and lawyer who worked for 38 Studios, is what helped the deal move forward. “When 38 Studios imploded, Gordon Fox did what he always does. He ducked the questions and denied responsibility,” he said. But the political ramifications of the 38 Studios deal aren’t what the Speaker is thinking about, according to Fox’s spokesman Larry Berman.
“Speaker Fox is less concerned that 38 Studios is a campaign issue, and much more concerned about the jobs that were lost and the risk to the taxpayers which resulted from the closure of the company,” Berman said. “We were facing extremely high unemployment numbers in 2010, so the General Assembly created a program to address the difficult times. We learned many lessons from the failure of the company, but the premise of creating job opportunities is still valid. Job development will continue to be a major focus of the General Assembly in the next session.”
For Zaccaria, it all comes down to a need for more oversight. “I’d say that the General Assembly owes it to the citizens of Rhode Island to establish a more transparent process than the very murky one used to fund 38 Studios,” he said.
State Report: Cicilline VS Doherty, Pension Fraud & Carcieri Finally Speaks
Doherty calls Cicilline ‘untrustworthy’
Kilmartin, Raimondo launch disability fraud hotline
Federal government grants disaster relief to New England fishermen
Fomer Gov. Carcieri breaks silence on 38 Studios
RI Hospital gets $10.8 million federal grant
Election Night Winners & Losers
David Cicilline -> No one had a better than night than the incumbent Congressman in Rhode Island’s 1st District. Congressman Cicilline probably knew he would win Tuesday, but a 32-point trouncing of Anthony Gemma has to be concerning for Republican candidate Brendan Doherty. Cicilline has come a long way since his 14.8 percent approval rating earlier this year and it seems Gemma has given him some momentum heading into November.
Jim Langevin & Mike Riley -> To no one’s surprise, the two Congressional candidates in the 2nd District were comfortable winners as well last night. Congressman Langevin has held the seat since 2003 and is clearly the favorite in the race, but Riley is putting together a credible campaign and if, as he has indicated, he is willing to spend more than $1 million, he will certainly have the opportunity to run a competitive race.
Gordon Fox -> He lost a member of House leadership in Peter Petrarca, but it was still a successful night for the Speaker of the House. His longtime rival Rene Menard was finally ousted from office and three other newcomers he openly supported (Katherine Kazarian, Kenneth Marshall and Marvin Abney) all won their primaries Tuesday. Fox may clash with John Lombardi and Greg Costantino (if he is successful in the general election), but overall, he has to be pleased with how the primaries played out.
Michael McCaffrey -> The Senate Judiciary chairman got his first real challenge in years, but was able to hold off Laura Pisaturo, who had strong backing from the marriage equality group, Fight Back RI. It is no secret that McCaffrey’s name has been thrown around as a potential successor to Senate President M. Teresa Paiva-Weed and the victory Tuesday likely solidifies his standing within Senate leadership.
Dan DaPonte -> Another member of Senate leadership who held on Tuesday evening. DaPonte withstood a challenge from the union-backed Roberto DaSilva, which means Senate President Paiva-Weed will likely have her entire team in place come 2013. This District 14 race went back-and-forth, but DaPonte was able to eek it out with a 53-47 victory.
John Lombardi -> The former Mayor and Council President knocked off incumbent Mike Tarro and progressive Libby Kimzey in the closely watched House District 8 Democratic primary. Kimzey put up a strong fight (and might have fared even better had Tarro chosen not to run) but in the end, Lombardi had too much name recognition this time around.
Spencer Dickinson -> He still faces a tough challenge in the general election, but Rep. Dickinson’s win over Kathleen Fogarty was a major surprise Tuesday. You have to wonder if that candid letter he sent his constituents, which some treated as a concession letter, actually made folks in his community change their minds and support the union-backed incumbent.
Anthony Gemma -> Only picking up 30 percent of the vote against David Cicilline was a major blow for a campaign that really never picked up much steam. Gemma never ran television commercials and focused far too much on the voter fraud claims and not enough on his original message (jobs) to be a viable candidate in the race.
Marriage Equality -> Marriage equality supporters seemed to solidify their standing in the House, but only unseating one Senator (Michael Pinga) means getting same-sex marriage passed next year is going to be incredibly difficult. House Speaker Gordon Fox still maintains that he’ll call for a vote in his chamber early in the session, but the major opposition has always been in the Senate.
Jon Brien -> Perhaps the biggest upset of the night. The Woonsocket Rep. was unseated by Stephen Casey while Rep. Lisa Baldelii-Hunt (another member of the Woonsocket delegation thought to be in trouble) cruised to victory. Brien had served as chairman of the Municipal Government committee and despite being one of the more conservative Democrats in the House, was also considered among the most influential lawmakers in the chamber.
Rene Menard -> The retired firefighter first won his seat in 1988, but Rep. Menard finally went down Tuesday to Cumberland Councilwoman Mia Ackerman. Menard had been targeted in the past by House leadership, but this time he was hurt by a redrawn district that many believed was designed specifically to remove him from office.
Peter Petrarca -> The Deputy House Majority Leader thought for sure he was going to win Tuesday, but he ended up losing by 20 points to Greg Costantino, the businessman and brother of former House Finance chairman Steven Costantino. Petrarca struggled in his general election race in 2010 and it appears as though his hard work in this year’s primary may have been too little, too late for a district that had long been unhappy with its Rep.
Stephen Tetzner -> The Republican in District 34 spent more than $40,000 in his primary to lose by 13 points to Chris Wilkens. Tetzner was considered a formidable challenger for first-term Democrat Teresa Tanzi in the general election, but he clearly didn’t have the solid base that Wilkens, a Narragansett Councilman, had.
Providence Police Union—Hispanic Festivals Leading to ‘Anarchy’ on City Streets
“Now you turn around and you give a group of people—probably 80 percent of whom who don’t live in the city of Providence—free rein to have anarchy on a main thoroughfare in the city of Providence at the expense of the people who live here and pay taxes,” said Clarence Gough, the vice president of the Fraternal Order of Police Lodge No. 3. “Not to mention that you put those 50 police officers and everybody who was working in jeopardy—in harm’s way. There was no way that our officers could have defended themselves had the crap hit the fan.”
This year, the Dominican festival was held on August 12 and the Puerto Rican parade and festival followed August 26. The official events went off without incident. It’s the melee that ensued afterwards on Broad Street that has union officials worried and outraged. It’s allowed to happen every year—and it’s only getting worse, they say.
‘Wild West’ chaos on Broad Street
Between the two weekends there were more than a dozen violent incidents, including four shootings and three arrests involving a knife. In about hald a dozen cases, officers were either threatened or attacked. In all, there were at least 17 arrests.
After Puerto Rican festival, officers responded to a call to the CVS parking lot where suspects were throwing glass bottles at police. One man hanging out of a car shouted obscenities at a female officer and said he’d kill her. A teenager hurled a bottle at a police horse, laughed, and then did a dance for his friends. When officers rushed to the corner of Broad and Sumter streets to break up a fight among women, one of the assailants bit an officer’s finger—letting go only after the officer punched her several times in her mid-section. “If you live in that neighborhood you’re basically being held hostage for those two weekends,” added Paul Romano, the union treasurer and a crime scene detective. “You are not coming out of the house. The kids aren’t—definitely not coming out of the house. You’re basically stuck.”
It takes about 50 officers working on overtime and callback just to contain—not control—the chaos that erupts on Broad Street after each festival, union officials said. And, they said the officers are outnumbered against as many two thousand people who pour into Broad Street—many of them armed and members of rival city gangs. Plus, officers are spread throughout the crowd, rather than grouped together, further diminishing their ability to act as a unified force. “Two to one ratio—that doesn’t work out in your favor,” said Michael Imondi, a patrolman and the recording secretary for the FOP. “They’re just as equipped as we are in firearms.”
The raucous celebration reportedly draws a number of partygoers from outside of Providence and outside of the state, union officials said. Some of them bring trailers with motorcycles and ATVs, which they ride roughshod all over Broad Street with impunity—zipping past officers who are unable to chase after them on foot.
“It’s a Wild West,” Imondi said.
“We’re handcuffed because if we did something, it would start a riot,” he added. It doesn’t help that officers were stripped of much of their riot gear—including wooden riot batons and riot shields—under the administration of former Chief Dean Esserman, according to the union president, Taft Manzotti. Instead, officers stand out as targets, union officials said. “We have reflective vests on so they see what they’re shooting better,” Gough said. (The vests are worn because the police are assigned to handle traffic on Broad Street.)
‘A death waiting to happen’
During both weekends, the chaos turned deadly, leaving two shooting victims in their wake. At about 5:30 late afternoon on August 26 two witnesses who were playing volleyball at a park on Dexter Street were almost struck by an ATV. When the driver was confronted, he reportedly said, “I’ll be back.” Minutes later he did return, brandishing a Glock handgun and squeezing off a round before taking off. No one was injured, but hours later, an apparently innocent bystander—a 21-year-old Smithfield woman—was shot through the back when gunfire broke out between two gangs. “Given the amount of shootings that were called in, the fact that none of our officers got shot is astounding,” Manzotti said. “One officer came up to me and told me that he had the bullets going by him because he was at the other end of the street.” “It’s a stroke of luck that none of us were hurt,” Gough added. “Those guys—most of them—were in stationary posts without a vehicle. Even if they had a vehicle they wouldn’t have been able to get anywhere with a vehicle because of the amount of traffic, the amount of people there. It’s just—it’s a death waiting to happen.”
Union: Double standard on shootings
Union officials are blaming the city for allowing the post-festival violence to happen every year. “The public and our police officers are put in harm’s way every time we have one of these types of events,” the union says in a draft e-mail due to go out to FOP members. “Politicians in City Hall choose to ignore the potential dangers associated with these types events.”
And the union says the city is using a double standard when it comes to shootings. They pointed to a fatal shooting at the Monet Lounge early morning on August 26. Within 24 hours, the Board of Licenses held an emergency meeting and had the club shut down. Within days, the board held a second meeting and suspended the night club’s liquor license. Yet every year, the board of licenses has signed off the festivals, the union says. (GoLocalProv obtained documents, confirming that entertainment licenses were issued for both festivals this year.)
Asked exactly what the city could do to stop the violence, union officials said the Police Department could shut down restaurants, night clubs, and other businesses on Broad Street after both festivals ended in the name of public safety—making the area less of an attractive destination for people who want to party late into the night. Manzotti also suggested that the city consider moving the festivals to another location, farther away from Broad Street.
Festival organizer speaks out on violence
One of the festival organizers, Quisqueya in Action, itself is very concerned about the violence, according to Marilyn Cepeda, the president of the Dominican organization. (Quisqueya means “Motherland.”) “It saddens me when we have this,” Cepeda said. “Especially with the youth.” The festival and parade that happen during the day, she said, are family-oriented, occur without incident, and are completely separate from what happens on Broad Street afterwards. The violent aftermath is especially distressing to her, she said, because Quisqueya in Action aims to promote a positive message to youth through the themes it selects for each year. This year, the festival celebrated “trailblazers”—individuals and small organizations that make a difference in the community. In past years, the festival has urged civic participation and respect for the environment.
Quisqueya in Action also does more than just hold the festival and parade, Cepeda said. It runs a college prep program for high school students and sponsors an annual clean-up of Broad Street geared towards youth participation. Cepeda said Quisqueya in Action urges peaceful celebration of Dominican Independence Day in newspaper flyers and radio and television public service announcements leading up to the event. But after her first interview with GoLocalProv, she promised to do more next year. “I’m making a commitment to take more responsibility to initiate an open dialogue with the Police Department,” Cepeda said. “We need to be a little tougher with people on Broad Street.” (The organization that puts on the Puerto Rican festival and parade did not respond to a request for comment.)
Councilman calls for meeting
Councilman Luis Aponte told GoLocalProv that the city needs to be more proactive in dealing with the activities on Broad Street after the festivals. He said the answer lies in a meeting with city officials, the police chief and commissioner, festival organizers, and community organizers—rather than assigning blame to somebody. “What is new is the level of violence that is now associated with it and I think that is what we need to focus on,” Aponte said. “We have to acknowledge what it is and take steps to make sure it doesn’t happen.”
Aponte, the first and the longest serving Hispanic member of the city council, said he wants such a meeting to happen in the near future, so that the city has plenty of lead time in preparing for the festivals next summer. Councilman Michael Correia shared Aponte’s concerns in a separate interview. “Hopefully we can sit down with everybody … get this rectified and have a safe environment,” he said.
Union: Cost of events is too much for taxpayers
It’s not just the violence that’s at issue for the union. It’s also the financial cost. The total tab for both events came out to $62,657 in terms of overtime, callback pay, and details, according to figures provided by the Police Department. A chunk of that—$15,000 or more for police details—should be coming out of the pockets of festival organizers, but at least one of them, Quisqueya in Action, has already fallen behind on a payment plan it had struck with the city.
So far, the group is past due on detail payments owed for last year’s event and has yet to pay anything towards this year. Cepeda said Quisqueya in Action is not ignoring its debt and is doing the best it can to deal with it. She said they are waiting for sponsorship money to catch up on its payments. The group will also be holding fundraisers to cover the remaining balance.
Union officials question how a city that says it’s in a financial crisis—and is looking for savings everywhere in its budget—can afford the cost for the two events. Imondi said that during contract negotiations last year, when the city came asking for budget cuts, the union suggested eliminating the overtime and callback costs for the festivals. In an interview, Gough expressed outrage that he and his fellow members were being asked to sacrifice benefits only to see the city spend so much on overtime and callback for the festivals. “When you’re reaching into my pocket you’re going to throw out $60,000 for four days?” he said. But the cost can be measured in more than just dollars.
Amassing an estimated 53 officers on Broad Street for each of the festivals, drains manpower from other areas of the city, the union says. “They’re pulling officers from all over the city to come here, as well as calling people who were off duty coming in early to put there as a presence. What’s that do for the rest of the city?” Imondi said. “That’s taking the resources away from the rest of the city and the citizens of Providence and it’s leaving those communities less safe to be around. So … it’s a domino effect. And it’s got to end somewhere before someone gets hurt.” “Someone is hurt,” he quickly corrected himself.
Note: Members of the Police Department command staff were “unavailable to comment” for this story. Mayor Angel Taveras’ office refused to comment.
DLT Has $1 Million in Uncollected Fines, Wages
The Rhode Island Department of Labor has failed to collect $1 million in fines and back wages from delinquent contractors who have ducked paying prevailing wages on publicly-funded construction projects, a GoLocalProv investigation has found. The half dozen contractors listed in DLT records have not appealed their cases and have not struck a payment plan. So far, none of them have paid a dime in cases that date back almost a decade. (See chart.)
Labor leader: no enforcement against deadbeat companies
A top labor union leader says that contractors have been able to get away with underpaying workers and breaking labor rules with impunity for years. “There’s no deterrence,” said Michael Sabitoni, President of the Rhode Island Building and Construction Trades Council. “You get fined. You just keep going about your business.” Another 16 companies who have violated other labor laws—mostly dealing with unpaid wages or employee misclassification—have amassed $135,000 in back wages and nearly $40,000 in administrative fines in years-old cases which have been referred to the state Attorney General for legal action, DLT records show.
Sabitoni blames lack of enforcement by the state. “They’re not doing the job for one reason: they do not have enough staff,” he said, adding that state officials that are doing their best with limited resources. “I know the people over there. They’re all good people.” He said the staff available to the division that handles such issues—formally, the Division of Workforce Regulation and Safety—has been “decimated” over the last 15 years, much of that under the administration of former Gov. Don Carcieri. “It’s not because of the quality of the staff,” Sabitoni said. “It’s the quantity.”
State losing out on hundreds of thousands
The biggest debts rest with the contractors who did not pay prevailing wages—based on federal standards—to workers on local or state public works projects worth $1,000 or more, as mandated by law. Out of the $1 million that is owed, about $315,000 is in wages and nearly $700,000 is in penalties. “It’s not a lot of money, but it’s money,” Sabitoni said. At a time when the state is under fiscal pressure, $700,000 is enough to save a program somewhere in a cash-strapped budget, Sabitoni said.
And, in all likelihood, he said those figures barely scratch the surface of the violations that are out there. For about a decade, Sabitoni said there had been just one investigator allocated to cases involving wage and labor rule violations—one for billions of dollars in construction spending in one state. “Imagine if you had six or seven [investigators]. Do the math,” Sabitoni said.
But the investigative force has, apparently, been beefed up. Both the Prevailing Wage and the Labor Standards units each currently have two investigators, according to Valentino Lombardi, senior legal counsel at the department.
Construction industry up in arms
It’s not just underpaid workers and state coffers that are suffering. One of the biggest kinds of victims of underpayment and misclassification of workers is other contractors who compete for public contracts. “They were being outbid by entities that were cheating,” said Richard Sinapi, a lobbyist for the Rhode Island Association of General Contractors and the New England Mechanical Contractors Association. “They either weren’t paying prevailing wages or they were misclassifying workers.” Paying someone below the prevailing wage on a public project cuts the cost of the biggest variable in any construction project: the cost of labor.
Another way of cutting corners is misclassifying workers. Improperly classifying them as independent contractors when they are really employees allows a contractor to dodge the cost of unemployment insurance, workers comp, and payroll taxes. Other contractors may classify someone as an employee, but put them in the wrong category—as a laborer, for example, rather than higher hourly earning positions as plumbers or pipefitters, according to Sabitoni.
Efforts to beef up enforcement
It’s become such a problem for the industry that the trade associations and the labor organizations teamed up to pass a bevy of bills in the last legislative session aimed at putting the teeth in the current regulations. The toughest measure to pass is a new law aimed at deterring delinquent contractors. Under the law, which took effect this summer, contractors that owe outstanding wages or “other sums” levied by the Department of Labor and Training, will have their licenses revoked or suspended by the Contractors Registration Board.
Another law institutes stiffer penalties for incorrectly classifying workers as independent contractors rather than employees. First offenses are $500 to $3,000 per employee; second offenses are as much as $5,000 per employee, according to Sinapi. One issue, Sinapi said, is that violators simply fly under the regulatory radar. He said a key problem is being able to detect and identify prevailing wage violations.
Two other new laws are meant to change that by giving DLT investigators more arrows in their quivers. One requires that state agencies share information with each other. In particular, the law mandates that the DLT get a peek at vital tax information that might help them identify businesses that are misclassifying workers. The other law makes certified payrolls on public works projects public records.
Casualties of the economy?
Lack of full enforcement may not be the only or even the main reason that such large sums of fines and back wages have gone uncollected for so long. Economic factors could also be at work for an industry which has borne much of the brunt of the recession. Of the five companies with prevailing wage violations, Lombardi said he knew at least two of them had gone out of business.
GoLocalProv was able to successfully reach only one of the remaining three businesses, A & K Safety Systems, which is listed with a Warwick post office box. A woman who answered the business line yesterday claimed that A & K Safety Systems had actually been found “not guilty” of prevailing wage violations, but she declined to give her name or provide any other information or documentation to back up her claim.
Pawtucket Pol Accused of Running Campaign Out of Fire Station
“I say disappointing because any such activity can only represent a blatant disregard of the public interest that harkens back to the politics of the past and which Pawtucket needs to leave forever behind if the city is to move forward,” Grebien said.
On August 19, Pawtucket Police Captain Michael Newman responded to a complaint that “political pamphlets” were being handed out for Terry Mercer, a Democratic City Council candidate. Newman said he did not see any “political paper work” and was told by fire personnel that pamphlets were not being passed out. But less than an hour later, Newman returned after receiving another complaint and found “off duty fire personnel standing in front of the bay door with fund raiser pamphlets in hand and also give away shirts with stenciled political advertisement attached,” according to an incident report.
“I informed the actively working personnel that it would be in their best interest to cease and desist and they stated that they had nothing to do with passing anything out,” Newman wrote in the report. “The off duty personnel were told the same and responded back stating the they were not handing anything out and that the fire station was only a meeting place.”
Mercer, who did not return a phone call or respond to an e-mail seeking comment for this story, is challenging Democratic incumbent Chris O’Neil in the Sept 11 primary. O’Neil has the support of Grebien, who has clashed with the local fire union since taking office in 2011. Still, union president Bob Neil denied that any campaign activity was taking place at the fire station. Neil said a group of Mercer supporters had been meeting in Slater Park and simply stopped by the station to use the restroom and purchase soft drinks from a vending machine.
“I’m not aware of any law that prohibits people hanging around a fire station with any t-shirt on,” Neil said.
O’Neil said he thought “the issue was dead a week ago” and he was surprised it had come up again. But Grebien maintains that using the facility for political purposes was inappropriate. “What is totally inappropriate is to turn a city public facility such as a fire station into a base camp for a partisan political candidate,” Grebien said. “The administration has made that point to union leadership so that they will help to assure any such activities will not occur again.”
RI’s Tax Policy Just Isn’t Working
For a trip down memory lane, let’s take a peak at revenue sources for Rhode Island’s state government since WWII.
In 1947, the Rhode Island General Assembly instituted at 1% sales tax. According to Dr. Jay Goodman, in 1961, the state had a 3% sales tax. The AFL-CIO was opposed to the sales tax, and put forward a proposal to cut the sales tax while creating an income tax. It was ignored.
The early 1970s were a time of crisis in the state. Factories closed, city streets were destroyed for highways, and violence broke out on many streets. In 1971, under Governor Licht, the state began collecting an income tax, at a rate of 15%.
In 1974, still reeling from the naval base closures, the state established a lottery to generate additional revenue. By the 1980s, under Governor Garrahy, the state had a 6% sales tax. In 1983, the top income tax rate was 26.75%. Our unemployment rate was 8.5%.
In the mid-1980s, the state entered a building boom, influenced by insider deals and protections. Republican and Democratic leaders alike cashed in. At one point, in June of 1988, our unemployment rate was 2.9%. In 1990, under Governor Diprete, the state initiated a two year temporary 7% sales tax. Our unemployment rate was 6%.
Following the credit union collapse and a dramatic rise in unemployment, Governor Sundlun moved to make the 7% sales tax long term to help stabilize revenue. In the 1996, the top income tax rate was 27.5%. Our jobless level was 5.3%. Let’s repeat that. Our top income tax rate was 27.5%. Our jobless level was 5.3%.
In 1997, the General Assembly and Governor Almond began a five year plan to cut the tax rate by 10%. There was discussion of cutting the sales tax to 6.5%, but it did not materialize. In 2002, after the Almond reductions, Rhode Island’s income tax rate was around 11%, not counting deductions. The state’s sales tax remained at 7%. Our unemployment rate in was 5.5%.
In 2010, the General Assembly and Governor Carcieri reduced the top income tax rate from 9.9% to 5.99%. The state’s sales tax remained at 7%. Our unemployment rate was 11.6%. In 2012, we still have a temporary 7% sales tax, with cities and towns having the ability to add on a 1% meals tax. Local property tax bills have soared as financial aid to cities and towns have been dramatically cut, in large part due to the dramatic reduction in income tax revenues. Our unemployment rate is 10.8%.
Since the 1970s, regressive taxes like the sales and property tax have gone up, while progressive taxes like the income tax have gone down (from a top rate 27.5% in 1997 to 5.99% today). We’re more dependent than ever on sales, property, corporate, and lottery money, as our income tax funds have decreased. Our employment situation is worse now than at any point when our income taxes were higher, even the 1982 recession which peaked at 9.5% jobless.
Tom Sgorous once made a similar argument here.
Our tax policy has basically been that the rich pay less in income tax, and we all pay more in property and sales tax. Let alone that our corporate is higher than both Massachusets and New Hampshire. This strategy for growth doesn’t seem to be working.
The political leadership of Rhode Island needs a model that works, and must follow it. New Hampshire has opted for no sales tax, no income taxes (except for dividend and interest income), tourism and meal taxes, a lottery, an 8.5% corporate tax, and high property taxes, resulting in high business growth and job creation, with services varying greatly by town. Massachusetts has opted for a diverse revenue stream of 5.3% flat tax on income, a 6.25% sales tax, an 8% corporate tax, a lottery, and property taxes- and has a sales tax holiday, some of the best public schools in the country, excellent research and development, and a strong public transit system.
Whichever way we choose to grow, our political leadership from all parties, Democrat, Republican, Green, Moderate, Libertarian, need to consider what is the mission of the State Government of Rhode Island, and how do we construct laws and a budget around that mission?
Security Breach Scandal: What Next at RIPTA?
Governor Lincoln Chafee Rhode Island State Police Superintendent Steven G. O’Donnell, and Rhode Island Public Transit Authority (RIPTA) Board Chairman Mayor Scott Avedisian announced Friday they have asked the State Police to look into the possible mishandling of public resources at RIPTA. Thursday night, Governor Chafee asked the Rhode Island State Police to secure RIPTA’s internal records in an effort to protect potential evidence of wrongdoing within that agency.
Colonel O’Donnell has assigned Lieutenant Colonel Raymond B. Studley, Deputy Superintendent and Chief of Field Operations for the State Police, to coordinate the investigation and assist with the management of the agency. “Serious allegations of wrongdoing have been made in the course of RIPTA’s top-to-bottom review,” Governor Chafee said. “Mayor Avedisian and I believe that these allegations are serious and that in order to preserve the public trust an investigation by the State Police is warranted.”
Chafee said he and Avedisian have asked Lieutenant Colonel Studley to work with RIPTA to coordinate the investigation and assist with operations, identify process improvements, and generally assist the organization. “We need to fix these problems as quickly as possible so that we get back to our mission of transporting people,” Avedisian said. “I thank Governor Chafee and Colonel O’Donnell for putting together a team to assist us in putting RIPTA back on the right track.”
Earlier this week, Governor Chafee announced that RIPTA had taken prompt steps in response to the discovery of a security systems breach at its Elmwood Avenue facility. This included the termination of three management personnel, with additional personnel action expected.
Chafee’s announcement was praised by retiring State Senator John Tassino, who said that while it is a specific recent incident that has led to the investigation and appointment of the State Police overseer, RIPTA has long had its problems.
“Perhaps now, finally, we are on the path to making RIPTA the quality mass transit agency it was always intended to be, and to restoring citizen confidence that their transportation needs are the first and foremost aim of the authority,” said Senator Tassoni. “After years of dissatisfaction with and concerns about how the authority was being run, after years of fiscal problems that have repeatedly threatened Rhode Islanders’ abilities to rely on RIPTA, the governor has taken action to get this agency back on an even keel.”
Fraud & Fantasy
Some of us hoped for a flood of incrimination to wash away corruption in this state. Some of us expected to hear the rants of a delusional narcissist, making a last grasp at power. Anthony Gemma was not Providence’s reckoning, but Anthony Gemma has left us with a whole lot of questions.
Ian Donnis once wrote, a bit overstated, “Beneath a thin veneer, Providence is a poor, violent city.” That viewpoint overlooks so much wonder in the city – our greats artists, restaurants, creative thinkers, workers – yet echoes of its truth undermine the Creative Capital. Regardless of the truth or delusion of the allegations made today, the city does have real problems – including an official jobless rate that’s exceeded 10% since 2008.
After walking out of black GMC SUV hybrid, Anthony Gemma shook a few hands, gave a man a hug, and then made a series of thus far unsubstantiated allegations, which he said can be checked:
Namely, Gemma alleged that in the South Side people were paid to vote, to vote multiple times, and to impersonate voters. Gemma alleged that numerous people are registered to vote at businesses and vacant lots, that vans of undocumented individuals, mostly from New Bedford, were driven in to vote, that mail-in ballots were compromised, and that the dead voted in the capital. He called this alleged voter fraud a “direct attack on our democracy,” warning that “lives are on the line.” He argued that key Cicilline associates engaged in a coordinated and massive voter fraud operation on the South Side of Providence. Gemma said that, “For a decade, minorities in Providence have lived in fear…. under a cloud of intimidation.”
As the press cried out for verification, names and support, Mr. Gemma answered a few questions than left. No law enforcement officials were there to verify his alleged claims of a State Police and FBI investigation. A group of people in the crowd came forward, including Ermenia Garcia, and announced that they had seen fraud at polling places from Botanical Gardens at Roger Williams Park to School One on the East Side, and Wilbur Jennings, Jr, a City Councilor, announced that he hadn’t seen Mr. Gemma’s information, but he believed it. We seemed to be hearing the playbook of Chicago in the 1950s. Are these allegations true?
Steven Brown of the RI ACLU said at Netroots Nation, ” There has not been one prosecution for voter fraud in decades … What other felony have so many people seen but not reported?” Mr. Gemma’s words, if true, will join the annals of RI political history, and perhaps lead to more effective reforms than those enacted after the Credit-Union Crisis. He will be a hero. If false, he will be a simple charlatan – a trickster and media hound.
In Advice and Consent, a brilliant film from 1962, we are given a picture of the shaded dealings that follow in the politics of power. One Senator, convinced of principle, convinced of his right-thinking, is willing to go to extreme ends – because after all, the ends justify the means. The consequences are grave.
January 1956 was a month of actual voter fraud. The incumbent Governor, dynamic Democrat Dennis Roberts, essentially stole the election. Roberts lost in the November general vote to Republican Christopher Del Sesto, later to be of Johnson and Wales fame. The loss was so close, the Board of Elections went to the mail-in ballots. After the mail-in ballots were counted, it was still clear Roberts lost the election. That January, resolute, Roberts appealed to the RI Supreme Court, a group that he helped appoint, who in turn invalidated hundreds of mail-in ballots from soldiers overseas. Hours after the court ruling, Roberts was inaugurated. His disrespect of voters helped end his major political career. Time Magazine wrote a piece on it called “Roberts Rules of Order.”
From 19th Century Republican Boss Brayton to 20th Century Democrat Governor Roberts to the Congressional race today, there are people who are tempted to use or achieve power in ways that don’t make life any better in West Warwick, the West Side of Providence, or Woonsocket. I don’t know if Gemma is pie in the sky, or is on to something, and I won’t until we can see all the facts. Fitzgerald said it better than I can: “It never occurred to me that one man could start to play with the faith of fifty million people- with the single-mindedness of a burglar blowing a safe.”
Mr. Gemma must bring forward law enforcement and other figures to back up these claims of massive, coordinated voter fraud in the South Side of Providence, and beyond. It would be a crime for us to be caught up in a politics of fantasy while real people are struggling and hurting. Whether this fraud is true or fantasy, what a state of affairs.
Cicilline Accusers Tied to Mail Ballot Misdeeds in 2008
The article states that Alba-Acevedo turned in over 100 applications for mail ballots, with 36 applicants filing for a religious exemption. At the time, state police Major Steven O’Donnell (now the Superintendent of the State Police) investigated the matter and said that some voters may have not known what the mail ballots were for. “The people who signed it were unsure what they were signing,” O’Donnell told to the Journal.
Jennings, who would go on to become a Providence Councilman in 2010, was accused of turning in more than 30 mail ballot applications from voters who said they could not vote because of a disability. Six of his family members were included in that group. Alba-Acevedo and Jennings are among several residents who came forward after Cicilline’s opponent in this September’s Democratic primary, Anthony Gemma, hired a private investigation firm to look into voter fraud. Following a Wednesday press conference, Gemma released sworn statements from individuals making claims about Cicilline and his allies.
One was from Alba-Acevedo, who claimed that in 2006, she was told by Cicilline’s Deputy Chief of Staff Chris Bizzacco that she had to resign from her position in the Providence Tax Assessor’s office because of her husband was running for City Council. Jennings was not among those who provided sworn statements, but he did claim Cicilline had a hand in his 2006 loss in a City Council race.
“My election was torn apart by the Cicilline people,” Jennings told GoLocalProv. “I was a victim of the Cicilline administration.” Congressman Cicilline has denied the accusations leveled against him.
Bring your list to the polls
It’s no secret that some in Rhode Island’s public-employee unions are trying to take out Democratic legislative leaders who pushed for pension reform last fall. That reform was a necessary, if not sufficient, measure for the Ocean State to get its finances in order for the long-term benefit of all — including its public employees.
In 2010, Rhode Island’s public-employee unions used money and organizational strength to help at least five challengers who backed their cause win seats in the General Assembly, taking advantage of low voter turnout. Low turnout almost always favors well-financed and well-organized groups, which can often be quite small in comparison to the overall number of registered voters. Primary elections, in particular, with their especially low turnouts, can be bonanzas for relatively small groups.
Campaign-finance reports filed with the state Board of Elections last month show that political-action committees representing teachers and firefighters spent more than $60,000 from November to June to help17 Assembly members who voted against last year’s overhaul of state pensions. Will the public, which has strongly supported pension reform, turn out in adequate numbers to vote for those who backed the bill? Among other things, whether they will face big increases in their taxes may depend on it.
The best known example of the attempt to take out pension-reform leaders is the primary challenge faced by Senate Finance Committee Chairman Daniel DaPonte, of East Providence, from Pawtucket police Lt. (and state Rep.) Roberto DaSilva, who voted against the overhaul and is being well funded by donations from teachers and firefighters. Then there’s House Finance Committee Chairman Helio Melio, of East Providence, being challenged by John Rossi, a former president of Local 569 of the International Brotherhood of Police Officers and now a public-union organizer.
The broad public needs to watch these races carefully — and in particular where the campaign money is coming from. We urge citizens to support those who support pension reform. Too many voters ignore primary elections — to their own big detriment.
In the Senate, Frank Ciccone, of Providence, and John Tassoni, of Smithfield, voted against the reform. (Mr. Tassoni is among those not running for re-election this year.) Senators Juan Pichardo, of Providence, and Bethany Moura, of Cumberland, were listed as not voting.
In the House, voting no were: John Carnevale, of Providence; Roberto DaSilva (as noted), of East Providence; John DeSimone, of Providence; Spencer Dickinson, of Wakefield; Deborah Fellela, of Johnston; Scott Guthrie, of Coven-try; Raymond Hull, of Providence; Robert Jacquard, of Cranston; Raymond Johnston, of Pawtucket; Charlene Lima, of Cranston; Leo Madina, of Providence; René Me-nard, of Lincoln; Mary Messier, of Pawtucket; Peter Palumbo, of Cranston; and William San Bento, of Pawtucket.
Listed as not voting were: Grace Diaz, of Providence; Robert Flaherty, of Warwick; and John McCauley, of Providence. Readers, while recognizing that there are many issues in any campaign, might want to print out the list above and carry it with them to the Sept. 11 primary election.
Rhode Island’s Top 20 Special Interest Spenders
Unions, law firms, realtors, insurance companies and even the state’s top cable company are among the more than 170 special interest groups that have poured hundreds of thousands of dollars into local political campaigns this year, a review of campaign finance reports shows. Records show the top 20 biggest spending political action committees (PACs) have shelled out $389,389.35 since the beginning of the year, with the overwhelming majority of the funds going directly into the war chests of elected officials, candidates or other PACs.
The spending by the top 20 PACs accounts for nearly half of the $782,126.86 already dished out by PACs across the state since Jan. 1. Of the top 20, 11 of the top spenders are union PACs, including the Rhode Island Laborer’s Political League and the National Education Association of Rhode Island, which top the list.
Unions are the Top Spenders
The majority of the Laborer’s Political League’s spending has gone to the organization’s voluntary fund in Washington D.C., but the PAC has made $1,000 max-out contributions to Senate Majority Leader Dominick Ruggerio, Senate President M. Teresa Paiva-Weed, Senator Frank Ciccone and former Providence Mayor and City Council President John Lombardi, who is now challenging State Rep. Michael Tarro.
The NEA has spent $43,795.83, although that amount includes the approximately $2,700 the union spends on rent and utilities each month. The NEA’s PAC has made $1,000 contributions to Clean Water Action, Ocean State Action, State Rep. Spencer Dickinson, State Rep. candidates Gregg Amore and Mike Morin and State Senate candidates Adam Satchell, Dave Gorman and Lew Pryeor. The influential union has also contributed to each of the 16 lawmakers who voted against the state’s pension reform efforts last year (the 17th lawmakers – Senator John Tassoni is not running for re-election).
Third on the list is the International Brotherhood of Electrical Workers (IBEW), which has spent $28,419.99 this year. The IBEW pays Providence Central Labor Council president Paul MacDonald approximately $1,666 each month for “consultant and professional services” and has contributed at least $300 to Johnston Mayor Joseph Polisena, Senate President Paiva-Weed, House Speaker Gordon Fox, Senate Majority Whip Maryellen Goodwin, House Majority Leader Nick Mattiello, House Finance chairman Helio Melo, Warwick Mayor Scott Avedisian and Senate Finance chairman Daniel DaPonte.
Spending Increases in Election Year
But union PACs aren’t the only ones spending significant amounts of cash this year. The Rhode Island Realtors PAC, always one of the top political spenders in the state, has dropped $26,305.75 this year. The PAC has contributed at least $500 to both House Corporations Committee chairman Brian Patrick Kennedy, the House and Senate leadership PACs, Melo, Providence Mayor Angel Taveras, Attorney General Peter Kilmartin and Congressman Jim Langevin.
The Hinckley Allen & Snyder PAC, which makes contributions on behalf of one of the state’s best known law firms, has made max-out $1,000 contributions to Mattiello, Fox, Taveras, Melo, Paiva-Weed, DaPonte, Goodwin, General Treasurer Gina Raimondo and Governor Lincoln Chafee. In all, the PAC has spent $15,625.00.
Listed as the 13th biggest spender, the Committee for Fair Broadband Competition, a PAC run by Cox Communications, has spent $12,758.00 for year. The PAC has made $500 (or more) contributions to Fox, Paiva-Weed, Kennedy, Langevin, Kilmartin and both the House and Senate leadership PACs. The numbers, which are based on figures from June 30, are only expected to increase over the next several months. With dozens of Democratic primary races just over three weeks away and the general election follow in November, PACs are likely going to spend far more than the nearly $1.5 milion they shelled out in 2011.
“On both the federal and state level, we see millions of dollars collected and disbursed to either get around the election finance limitations or, at minimum, the intent of those laws,” Rhode Island College professor Dr. Kay Israel said earlier this year. “Locally, mayors and statehouse leadership raise monies and disburse them to secure their positions in government. At a higher level, governors, Congressmen and Senators spread the wealth around to colleagues and potential supporters. Corporations and labor frequently use their financial muscle to ensure that their desires are being considered (along with their clout).”
PACs Play Too Large a Role
In local races, Rhode Island isn’t expected to experience the wrath of Super PACs, which have the ability to spend endless amounts of money with very little disclosure. But some still stay the local lawmakers rely too much on fundraising in general – particularly during the General Assembly session.
In the past Common Cause, which this year helped get a political campaign disclosure bill passed on Smith Hill, has advocated for banning fundraising during the session. In California, a different effort that focuses specifically on special interests is underway.
In November, Californians will be asked to vote on Proposition 32, a proposal that would restrict political spending through payroll deductions, which is the primary way some unions raise money. But critics of the proposal say that while it cripples union spending, nothing will stop major corporations or wealthy individuals from pouring millions into elections. While political campaigns in the Ocean State do not cost nearly as much they do in many others states, Israel said the special interests are still too much of a factor.
“So, yes, PACs play too large a role, but the issue often is the cost of running for office at all levels and staying there,” Israel said. “For many officeholders government has become an occupation and not a service with the price of admission reduced to seeking and listening to those who can most easily afford to be heard. It may not be as expensive in Rhode Island, but the situation is the same.”
Gemma’s Bombshell: Will it Change the Election?
Democratic Congressional candidate Anthony Gemma’s all-in move to attempt to tie incumbent Congressman David Cicilline to voter fraud and “other potential criminal actions” is a make-or-break strategy that could shatter his reputation if it doesn’t pan out, according to an informal survey of more than a half dozen political observers.
Gemma is set to hold a press conference Wednesday afternoon to explain why he hired a private investigation firm with ties to the State Police to look into voter fraud. In a cryptic Facebook post last week, Gemma claimed he’ll unveil “breaking news that will have an immediate, stunning, game-changing impact on Rhode Island politics,” but the candidate and his spokesperson have not responded to multiple requests for more specific details.
The Gemma campaign’s refusal to release additional information and the decision to turn the release of his opposition research into a full-fledged media event has led some to question the candidate’s credibility.
“Claiming criminal fraud is much more serious than a typical campaign charge,” said Darrell West, Vice President and Director of Governance Studies at the Brookings Institution in Washington D.C. “It goes beyond what usually happens in politics and requires a much higher level of evidence. If Gemma doesn’t have substantial evidence, his name is mud in Rhode Island. I don’t recall past elections where that type of charge was made. If he has real evidence, he should go to the U.S. Attorney and not hold a press conference.”
Could Lose More than Gains
Others say without producing compelling and confirmable research on Cicilline, Gemma could potentially find himself in a situation where he loses more than he gains. Rhode Island College professor Dr. Kay Israel said Gemma can’t afford to be in a “Henny Penny” situation.
“This is a fascinating situation,” Israel said. “I’ve heard of October surprises and last minute attacks before, but the concept of pre-announcing them is new to me. Rather than magnifying the attack, it merely focuses on the value judgment of the candidate disclosing it. If it’s not really earthshaking, one can only wonder about that candidate’s ability to make important and realistic decisions.”
Wednesday’s press conference won’t be Gemma’s first unconventional tactic of the campaign. After openly criticizing Cicilline since the Congressman took office in January 2011, Gemma waited until April to officially announce that he was running for the 1st Congressional District seat for a second time. At his campaign announcement, Gemma refused to take questions from the media and then suggested his focus was on Republican challenger Brendan Doherty and not the incumbent.
Gemma stuck to his script for several months, but his tune has changed with the Sept. 11 Democratic primary on the horizon. Two weeks ago, Gemma also suffered a blow when his field director, Joseph Lazzerini, abruptly left the campaign. While the campaign claimed Lazzerini’s resignation came because he wanted to focus on returning to school, Lazzerini just started a new job as the field organizing director for the Rhode Island Federation of Teachers.
Since making his voter fraud claim public last week, the focus has shifted to Cicilline, whose campaign has demanded Gemma “put up or shut up” when it comes to his information. In an e-mail sent to supporters Monday, campaign manager Eric Hyers suggested “David’s opponent is desperate” and warned that the next three weeks will see “some outrageous political stunts.” “The other side is pulling out all the stops and sinking to new lows,” Hyers wrote. “I’ve never seen a group of people with such a lack of decency.”
Gemma Must have the Goods
Despite the Cicilline campaign’s critique of Gemma, Quest Research pollster Victor Profughi said there has long been accusations of voter fraud in the Ocean State, although an organized effort to cheat the system has never been uncovered. 2012 will be the first election where voters must present a form of identifcation at the voting booth. “When it comes to voter fraud, rumors about it creep up from time to time,” Profughi said. “Hard evidence of rampant, organized voter fraud has, however, been scant during my 40 plus year tenure in Rhode Island. Some years back allegations of large scale fraudulent voting were plentiful and directed especially at South Providence, but even then it is doubtful that even if true any citywide election was impacted.”
For Jennifery Duffy of the Cook Political Report, having hard evidence against Cicilline is the key. Duffy said it is common for political campaigns to make serious accusations against opponents, but suggested it is important to first see exactly what Gemma has. “If he doesn’t have the goods, then it just adds to the narrative of the weak campaign he is running,” Duffy said.
University of Rhode Island political science professor Maureen Moakley also suggested Gemma could be the one who suffers most from his announcement. “He would have to have direct info that Cicilline actively and knowingly engaged in fraud – not that perhaps one of his staff did,” Moakley said. “My gut tells me that in the end the one who is toast is Gemma – but we need to wait and see.”
Is Gemma Helping Doherty?
Meanwhile, Doherty, the Republican who held a double-digit lead over Cicilline in a WPRI poll earlier this year, has been more than willing to sit on the sideline and watch the Democrats rip one another. Still, even if Gemma’s claims have legs, analysts say that doesn’t mean Doherty will cruise to victory in November.
Roger Williams University political science professor Dr. June Speakman, a Cicilline supporter, said history points to candidates both surviving and imploding following major revelations. Speakman pointed to President Bill Clinton and Massachusetts Congressman Barney Frank as politicians who “weathered serious storms,” but also noted that Howard Dean and Gary Hart saw their campaigns unravel following scandals. “One this for sure, is that it’s too early to say whether this ‘hands the race to the Republicans,’” Speakman said.
Brown political science professor Wendy Schiller agreed, noting that the Gemma accusations may come across as “blatantly political.” “Gemma has yet to present one coherent argument for why he should be the Democratic nominee rather than Cicilline, and for that matter, Brendan Doherty has not yet really made his case for why he should replace Cicilline,” Schiller said. “The real question is what are these candidates running on and when will they tell the voters?”
INVESTIGATION: Raimondo Lobbied for Venture Pal’s Business
Pension reform aside, financial literacy has been a signature issue for Raimondo, during her campaign and in office. Soon after taking office, Raimondo went to bat for a program known as EverFi, touting its merits in several press releases and public meetings that generated a flurry of positive news coverage. A year after her efforts, EverFi has gone from a small pilot program in a handful of local high schools to a staple of the curriculum in almost every high school in Rhode Island. An EverFi official declined to disclose yesterday the value of that work, but records uncovered by GoLocalProv suggest that the total value could be in the neighborhood of several hundred thousand dollars.
Raimondo’s office yesterday declined to answer specific questions about how Raimondo learned about EverFi and came to the conclusion it was the best program for Rhode Island schools. GoLocalProv asked if there was an RFP that has been issued—or since EverFi was not directly hired by her office, whether there was a comparable paper trail showing how EverFi was vaulted to the top. None was provided.
A web of business ties and donors
But there is a long paper trail showing close ties between Raimondo and the EverFi CEO, Thomas Davidson. State finance records show that employees at Village Ventures, a venture capital firm where Davidson is still listed as a partner, contributed $6,000 to Raimondo’s campaign in 2009 and 2010. Davidson himself donated $525, listing EverFi, not Village Ventures, as his employer.
But the ties between the two run deeper. Raimondo herself got her start in the finance world at Village Ventures, based in New York City. She later went on to found Point Judith Capital Partners. Another Point Judith co-founder, Sean Marsh, also came from Village Ventures. The two maintained an association with their former employer: both Village Ventures and Point Judith are members of a network of partner funds aimed at leveraging more resources for large-scale investments.
‘Looks terrible’ for Raimondo The revelation comes one week after GoLocalProv first reported that Raimondo’s office has awarded contracts and other work to six campaign contributors, including the decision about who would be the new custodial bank for the state’s estimated $8 billion in assets. According to URI business professor Ed Mazze, Raimondo should not be doing business with anyone who contributed $350 or more to her campaign—to avoid any appearance of a conflict of interest. Employee contributions at four of the six companies were at or in excess of that limit.
Last week’s story prompted state GOP chairman Mark Zaccaria to call on Raimondo to return the donations, calling the situation a clear case of “pay to play”—in which donations are made or other favors are done in exchange for government contracts.
Zaccaria said the latest revelation “looks terrible” for the Raimondo. “These individual instances don’t necessarily rise to the level of a legal issue, but from a political standpoint, where I do have some expertise, it looks terrible,” Zaccaria said. “If Ms. Raimondo is not paying attention to how it looks maybe she is already succumbing to the malaise that [afflicts] long-timers up there, that they feel entitled to the position and no longer have to respond to voters.”
Margaret Kane, the president of Operation Clean Government, said the new information merits further investigation. “I think we need to be vigilant with these kinds of things because oftentimes it’s hidden,” Kane said. “It’s not always obvious to the naked eye.” But others are coming to the defense of Raimondo, including former state Treasurer Nancy Mayer.
“I think Gina’s done a lot for this state that just needed to be really done,” said Mayer, a Republican. “I respect her integrity because I don’t think she would have any motive whatsoever in becoming what we have come to think of as the typical Rhode Island politician, often on the take. I don’t think she’s like that at all.”
A different kind of campaign
Raimondo did more that issue just a few press releases singing the praises of EverFi. She put the full weight of her office behind the program, in endorsing it and vouching for its merits.
A little over a year ago, high school teachers, administrators, and other educators received an e-mail invitation from Education Commissioner Deborah Gist for an informational meeting on EverFi at the Rhode Island Department of Education, scheduled for May 17. But the meeting was arranged by Raimondo’s office, according to RIDE spokesman Elliot Krieger, who said his department refrains from endorsing “any particular literacy program.” (It was Raimondo and EverFi representatives who made the presentation on EverFi at the meeting, according to the invitation.)
Next month, in June 2011, Raimondo issued a press release “announc[ing] Rhode Island’s first Web-based platform financial literacy initiative.” The program, as described in the release, uses everything from 3-D gaming and social networking to “bring complex financial concepts to life” for students. Raimondo unveiled the program at an event at Lincoln High School, one of three schools piloting the program at the time.
About a year later, the program was in 19 Rhode Island high schools, with 25 more expected to adopt it this year. (The company claims to be in 3,000 high schools nationwide as well.)
In Rhode Island, EverFi, which is a for-profit business, is not funded through the General Treasurer’s office. Nor does it receive local funds. Instead, several local banks serve as sponsors for the program. Navigant Credit Union is shouldering the cost of implementation in 14 high schools. Three other sponsors are Westerly Community, Pawtucket, and People’s credit unions, according to a recent news release.
EverFi bid for $375,000 in state work
An EverFi spokesman would not say how much his company has received in the sponsorships. But state records give some hint at the total. One year ago, in June 2011, while high schools were lining up to adopt EverFi, an effort was underway to hire the company at the Rhode Island Student Loan Authority, a quasi-public agency which had had issued an RFP for a company that could provide online financial literacy education and set up a default prevent system. Two firms responded: EverFi and Decision Partners.
EverFi submitted a three-year bid worth $375,000 in total. Decision Partners (which is not listed on any campaign contribution records for Raimondo) said it could do the work for about a third of the cost, according to an internal memo dated July 18, 2011. At a meeting a few days later, the board for the Student Loan Authority—which has a representative of Raimondo’s office among its voting members—authorized the staff to negotiate a contract with EverFi, according to Charles Kelley, the executive director at the authority. The vote, for which her representative was present, was unanimous. Kelley denied that the Treasurer had had any role in pushing EverFi to the top of list. “The Treasurer’s office had no participation in trying to suggest anybody,” he said.
Company pulls out of deal
The contract never materialized. Instead, EverFi pulled out of the deal in an August 18, 2011 letter. “Since we submitted our proposal, EverFi has identified alternative private sources to underwrite the cost of the EverFi Financial Literacy Platforms across Rhode Island, and recently have received substantial commitments to that end,” wrote Ray Martinez, the executive vice president at EverFi. “These sources of funding will allow EverFi to achieve the same goals outlined by RISLA in its Request for Proposal with our common purpose of ensuring all Rhode Island students are prepared for their financial futures.”
So why didn’t the Student Loan Authority go back to the next bidder, Decision Partners? Or one of the other five companies it initially screened for the work? “The others we just didn’t feel were worth the money,” Kelley said. Instead, he said the Student Loan Authority decided to do the project in-house.
Spokeswoman: ‘Treasurer’s integrity is not for sale’
Asked to comment, Raimondo spokeswoman released the following statement to GoLocalProv: “Expanding access to financial literacy programs in Rhode Island is a top priority for Treasurer Raimondo. The office always looks to highlight good work happening in the community, especially regarding efforts to increase financial skills and understanding,” said spokeswoman Joy Fox. “She believes our state will become stronger if families are able to access programs that provide them with a greater understanding of how their personal finances work and how to avoid risky financial products.”
She added: “It is commendable that our state’s credit unions are continuing to take an active role in this effort, by providing access to the state’s first Web-based financial literacy tool to students at no cost to the school departments or taxpayers. There is no public financing or public contract supporting the EverFi program. The Treasurer’s integrity is not for sale at any price.”
NEW: Report Says State’s Economic Recovery is Slowing
According to a briefing released today by Bryant University and the Rhode Island Public Expenditure Council (RIPEC), the CEI for the second quarter of 2012 increased by just 0.4 percent (annualized), only slightly higher than the 0.3 percent growth rate the quarter prior (revised downward from 0.95 percent). The CEI for the third quarter projects continued lackluster growth of 0.5 percent.
“The data indicate that Rhode Island’s economy continues to struggle and there does not appear to be any relief in the short term” said John Simmons, executive director of RIPEC. “As such, the administration should take a proactive review of revenues to ensure the current budget remains balanced.’
Negative internal dynamics, coupled with a softening of the national and regional economy, have dampened Rhode Island’s economic growth prospects thus far in 2012. The U.S. Gross Domestic Product (GDP) increased at an annualized rate of 1.5 percent in the second quarter of 2012, compared to a rate of 2.0 percent in the first quarter. The regional CEI showed a significant slowing in economic expansion between the first and second quarters of 2012; growth in Q2 of 1.7 percent was just over half the rate of growth in Q1. Internally, employment in the trade, transportation and utilities sector and the professional and business services sector declined, despite picking up in the first quarter of 2012, and average weekly initial unemployment claims increased by 14.6 percent, after decreasing for two consecutive quarters.
In addition, the briefing includes the following findings:
· After declining for four quarters, seasonally adjusted leisure and hospitality employment increased by 2.5 percent in the second quarter of 2012.
· Construction employment increased in Q2 by 8.1 percent, compared to the quarter prior when employment declined by 23.7 percent.
· General sales and gross receipt taxes, a proxy for the state aggregate demand, decreased by 1.2 percent (seasonally adjusted) after five consecutive quarters of increases.
· Real (v. nominal) wages and salary declined by 3.7 percent (not annualized), compared to an 8.3 percent increase one year prior.
The quarterly CEI, developed by economists at Bryant University, combines several key gauges of economic activity in a single statistic that measures the overall current economic conditions in Rhode Island. It is calibrated to grow at the rate of the Real Gross State Product and therefore can be interpreted as the underlying growth rate of the state economy. The CEI is calculated using the most current available data for the state.
PS: Please tell governor Lincoln Chafee to stop making videos and govern our state, that’s why we elected him for governor
18 Taxpayer-Funded Loans are Still at Least 500 Days Past Due
The taxpayer-funded loan program run by the city of Providence still had 18 loan recipients that were at least 500 days behind on their payments as of the end of July, according to an aging report obtained by GoLocalProv.
Collectively, the 18 recipients owe the city $1,083,563.18.
Of the loans – all but two of which have not been paid in more than two years— 12 were for restaurants, bars or caterers. Another recipient, the Heritage Harbor Corporation, was singled out in a recent report from the Department of Housing & Urban Development (HUD) as potentially being ineligible for its $313,000 loan based on its nonprofit status.
Despite being late on its payments to the city, a $9,209.15 consulting fee was paid to Heritage Harbor from the PEDP on December 15, 2010. HUD has ruled that payment as an ineligible expenditure and the city may be forced to pay back the money.
PEDP Under Fire
All of the loans came on behalf of the Providence Economic Development Partnership (PEDP), a quasi-public agency that is connected with the city’s planning department but is not subject to Providence City Council oversight. PEDP assistant director Stuart MacDonald did not respond to a request for comment.
The PEDP’s struggles have come to light over the last year after GoLocalProv reported last fall that a quarter of all loans were at least 90 days behind on their payments. According to the HUD report released last month, the agency ran up an “approximately 60 percent” default rate between 2001 and 2011.
In June, the PEDP’s board of directors, which is chaired by Mayor Angel Taveras, voted to write off 29 loans, leaving the city on the hook for more than $2 million. The board agreed to consider write-offs every six months moving forward.
Of the 18 severely delinquent loans that weren’t written off in June, recipients owe the city between $4,633.24 (Tina’s Caribbean II) and $312,729 (Heritage Harbor). Records show 14 of the loans are at least 1,100 days behind on payment and two are more than 2,100 days late.
First-term Councilman David Salvatore has been out in front of the effort to increase transparency within the PEDP. Last fall, he called for the Council to have more oversight over the agency. In June, he said the city needs to show more due diligence when it comes to investing in small businesses. “The difficulties of the economy coupled with the City Council’s fiduciary responsibility to taxpayers, give good reason for expanded oversight surrounding economic development loans,” Salvatore said. “The City Council’s committee on finance is committed to exploring oversight resources in the months to come.”
Mazze: Too Much Politics
But critics of the PEDP say that while there are plenty of success stories that came from city-backed loans, all too often the loans went to those who were politically connected. Over the weekend, former Mayor and Council President John Lombardi said “political patronage” dominated the PEDP over the last decade.
For Dr. Edward Mazze, Distinguished University Professor of Business Administration at the University of Rhode Island, the PEDP’s struggles are part of a disturbing trend that has developed with government-funded economic development programs in recent years. “In the last few years we have learned that a number of loan and loan guarantee programs offered by the state and Providence, awarded loans and guarantees for political rather than business reasons,” Mazze said. “Some of these loans are now in default or bankruptcy. Throughout this period, there has been no transparency or accountability while many political people deny that they knew anything about the loan or guarantee.”
Mazze said both the city and the state need a more robust information system that monitors these loans and programs and holds the borrower responsible for reporting on a regular basis their payments. In the PEDP’s case, such a reporting system was not in place.
In its report, HUD suggested the city lacked “adequate oversight” over the PEDP, which kept shoddy records and ran up more than $1.5 million in expenses that were not supposed to be paid for with federal Community Development Block Grant funds.
Mazze said borrowers should be furnishing current income statements, cash flow documents, balance sheets and notices of any change in management to the city or state and suggested a better system needs to be developed to help the public understand the cost and benefits of these programs. “These benefits should be the creation of new jobs, the retention of existing jobs and/or the growth of in-state or in-city Rhode Island businesses,” Mazze said. “At least twice a year the state and Providence should report on the status of each loan and more specifically if the loan met the targets and conditions that were required for the loan and/or guarantee.”
HUD Says PEDP is improving
Still, there is some upside for the agency. In its report, HUD credited the city for correcting some of the PEDP’s flaws since James Bennett was named the city’s Economic Development Director last year. “In general, we found that city staff has made progress in strengthening the financial management systems for PEDP,” the report states.
During a June Board meeting, Bennett suggested he would like to apply for an additional $25 million in HUD for the agency. Mazze had just one piece of advice: “It is critical to keep politics out of lending,” he said.
City Writes Off Millions in Economic Development Loans (June 2012)
All but seven of those loans were more than 1,000 days past due and one –a $60,660 loan for Danal, Inc. issued in 1996— was 4,799 days late as of last week.
The majority of write-offs were applied to companies that barely made a dent in their original loan, including the Davin Wheel Company, which received a $350,000 loan in February 2006 and owed $502,752.84 with interest and late fees before the PEDP chose to eat their loss, records show.
In total, a half dozen six-figure loans were written off, including one for Ada’s Creations ($153,402.08), a South Side bar that had its liquor license suspended for 11 days earlier this year after a teenager was shot in the establishment’s parking lot. Ada’s received only a partial write-off and still owes the PEDP over $200,000.
While some of the loans date back as far as 1990, more than half were dished out between 2005 and 2009, including a $20,000 micro loan awarded to Mainelli’s Restaurant on Chalkstone Ave. in December 2009. As of last week, the restaurant hadn’t made a payment in 700 days and owed $23,273.64 on its loan.
The slew of write-offs came eight months after GoLocalProv first reported that a quarter of all loans issued by the PEDP were at least 90 days past due and that the city would be out over 3 million if the funds couldn’t be recovered. At the time PEDP lawyer Josh Teverow said the city was actively pursuing collections against 11 businesses that combined to owe $1,365,660. Seven of those loans were written off last week.
By design, PEDP loans, which are funded through the U.S. Department of Housing and Urban Development (HUD), are meant to be a lender of last resort for companies. Business owners are required to be turned away from at least two banks in order to qualify.
But the loans still have to be approved by the PEDP’s 15-member board of directors, which is chaired by Mayor Angel Taveras. The agency’s executive director is Jim Bennett, who also serves as the city’s Economic Development Director.
In the year years leading up to Taveras taking office, the delinquency rate of the loans soared, leading HUD to conduct a full review of the agency. That report is expected to be released next week, according to HUD spokesperson Rhonda Siciliano, who said the agency now has to approve certain PEDP loans before they are distributed.
During GoLocalProv’s initial inquiry into the loan fund, former PEDP executive director acknowledged that number of delinquent loans was high, but said part of that was to be expected considering many companies only come to the PEDP after they have exhausted all of their options.
“As a result our loans are very risky,” Deller said at the time. “Second, given this risk and the present economic climate, we have greater potential for delinquency. With that said, 25% delinquency is high. However, it is not our goal to put people out of business, but to give them every chance to succeed. We are concerned, we will work with our clients to give them every opportunity to succeed and we will continue to evaluate new loans to ensure that we aren’t taking too much risk.”
Councilman Calls for More Oversight
But while the PEDP may have the best intentions, Councilman David Salvatore said it is still in need of more oversight. Salvatore, who is expected to be named chairman of the Finance committee this week, said he is committed to taking a closer look at the agency.
“The difficulties of the economy coupled with the City Council’s fiduciary responsibility to taxpayers, give good reason for expanded oversight surrounding economic development loans,” Salvatore said Monday. “The City Council’s committee on finance is committed to exploring oversight resources in the months to come.”
Salvatore said he understands the city needs to look for ways to improve the business climate, but it must continue to do its due diligence when it comes to investing.
“The bottom line is we must continue to look at new ways of curbing costs, while promoting economic development in Providence,” Salvatore said. “Clearly, if a municipality is participating with credit, then, as in the case of any other competent lending organization, the City of Providence should require an oversight process.
Proposal would disband the EDC
As Rhode Island suffers with the nation’s second-highest unemployment rate, at10.9 percent, three advisers with economic development and political experience believe it’s time to build a new model in Rhode Island for creating jobs, retaining existing businesses and improving the economy. As the state is reeling from the collapse of 38 Studios and the failure of a controversial $75-million loan guarantee that encouraged Curt Schilling to move his video-game company to Providence, these suggestions are the first among many that are anticipated in coming weeks as the EDC remains under scrutiny.
Pitching the idea are Gary S. Sasse, director of the Bryant Institute for Public Leadership, and Scott A. Gibbs and Marcel A. Valois, who are president and vice president, respectively, of the Economic Development Foundation of Rhode Island, a Cumberland-based nonprofit real-estate development firm. They say it’s time for leaders from within the public and private sectors to shake things up, work together and ensure that Rhode Island has a distinct, competitive identity. They acknowledge any real change will take time, but they say it’s vital to change the way things work so that Rhode Island can compete with other states in a global economy.
“We are literally, as a state, fighting for relevancy,” Gibbs said.
In the midst of 38 Studios’ collapse in May, as board members and the EDC director resigned, Governor Chafee asked the business-backed Rhode Island Public Expenditure Council to spend the summer conducting an independent analysis of the EDC. RIPEC, an agency that Sasse led for 30 years before working in then-Gov. Donald L. Carcieri’s administration, is exploring how the EDC could better meet its goals and whether Rhode Island could emulate states with better economic-development models.
In late June, at a Greater Providence Chamber of Commerce forum, participants agreed it was time for the private sector to lead the way in fixing the state’s broken economic-development model. By July, the nonprofit Rhode Island Foundation announced it will host a September forum called Make it Happen RI, at which President and CEO Neil D. Steinberg hopes entrepreneurs, small-business leaders and nonprofit organizations will roll up their sleeves and figure out how to move the state’s economy forward.
The trio suggesting major changes for the EDC met this week with RIPEC Executive Director John C. Simmons and with Steinberg. They said Thursday that they also shared their report with Chafee, but Chafee spokeswoman Christine Hunsinger said he’s out of the office, spending time with family, and she would find it “highly doubtful” he had received a presentation. Hunsinger had not seen the report, but said examining the EDC has been an ongoing conversation this summer.
“It can only be a good thing for Rhode Island that the best and brightest minds get together and talk about what’s caused the problems the state has faced, and the EDC has faced and put all the suggestions on the table,” she said. In interviews Thursday, Simmons and Steinberg offered no analysis of the suggestions.
“It’s a plan,” Simmons said. “We’re considering a variety of options, and that will be one that we’ll look at as we go ahead and talk to any other participants and stakeholders.” Steinberg said it’s one of about 60 ideas submitted to the Foundation, but it’s the only detailed plan for restructuring the EDC. That’s not one of the goals for the Foundation forum — that’s Simmons’ role, he said.
In an interview Thursday, Gibbs said he doesn’t believe all of this energy now spent on fixing the state’s problems would have happened without the 38 Studios meltdown. But he said the failure of Schilling’s company isn’t what’s wrong here in Rhode Island. “38 Studios is not the problem,” he said. “It’s a reflection of the problem. We keep looking for the home runs to solve our problems. You’ve got to stop playing that game.”
Sasse said there aren’t always going to be government solutions for the state’s problems, and part of their plan is about making sure that business, government, universities and the state’s labor unions work together to solve problems. Yet any change, they all said, will only be as effective as the leadership in the state.
Valois, who led the EDC during the mid-1990s after then-Gov. Lincoln Almond restructured the state’s economic-development efforts, said some of the plan relies on what worked well back then. The Economic Policy Council, which Carcieri later dissolved in 2009 when he restructured the agency, could work effectively to set strategy, he said.
“It had some independence and was data-driven,” Valois said.
The research arm they’d like to create now would provide the data needed for solid decisions, but there needs to be more integration with the governor’s office, they said. Gibbs and Valois have been working for about a year to change how people think about economic development in Rhode Island. The board of directors for their foundation challenged them to look for better ways of doing things, and they launched an online tool this past spring to solicit ideas and generate debate among participants. Some of the ideas they have since hammered out with Sasse began as conversations there — on the forum known as RIsurgence: cocreating RI’s economic future.
Providence Agency Spent Over $20,000 in Taxpayer Funds on Lunches
The PEDP’s lunch money, most of which ranged from $100 to $300 payments to Pranzi Catering on Chalkstone Ave, is only a small chunk of more than $1.5 million in misspent funds recently highlighted in a report issued by the Department of Housing & Urban Development (HUD). Of that money, just under $109,000 came under Mayor Angel Taveras’ watch while the rest came during Congressman David Cicilline’s tenure as Mayor. The sitting Mayor serves as chairman of the PEDP’s board of directors.
The HUD report cited the city for lacking “adequate oversight” over the agency in several areas, noting that “the city is unable to ensure that expenditures are eligible, have adequate documentation and prohibit waste and fraud of government funding.” “As with any expenditure, allowable costs must be supported by specific documentation and be subject to cost reasonableness,” the report states. “We reviewed the trial balance, cash disbursements journal and selected several expenditures to review supporting documentation. Cash balances are maintained by PEDP. These expenditures were never reported to HUD as required. Based on the documentation reviewed, we were unable to reconcile the cash disbursements journal to the trial balance. Therefore, we were unable to determine whether all exposures had been properly accounted for.”
Last fall, GoLocalProv reported that a quarter of all loans issued by the PEDP were at least 90 days past due, likely leaving Providence on the hook for more than $3.3 million it was owed. In June, 29 loans were written off, which cost the city more than $2 million.
The loans are considered risky by nature, with many applicants having to prove they were denied by two other lenders before they attempt to borrow from the PEDP. But the excessively high default rate (approximately 60 percent) caught the attention of HUD, which found it wasn’t just loan money that was going to waste. Now the city may be forced back a significant chunk of the $1.5 million in “disallowed” costs highlighted in the report.
“This is just another example of the out of control Cicilline administration arrogantly wasting money with no accountability,” said Tara Pinsky, the chairperson of the city’s Republican Party. “It just seems to be so tone deaf and so out of touch – like Nero playing his fiddle while Rome burned. Former Mayor and now Congressman Cicilline also said the city’s finances were well-managed and in good shape back then – did he not? What a mess he left behind for Providence and now we see ads on TV about how many Rhode Islanders he’s helped? What about the city’s good citizens, pensioners and taxpayers? It doesn’t seem like Mayor Cicilline helped them with their future financial burden at all.”
HUD also Questioned Write-Off Policy
The PEDP now finds itself under new leadership, with the city Economic Development Director James Bennett now serving as executive director. The former director, Thomas Deller, resigned earlier this year and now works for the city of Hartford. But prior to the 15-member board voting to write off 29 loans in June, HUD also wanted to know whether the agency was properly underwriting loans that it likely had no chance of ever recouping any money from.
“We found no written policies and procedures governing underwriting, loan collection, loan modifications and or write off policies,” HUD said.
In one instance, a company carried a principal balance of $66,240 and was over 4,500 days past due. The report states that over ten years, PEDP collected a net amount of $543 from the company, but it also incurred $7,903 in legal fees. That loan was only written off last month. “The city has spent an unreasonable amount of legal fees in pursuit of these collections with very little to show for its effort,” the report states.
Doherty Camp: Fiscal Recklessness
Like Pinsky, the campaign for Republican Congressional candidate Brendan Doherty also placed the brunt of the blame on Cicilline. Doherty spokesperson Ian Prior ripped the Congressman for his handling of the agency and taxpayer money during his time as Mayor of the capital city.
“This kind of fiscal recklessness with taxpayer money should not come as a surprise for anyone that has followed Congressman Cicilline’s checkered political career,” Prior said. “He was not a responsible steward of taxpayer money as the Mayor of Providence, he failed to be honest about that irresponsibility, and he is demonstrating the same behavior in Congress where he continues to push the same kind of failed economic policies that nearly bankrupted the city of Providence.” “Things have not changed over the last 20 years, we may have a different mayor; the political insiders are the same”
Big Brazilian bank Itau named a Citizens suitor; rumors heat up
If you believe the financial press, Citizens Bank doesn’t lack for suitors. With its parent company Royal Bank of Scotland still reeling from its 2008 near-death experience and the Libor scandal, rumors are swirling that RBS may soon sell off Providence-based Citizens to raise some much-needed cash. RBS is 82% owned by British taxpayers. Canada’s TD Bank has already been cited as a potential buyer of Citizens. Over the weekend a less familiar name emerged: Itau Unibanco Holding, one of Brazil’s largest banks, which The Times of London reported Sunday is mulling an offer. The newspaper cited no sources but said RBS could get more than $15 billion for Citizens.
“RBS is known to have coveted a sale of Citizens for some time but has been unwilling to accept a knock-down price,” The Daily Telegraph’s Philip Aldrick reported Sunday. British authorities “are also understood to be keen for RBS to sell off the US operations to release funds to focus on UK lending.”
Itau tried to tamp down the speculation late Tuesday, saying in a statement it “isn’t negotiating the acquisition of Citizens” or any other American bank “as there is no proposal or related document in this sense,” but adding that the bank is “always considering options to expand its operations in the financial market.”
As for RBS, CEO Stephen Hester on Friday described Citizens as a “core” part of the bank and praising its performance in recent quarters. “Citizens is much more valuable to our shareholders today than it was three years ago, and I have every confidence that it will be more valuable again three years from now,” Hester said. But as one banking analyst told The Scotsman, “Everybody knows that Stephen Hester believes there are no sacred cows. He has chosen his words carefully, never actually saying RBS will never sell Citizens even while asserting it remains a core business for now. It is quite possible he would wait a few more years to extract more value from a sale.”
And Citizens isn’t the only local bank The Times thinks is on Itau’s target list. The paper also suggested Sovereign Bancorp, now owned by Spain’s Banco Santander, could be purchased by the Brazilian firm. As for Citizens, The Times says JPMorgan Chase & Co. is another potential buyer along with TD Bank and Itau.
Raimondo Gives State Contracts to Campaign Donors
General Treasurer Gina Raimondo’s office has granted lucrative state contracts and poured tens of millions worth of public investments into firms and companies whose employees donated thousands to her campaign, a review of state records has revealed. “If any of the individuals in those firms had given money and the money was more than the de minimis of $350, she should not be doing work with any of these firms,” said URI business professor Ed Mazze. “There would be the feeling that these firms ‘paid to play.’” (Mazze said his proposed $350 limit would apply to the total amount of contributions that came from employees or managers at a company.)
In the year and a half since the election, the Rhode Island State Investment Commission—an arm of her office which Raimondo chairs—has hired a major New York-based bank to manage an estimated $8 billion in pension funds and cash assets for the state. Another contract was issued to another top bank to handle half a billion dollars in liquid assets. And, the commission has held direct votes to make investments of up to $75 million in four separate firms. All six banks or firms contributed to Raimondo’s campaign through their managers or employees, collectively amounting to $5,849, according to state campaign finance records. In particular:
■ $10 Million investment: Last September, the investment commission voted to invest $10 million in Braemar Energy Ventures III. State records show that in 2010 one of the partners at Braemar Energy Ventures contributed $1,000, the maximum allowable by state law.
■ $20 Million investment: At that same meeting, the commission invested $20 million in the Summit Partners Credit Fund. A senior advisor at Summit Partners contributed $2,000 total between 2009 and 2010.
■ $500 Million state investment pool: Last November, the commission selected Fidelity Investments to manage the Ocean State Investment Pool, a new venture initiated by Raimondo. The pool was expected to have up to $500 million in liquid assets from the state and cities and towns. Contributions from Fidelity employees: $2,050.
■ Bank for $8 billion in state assets: Last month, the General Treasurer’s office announced that BNY Mellon has been selected to provide “master custody banking services” for state assets worth about $8 billion, which includes pension funds and cash assets, according to a press release. BNY Mellon employee contributions: $350.
In two cases, contributions from companies that received investments fell below that $350 threshold: $249 from a cofounder of Centerbridge Partners, which received a $25 million investment, and $200 from a managing director of Nautic Partners which also received an investment of $20 million.
Raimondo was present at all the meetings where decisions on those investments and contracts were made and she did not recuse herself from the votes, with the potential exception of BNY Mellon. (Those minutes have yet to be published and her spokeswoman yesterday would not say whether Raimondo had attended the meeting or recused herself.)
Notably, two other members of the investment commission recused themselves from the votes. On Feb. 27, 2012, commission member Rosemary Booth Gallogly, who is the state revenue director, recused herself from the vote to invest $25 million in Centerbridge. She did not give a reason, at least according to the minutes, but her brother, Mark Gallogly is the cofounder and managing principal of Centerbridge Partners. He is also the source of the $249 donation to Raimondo’s campaign.
A second commission member, newly appointed Paula McNamara, abstained from the Nov. 23, 2011 vote on the Fidelity contract. McNamara held the post of Senior Director of Client Services Development for Fidelity at the time of her appointment last year.
Conceivably, Raimondo also could have mitigated any potential pay-to-play issues by returning the campaign contributions, but as of this week, that had not been done. (Mazze, however, doubts that returning donations would actually accomplish that much, saying the “damage has been done.”)
‘Here we go again’
Mazze said Raimondo and the companies could face issues of how the donations will be perceived. “If it looks like garbage and it smells like garbage, there’s a high probability that it’s garbage,” Mazze said. “In other words, you don’t do business when there is a perception you paid to do business.”
“It may not be bad, but it certainly looks bad,” said Mark Zaccaria, chairman of the state GOP.
He noted that since the votes were all unanimous, Raimondo could have easily recused herself without endangering the deals. Zaccaria said the perception that is left with voters will not be a positive one, increasing public disillusionment with state politics and perpetuating a trend towards low turnout in elections. “The point is, it’s a ‘here we go again’ moment,” Zaccaria said.
“All these things bear watching,” added Margaret Kane, president of Operation Clean Government, who said she would need more information before she could determine whether the donations—and the ensuring contracts—constituted cases of pay to play. “I think it’s worth looking into,” Kane concluded.
Raimondo: I will hold myself to a higher standard
‘Pay to play’ is defined by Common Cause, a good government group, as the exchange of money or even gifts—such as Super Bowl tickets—in return for political favors.
It’s a not uncommon practice, but proving that donations are being made with the express intent that favors will be repaid can be difficult, as the U.S. Securities and Exchange Commission noted two years ago, when it released a set of rules aimed at curbing the practice in the world of public pension funds.
“Pay to play practices may take a variety of forms, including an adviser’s direct contributions to government officials, an adviser’s solicitation of third parties to make contributions or payments to government officials or political parties in the state or locality where the adviser seeks to provide services, or an adviser’s payments to third parties to solicit … government business,” SEC regulators wrote. “As a result, the full extent of pay to play practice remains hidden and is often hard to prove.”
Raimondo’s predecessor, Frank Caprio, was caught in a pay-to-play flap in 2008 when $23,000 flowed in from two New York law firms—five days after he announced his office was issuing an RFP for securities-litigation law firms. After the contributions became public, Caprio returned the money, even as his campaign insisted that it had not sought the donations.
When she ran for office, Raimondo went out of her way to make an issue out of pay-to-play donations. In June 2010, her campaign announced that she would abide by proposed SEC rules barring individual “investment advisers” who contributed more than $350 from receiving an investment from a pension fund managed by the candidate, if elected. The ban would have been effective for two years from the date of the donation.
Raimondo issued a press release announcing her voluntary compliance with the rule and she urged its speedy passage. She followed up with a letter to the editor in which she declared that, “It’s time that we held all public officials and candidates—myself included—to a higher standard to protect the interests of taxpayers and ensure performance in our state government.”
The SEC eventually adopted the rules, although implementation is not yet complete.
Donors’ bank will be handling state pension funds
BNY Mellon, the state’s new custodial bank, would be involved in pension funds, according to a press release from the General Treasurer’s office. However, banks are exempt from the SEC rule because they are not considered investment advisers (even if they happen to give investment advice).
But even if BNY Mellon was under the jurisdiction of the rules, the donations don’t exceed the $350 individual limit because they came from two people. For an investment adviser who is eligible to vote for the candidate, the limit is $250. At least one of the two donors was eligible to vote for Raimondo: Roger Begin, a sales director who also is a former Rhode Island lieutenant governor who lives in Woonsocket. Even if he were considered an investment adviser, his $250 contribution does not exceed the maximum allowable for investment advisers who eligible voters. (Click hereto read the SEC rules.)
The situation nonetheless raises the larger question of why Raimondo’s self-imposed rule against conflicts of interest with investment advisers who make political contributions would not apply more broadly to similar conflicts involving any other kind of individual or institution doing business with her office. That question went unanswered by Raimondo’s office yesterday. “It just makes it that worse,” said Zaccaria.
Before BNY Mellon, State Street provided custodial banking services to the state government. State campaign finance records do not show any donations from State Street employees to Raimondo’s campaign. Six months after taking office, Raimondo said her office would be issuing an RFP for a new custodial contract. At a later meeting of the investment commission, she said the last RFP was in 2000 and that “whenever a contract expires an RFP should be conducted to ensure competitive pricing and top-notch services,” according to the minutes for the April 25, 2012 meeting.
Spokeswoman: ‘Treasurer’s integrity is not for sale’
Yesterday, Raimondo spokeswoman Joy Fox declined to provide a list of what other banks responded to that RFP. Instead, in e-mailed comments, Fox stressed that the new contract would be saving the state $300,000 annually, but she did not disclose, when asked, how much BNY Mellon would be making off of the deal. “As previously reported by GoLocal in 2010, the Treasurer’s integrity is not for sale at any price. She governs based on merit and merit alone—her decisions are based on what is best for Rhode Island,” Fox said in her statement.
Fox was alluding to comments made by then-campaign manager Joseph Shekarchi, who is now running for state rep and is no longer affiliated with Raimondo’s campaign organization. He was responding to GoLocalProv’s finding that seven companies that had existing contracts with the Treasurer’s office had contributed $24,150 to Raimondo’s campaign by mid-2010. (East Providence-based accountant Ed Galvin is currently handling her campaign accounts. He did not return a call yesterday.)
“From pension reform that saves Rhode Island about $4 billion in the next 20 years to saving the state over $7 million in its recent bond offering, the Treasurer’s record speaks for itself,” Fox added.
Fung, Robitaille, Block may run for gov against Dems, Chafee
The list of Rhode Island politicians seriously considering a run for governor in 2014 is getting longer. Cranston Mayor Allan Fung, former candidate John Robitaille and Moderate Party founder Ken Block all suggested in interviews with WPRI.com Tuesday that they could make a bid for the state’s highest office.
They join three Democrats – Treasurer Gina Raimondo, Providence Mayor Angel Taveras and former Auditor General Ernie Almonte – on the list of individuals who may be on the ballot in 2014. (Almonte has already launched his campaign.) And of course there’s also incumbent Gov. Lincoln Chafee, an independent who says he expects to run for a second term.
Republican Fung, mayor of the state’s third-largest city, has a bigger campaign war chest than anyone else in the GOP and is running unopposed for a third term this November. “It’s an honor to be considered in the discussion for that,” Fung said. “I’m privileged to be able to serve another four years, if I don’t stumble in some way between now and November. I am happy for now to be undertaking that third term for mayor, and who knows what the future will hold?” He added: “I’m humbled that people are considering me and the work that I’ve done for any type of higher office.”
Robitaille lost the 2010 governor’s race to Chafee by just 8,660 votes and is widely expected to seek a rematch. He said he may put together an exploratory committee after this November’s election but wouldn’t go further than that. “It’s way too early,” he said.
Robitaille dismissed the idea that he’ll be at a disadvantage because he hasn’t begun raising money, unlike Raimondo, who is quickly approaching nearly $1 million in the bank. “It doesn’t matter to me how many people jump into this race and how much money they raise – that’s not going to scare me off if I want to run,” he said. “You can’t spend $2 million in Rhode Island,” he added. “It’s a single media market. … Nobody pays attention, truthfully, until after Labor Day other than the policy wonks and people interested in politics.”
Robitaille also laid out a reason he might decide against running – if the General Assembly’s makeup stays largely the same this fall despite the state’s high unemployment rate and other problems. He said the state’s governor’s office is one of the weakest in the country.
Another Republican – Warwick Mayor Scott Avedisian – wasn’t immediately available for comment. He is a potential candidate for lieutenant governor, though some Republicans remain bitter about his endorsement of Chafee over Robitaille two years ago.
The man many Republicans blame for Robitaille’s loss in 2010 – Moderate Party founder Ken Block – is another politician with no money in his campaign account who says he’s contemplating another run.
“I don’t know yet – I honest-to-God don’t know,” Block said. “It’s one of those things where it’s a family decision and it’s a professional decision. … I still have two young kids, so there’s some serious negotiations going on in the Block house right now.”
He added: “I would run it differently. … You can’t jump in in February of the year of the election.”
10 Primaries to Watch: Who’s Got the Most Cash?
Senate District 14
In the most-talked about Senate race in the state, Senate Finance committee chairman Daniel DaPonte – a key player in last year’s pension reform battle— is being challenged by current State Rep. Roberto DaSilva, who was among the 17 lawmakers who voted against the law.
Both are well-liked in East Providence and they each have a strong base of contributors. If General Treasurer Gina Raimondo is going to help one candidate over the next month, DaPonte would likely be the one given his efforts to push pension reform through a Senate that is often considered controlled by organized labor. DaPonte raised over $30,000 in the second quarter and counts the EngageRI Pac ($1,000) as a contributor.
DaSilva meanwhile raised just over $10,000 and now has $21,308.69 on hand. As reported earlier this week, the pro-labor candidate has received $11,750 in campaign contributions from union PACs since voting against pension reform last year. The winner will not have an opponent in the general election.
House District 40
Perhaps the largest threat for leadership in either chamber comes in District 40 where businessman Greg Costantino (the brother of former House Finance chairman Steve Costantino) is taking on Deputy Majority Peter Petrarca
Costantino filed after the June 30 second quarter fundraising deadline, so he hasn’t had to file a campaign finance report yet. But the candidate is prepared to spend whatever it takes to defeat Petrarca, who has his eyes on becoming the next Majority Leader. After spending $16,000 in the second quarter (including over $8,000 on billboards), Petrarca still has over $70,000 in the bank. The winner of this race will take on Republican James Archer.
House District 45
State Rep. Rene Menard has fought off challenges from candidates put up by House leadership in the past, but this time he faces a well-financed opponent in Cumberland Councilwoman Mia Ackerman.
Ackerman has already loaned herself nearly $22,000 and counts Cumberland Mayor Dan McKee as one of her donors. Menard, a retired firefighter, has long been a strong voice for organized labor and has roughly $15,000 in his campaign war chest The winner will not have an opponent in the general election.
Senate District 9
Michael Pinga was one of the top stories of 2008 when he stunned former Senate Finance chairman Stephen Alves in a Democratic primary, but now he appears to be a target of organized labor. Pinga is being challenged by West Warwick educator Adam Satchell.
Pinga is likely to self-fund his race (he’s loaned over $24,000 since 2008), while Satchell should be able to raise money based on endorsements from the National Education Association, AFL-CIO and Planned Parenthood. The winner of this race will take on Republican Paul Caianiello Jr.
House District 30
There are only five Republican primaries taking place in the General Assembly this year, but the race to replace former House Minority Leader Robert Watson is certainly one to watch.
Robert Bolton, who was planning to run against Watson before he announced his retirement, is up against newcomers Emil “Dean” Fachon and Antonio Giarrusso. None of three candidates reported having money in their campaign account as of the end of the second quarter, but in a relatively conservative district, the winner would likely have a strong shot at winning in November. The winner of this race will take on Democrat Mark Schwager and Independent candidate Kevin McDonough.
House District 8
The seat on Federal Hill has a three-way Democratic primary that includes incumbent Mike Tarro, progressive Libby Kimzey and former Mayor and longtime City Councilman John Lombardi.
Lombardi leads the group in cash on hand with nearly $22,000 and has received campaign contributions from the neighborhood’s Senator (Paul Jabour) as well as Senator Frank Ciccone and Councilman Michael Correia. Kimzey meanwhile is trying to rally the West End base that helped propel Councilman Bryan Principe to victory in 2010. She has over $16,000 in her campaign account
Tarro, who has the ability to self-fund his campaign, has just over $15,000 in his campaign account and has the support of House leadership,. The winner will not have an opponent in the general election.
Senate District 5
The Senator from Federal Hill (and former Providence Mayoral candidate) has his first credible challenger in several elections in Maura Kelly. Kelly, who works for the Rhode Island Department of Education and previously consulted for EngageRI, raised $24,378 since announcing her candidacy. Among her donors were former Board of Regents member Angus Davis and retired Nortek CEO Richard Bready, the man Curt Schilling claims was willing to invest in 38 Studios if the state was willing to sign off on tax credits
Jabour historically self-funds his campaigns and has just under $3,000 in his campaign account, but he is extremely popular in his district and will be a tough out.
The winner will not have an opponent in the general election.
House District 49
Rep. Lisa Baldelli-Hunt has two Democratic challengers in Stuart Gitlow and Michael Morin. Baldelli-Hunt, who played a major role in killing the supplemental tax hike in Woonsocket this year and is widely viewed as a potential Mayoral candidate, has less than $2,000 in her campaign account.
Morin is a Woonsocket firefighter and should pick up plenty of labor support while Gitlow has just under $300 in his account. Gitlow ran for State Rep. in 2010 and spent less than $2,000 while earning just 19 percent of the vote The winner will take on Independent Michael Moniz in the general election.
House District 65
In a district completely revamped by redistricting, this open seat includes lawyer Tim Chapman, teacher Gregg Amore and former State Senate candidate James Miller. While none of the candidate have significant campaign accounts yet, Amore is supported by organized labor (which always plays a role in East Providence) while Chapman is the former East Providence city solicitor. The winner will take on Moderate Joseph Botelho Jr. and Republican Stephanie Sivalingam in the general election.
Senate District 29
In another attempt to unseat a member of leadership, attorney Laura Pisaturo is taking on Senate Judiciary chairman Michael McCaffrey. Pisaturo has not filed a campaign finance report yet (she announced after the second quarter deadline), but she has the support of Marriage Equality RI, which is focusing on the Senate in its attempt to pass same-sex marriage next year. McCaffrey meanwhile is very popular in the district and has over $145,000 in his campaign war chest. The winner will not have an opponent in the general election.
Casinos Have Spent Nearly $1 Million on Table Games in Rhode Island
Twin River and Newport Grand have combined to spend more than $897,000 since the beginning of March in their efforts to convince Rhode Islanders to vote to allow tables games at the state’s two casinos this November, according to a review a campaign finance reports. The campaigns to move to full-fledged casino gaming have been more costly than any political campaign in the state this year, including the re-election efforts of Congressman David Cicilline, who had spent just over $770,000 as of June 30.
UTGR Inc., Twin River’s parent company, has spent $825,993.67 while the much smaller Newport Grand has spent $71,639.00, with the majority of the funds going toward advertising and consulting fees. Records show Lincoln-based Twin River spent $173,450 on television commercials in July and another $49,240 on the radio. The RDW Group in Providence is running the Twin River campaign. Twin River’s political action committee (PAC) also contributed $7,700 to more than 20 lawmakers, including every member of House and Senate leadership, since the beginning of the year, records show.
Meanwhile, Newport Grand’s more modest campaign has paid Providence public relations firm Duffy and Shanley more than $20,000 and the slot parlor’s August filing shows more than $8,000 going to Fleming & Associates, one of the state’s top polling services. “The education campaign isn’t just about the paid media,” said Twin River spokesperson Patti Doyle. “We’ve spent the summer months employing a street team of college students to be visible with education materials at a host of community events throughout the state.”
Threat from the Bay State
Doyle said Twin River board chairman John Taylor has also attended Rotary and Chamber of Commerce meetings from across the state, talking about the importance of approving the table game question in order to bring jobs to Rhode Island. She said the campaign has also “been really active building an online community via our website where you can register to volunteer, and via Facebook and Twitter.”
But that doesn’t mean the two casinos aren’t going to continue spending hundreds of thousands of dollars to ensure voters support the ballot referendum. In 2006, Las Vegas-based Harrah’s Entertainment spent more than $12 million in an attempt to open a casino in West Warwick, but voters overwhelmingly shot down the proposal. Now with Massachusetts committed to building three resort-style casinos and a slot parlor over the next decade, supporters of full-fledged gaming say the state could face economic peril if the referendum fails.
Gambling related revenue is the state’s third-largest source of income, at more than $300 million each year and Twin River has provided the state with over $2.5 billion since 1992. A report issued earlier this year by the Rhode Island Public Expenditure Council (RIPEC) suggested that table games would benefit Rhode Island, but it also noted that the state will not be able to depnd on gambling income as much once the casinos are built in the Bay State.
“The advent of casino gaming in the commonwealth of Massachusetts – under any scenario – will likely negatively impact both revenues for the casino operators in Rhode Island, and the state of Rhode Island itself,” the RIPEC report stated. “While it appears that the opening of casinos in Massachusetts may occur later than originally anticipated, they will open in the next few years, and that Twin River, Newport Grand and the state will all see revenues decline. Allowing Twin River and Newport Grand to operate table games will offset some of these projected revenue losses; however, it is also clear that the state can no longer rely on gaming revenues to support the same share of government services once casinos open in Massachusetts.”
During a rally to kick off Twin River’s effort (known as Jobs in RI) last spring, Greater Providence Chamber of Commerce President Laurie White predicted the expansion would provide a boost in economic impact to the state. “Twin River is an important asset to Rhode Island,” White said. “It is the third largest source of revenue for the state, providing $270 million to the general fund last year for vital services. The addition of table games will not only provide a much need boost in employment and corresponding economic impact, it will allow Twin River the ability to remain competitive at a time when it’s needed most. There is strong support among business, labor and community leaders here today because we recognize how vital it is that we approve the referendum on November 6th.”
State Senate Candidate Opposed
The two referendums will need to be supported by the majority of voters statewide as well as the town of Lincoln (for Twin River) and Newport (for Newport Grand) in November. It is possible for only one of the referendums to earn support. But not everyone is supporting the effort to expand to table games, particularly in Lincoln. District 17 State Senate candidate John Cullen, a Democrat, is urging voters to oppose the plan. On his campaign website, the phrase “Vote No Casino” is featured prominently. If Cullen wins his primary, he’ll take on incumbent Edward O’Neill, an Independent.
“I oppose creating a full-fledged Rhode Island Casino because gambling is not genuine economic development and it cannibalizes local businesses,” Cullen’s website states. “I encourage all District 17 voters to vote NO on the November casino referendum. I especially encourage all Lincoln voters to vote NO.” Cullen contends that Lincoln voters have long been against expansion at Twin River. He is joined by former Lincoln Town Council President Dean Lees Jr. in opposition to the proposal. Both gentlemen contend that the town will not benefit from table games.
Lees has said he is concerned with language in the casino legislation passed by the General Assembly earlier this year that says the town will only receive one percent of table game revenues for four years and that is only if revenues from Video Lottery Terminals (VLTs) decline. In a June interview with GoLocalProv, Lees warned that after the four years, Lincoln could face an economic crisis. “It’s almost like you’re getting four years to live,” Lees said.
Side of the Rhode: Who’s Hot and Who’s Not in RI Politics?
Gina Raimondo -> The General Treasurer again lapped the field in the fundraising department in the second quarter, pulling in over $258,000 between April and June. Raimondo will likely run her campaign account to over $1 million by the end of the year and appears well on her way to a gubernatorial run in 2014. Her top donors in the second quarter included Joel Klein from News Corp. and Arthur Levitt, the former chairman of the United States Securities and Exchange Commission.
Ken Block -> Speaking of Raimondo, the Moderate Party chairman is correct to take her to task for seemingly raising money for her Governor’s race while she is supposed to be running the treasury. It’s something elected officials do all the time, but Block uses the example of Republican John Robitaille, who was essentially forced to resign from Governor Carcieri’s office when he ran for Governor in 2010, to point out that elected officials probably get too much of a head start when they want to run for a different office.
Angel Taveras -> Block didn’t criticize Angel Taveras the way he criticized Raimondo, but there is no question that the popular Providence Mayor is building his war chest as well. Taveras, who many believe is eyeing the Govenor’s office, now has over $237,000 in his account. Still, there are questions about Taveras’ future: He could run left of Raimondo and Ernie Almonte to win a Democratic primary, but would he want to take on Governor Chafee considering the two have become close allies? If Brendan Doherty wins in CD-1, don’t be surprised if Taveras chases that seat instead.
Barry Hinckley -> The Republican Senate candidate still needs to build his name recognition in the state, but he’s gaining a lot of notoriety nationally. Several top Republican Senators held a fundraiser for him in Washington this week and the campaign continues to say it will have plenty of money to purchase television time this fall.
Kate Coyne-McCoy -> Congratulations to the former Congressional candidate on opening up her own political consulting firm. It will certainly be interesting to see what kind of business she gets from Rhode Islanders.
Sam Zurier & Common Cause RI -> The Providence City Council this week voted to allow a question on this year’s ballot that could make the redistricting process more transparent, something both Councilman Zurier and Common Cause executive director John Marion advocated in favor of. Both on the state level and in Providence, redistricting was filled with far too much political maneuvering this year. Here’s hoping the voters support this cause.
Mike Napolitano -> Kudos to the State GOP for bringing on the former Robitaille spokesman to concentrate mostly on the 1st Congressional race. Napolitano will certainly add some character to the race for the Republicans.
Lincoln Chafee -> If Governor Chafee wants to run for re-election, he’ll certainly have no problem finding the money. But while Raimondo and Taveras posted impressive fundraising numbers in the second quarter, Chafee had his worst stretch since his first three months in office. One would expect him to rebound over the final two quarters of the year.
Peter Kilmartin -> Speaking of poor fundraisers, the Attorney General barely raised $4,000 in the second quarter and while his in 2014 race won’t cost nearly as much as some of the other high-profile races, he still needs to bring in a few bucks. Currently Kilmartin has less than $50,000.
President Obama -> It has to be concerning for Democrats to see the President so willing to go negative on Governor Romney. It certainly suggests that he is concerned that his record over the last four years won’t be enough to win re-election.
Christopher Cardarelli -> It was a shame to see North Providence Mayor Charles Lombardi have to write a $1,600 check to cover this retired police officer’s (he’s now a firefighter) weekly medical insurance premium. According to the Valley Breeze, Cardarelli makes over $120,000 and he still wants a handout from the town.
Pawtucket Schools -> It’s bad enough that the city has two of the worst high schools in the state. Now it appears as though the district closed the year with a $1.5 million deficit.
Providence Crime -> The tragic triple homicide this week is another sign that more needs to be done about gun violence in the city. It seems clear that the police department is stretched too thin and while having additional officers might not necessarily have prevented the 12 murders that have taken place in the city this year, it certainly would go a long way to making residents feel safer
State Report: Repairing RI’s Bridges, $40 Million Bonds & Improving Schools
Additionally, a new pilot program was launched in Providence to improve childhood well-being. Not to mention, the state has reported that hotel occupancy is way up, which bodes well for the state’s convention business. And lastly, the RI ACLU has begun probing into what state police are doing with your license plate data.
RI to get $3.3 million for I-95 bridge project
Just one week after the RI Transit Authority received a $1.22 million grant to renovate the East Side Tunnel and Kennedy Plaza, the state has obtained a second federal grant for $3.3 million. This time around the federal government is helping out the Ocean State to fund the replacement of the Pawtucket River Bridge on Interstate 95. The news was announced on Tuesday by the state’s congressional delegation.
The bridge, which was built in 1958, was originally designed to carry roughly 60,000 vehicles per day. Currently, the old and outdated bridge carries twice that amount. The $3.3 million federal grant is just a portion of what Rhode Island is set to receive. In fact, the federal government will pay for 80 percent of the $81 million project. The bridge is currently being built in stages.
According to U.S. Sen. Jack Reed, the new bridge will have a dramatic effect on the regional economy.
“The Pawtucket River Bridge is a critical part of the I-95 corridor and it’s important to the economy of the region that it is open to all traffic. This grant will help relieve the state of some of the financial burden of construction and will help move this project toward completion. Equally important, completing this project will ease noise and traffic congestion for Pawtucket residents,” said Sen. Reed.
Providence voters to determine street repair plan
Providence voters will soon be given the task of deciding whether the city should borrow $40 million to repair city streets. The city council voted unanimously Monday evening to put Mayor Angel Taveras’ bond request on the Nov. 6 ballot, according to The Providence Journal.
Noticeably absent from the council’s decision is a proposal that would have given it authority to direct where a portion of the money would be spent. Mayor Taveras stated he was vehemently opposed to any such provision and threatened to veto the bond if it included the amendment.
Although Providence finished the last fiscal year with an $11 million deficit, Mayor Taveras argues that his administration has subsequently reigned in spending enough to put the city in a position to begin the proposed street repairs. Each of the city’s streets has been ranked in order of repair needs by an engineering firm, according to the mayor’s office.
Rhode Island ACLU wants to know what police are doing with license plate data
Do you ever wonder what law enforcement officials are doing with your license plate data? Well, the ACLU of Rhode Island does and it intends on investigating the matter. The RI ACLU, along with chapters in two dozen states, is currently asking police and state agencies how they are using data being obtained by automatic license plate readers.
Earlier this week the RI ACLU announced that at least one police department, Providence, is utilizing the new technology. As a result, the civil liberties organization has filed a public records request to discover what Providence police are doing with the data and if other city police departments are currently employing or plan on employing the technology.
According to the ACLU, use of this data gathering technology is gaining popularity around the country. Furthermore, it argues that the data may be stored indefinitely after it is collected from cameras mounted on patrol cars. Use of the technology has already been limited in Maine and New Hampshire.
National model for child well-being established in Providence
Mayor Angel Taveras and Gov. Lincoln Chafee have partnered with the Casey Foundation to announce a new partnership to adopt an evidence-based program aimed to improve the well-being and education of Providence’s youth. The program titled Evidence2Success is an innovative approach, which invests in proven methods to promote healthy child development in Providence.
The Casey Foundation, a private charitable organization that helps disadvantaged children throughout the U.S., chose Providence as the first site for Evidence2Success because of the city’s and state’s continued commitment toward improving the well-being of children in low-income areas.
“Young people need the positive influences of a loving family, healthy community and high-achieving schools to achieve their full potential. Many children also need the support of public systems to help their families in times of crisis,” said Mayor Taveras. “Evidence2Success unites local efforts in working together to help children grow up healthy, ready for school and prepared for success in life.”
Last week, Rhode Island finished 25th in a new study ranking childhood well-being. Despite finishing in the middle of the pack, the Ocean State was far behind every other New England state, which all finished in the top 10. In fact, our closest neighbors, Massachusetts and Connecticut, finished 2nd and 7th respectively.
Providence hotel occupancy soars, convention business increases
Lastly, a bit of good news for the Rhode Island economy. On Monday, the Providence Warwick Convention & Visitors Bureau announced that hotel occupancy for June was 81.4 percent; the first time occupancy has been above 80 percent since 2004.
So what does that mean for Rhode Island’s economy. Higher occupancy rates are an indicator that the state’s convention business is on the rise. Martha Sheridan, Bureau President and CEO, that the rebound is primarily due to large conventions and sporting events attracting tourists to the city.
In June, the Netroots Nation conference, a political convention for American progressive political activists, brought thousands of visitors to Providence. Aside from the Netroots Nation convention, other noteworthy events included a triathlon and several business association gatherings
NEW: AG Kilmartin Named Co-Chair NAAG Criminal Law Committee
The NAAG Criminal Law Committee serves as the clearinghouse for dissemination of information on current trends in criminal law prosecutions and criminal procedure, identifies emerging issues and coordinates among the attorneys general community effective and efficient responses to those issues. Finally, the committee designs and executes training for assistant attorneys general practicing in the criminal law field. Attorney General Marty Jackley of South Dakota will serve as co-chair.
“I am pleased to be working with my fellow attorneys general to establish best practices to improve the criminal justice system and develop policies that improve the safety of the public,” said Attorney General Kilmartin. “While the role of the attorney general varies from state to state, and, unlike Rhode Island, most are limited in their prosecutorial authority, it is important that we work together to advance criminal justice initiatives that cross state lines and facilitate communication among attorneys general and law enforcement.”
The Executive Working Group on Prosecutorial Relations consists of state attorneys general, state prosecutors and representatives from the U.S. Department of Justice and Office of the United States Attorneys and is the forum where federal, state and local offices can coordinate investigative and prosecutorial efforts.
International Association of Prosecutors (IAP) is an international, non-governmental and non-political organization of prosecutors established in 1995 at the United Nations offices in Vienna. The IAP is committed to setting and raising standards of professional conduct and ethics for prosecutors worldwide; promoting the rule of law, fairness, impartiality and respect for human rights; and improving international co-operation to combat crime. NAAG and IAP recently formed an alliance designed to increase the proficiency of criminal and civil prosecutors in the United States and abroad, and to enhance cross-border relationships that can increase the effectiveness of law enforcement in battling the growth of international criminal enterprises. The NAAG Liaison to the IAP serves as the central representative in furthering and strengthening this partnership.
Raimondo pension lawsuit seen risking bankruptcies
NEW YORK – Rhode Island Treasurer Gina Raimondo championed an overhaul last year of one of the nation’s worst- funded public pensions, setting out a road map for states and cities by curbing benefits and delaying retirements. Now the revamp, which took effect this month, is facing a legal challenge from unions. If successful, the lawsuit could produce fiscal “devastation” by spurring more municipal bankruptcies in a state already on the verge of falling back into recession, according to Raimondo, a 41-year-old Democrat.
While the court action may take months or years, it’s being closely watched as it may provide guidance in other states where similar legal battles have arisen, said Amy Monahan, who teaches law at the University of Minnesota in Minneapolis. Rhode Island is also unusual because, unlike in California, where court rulings have sided with labor to protect benefits, there is little precedent to guide the outcome, she said. “Other state courts will watch because they’d love to come up with a way to address this area that makes sense,” Monahan said, calling it “a compelling case.” “Rhode Island has it all: a poorly funded plan and really widespread changes,” she said.
$4.6 trillion gap
The law provided “a dramatic punctuation” to efforts by U.S. state and local governments seeking to control retiree costs as pension-plan losses drained assets, said Ronald Snell, a senior fellow at the National Conference of State Legislatures in Denver. Estimates of the collective unfunded liability run as high as $4.6 trillion. Cuts affecting public workers have been made in more than 40 states since the financial crisis, typically targeting newly hired employees because of legal or contractual restraints, according to the legislatures group.
In Rhode Island, five unions representing state and municipal workers, teachers, firefighters and police claim that the law violates their constitutional rights by breaking contracts and taking away benefits earned by retirees and workers. The groups also say Raimondo manufactured a crisis by lowering pension investment-return assumptions, increasing unfunded liabilities and forcing lawmakers to back the cuts. “Gina Raimondo, who I am personally fond of, did a phenomenal job of equating the unfunded pension liability as if it were a weapon of mass destruction,” said Robert Walsh, the executive director of the National Education Association of Rhode Island, the teachers’ union that has sued. “The political tide was unstoppable once that connection was made.”
Raimondo gained celebrity status by engineering the overhaul. She was featured in Time magazine, and earned awards and recognition from public-policy groups. She rose in voter surveys, becoming Rhode Island’s most-popular politician. The accolades reflected both her willingness as a political neophyte to buck her party and take on unions as well as her success in winning passage for far-reaching pension changes.
By delaying retirement, suspending cost-of-living increases and offering workers 401(k)-type savings plans, Rhode Island cut its pension obligations by $3 billion, to $4.3 billion, and lowered the state’s required annual contribution by $275 million, to $414 million. In 2007, the system was judged by Bloomberg Rankings to be the least funded of any state, with 54 percent of assets needed to cover projected liabilities.
“She deserves credit along with others,” said David Walker, president of the Comeback America Initiative, a nonprofit public-policy group in Bridgeport, Connecticut. “She had the courage to campaign on the need for pension reform and to make tough choices, even in the face of significant union opposition.”
Labor leaders promised to sue to block the changes as soon as Gov. Lincoln D. Chafee, elected as an independent in 2010, signed the overhaul law in November. They made good on their threats last month, taking the issue to court days before the law took effect July 1. Rhode Island Superior Court Judge Sarah Taft-Carter rejected a request to block the changes while the dispute is litigated. The complaints brought by the five unions have been consolidated into a single action, according to Craig Berke, a court spokesman. The unions continue to seek an injunction to block enforcement, according to court records.
The stakes are high in Rhode Island, which has dealt with six-straight budget deficits and has the second-highest unemployment rate in the U.S., according to Labor Department data. One city, Central Falls, sought protection in U.S. Bankruptcy Court in Providence last year, citing pensions it couldn’t afford. The state has taken over the finances of two others, Woonsocket and East Providence.
$100 million cost
Raimondo told reporters in April that overturning the law would mean cities and towns would have to contribute an additional $100 million to the pension system this year for teachers and other workers, potentially pushing more into bankruptcy. The state would also have to boost its contribution. “You will see devastation, I believe, in municipalities not being able to pay those bills,” she said on WPRI-TV’s Newsmakers program.
At the same time the former venture capitalist, who has a law degree from Yale University in New Haven, Connecticut, has said she’s confident the overhaul will withstand the challenge. “We had to do this,” she said in an interview earlier this year. “It served a public purpose. If I didn’t think we were on a good legal standing, I wouldn’t have done this.”
The overhaul she led prompted Chicago Mayor Rahm Emanuel, President Barack Obama’s former chief of staff, to consult with Raimondo about changes proposed in Illinois. Governor Pat Quinn, a Democrat whose state had the worst-funded retirement system in 2010, has been trying to craft a proposal that would withstand legal challenges, yet he has been unable to get lawmakers on board. Emanuel is backing Quinn’s efforts. Rhode Island’s tax-exempt debt has earned almost 4.7 percent this year, trailing the returns of 37 U.S. states and territories and the 5.4 percent advance for the $3.7 trillion municipal-debt market, according to Barclays Capital data.
Union leaders in Rhode Island say the state can find other ways to balance its budget, improve pension funding, and help local governments, by raising taxes or making other changes. “If the unions prevail, that means the state broke the law,” said Ken DeLorenzo, executive director of Rhode Island Council 94 of the American Federation of State, County and Municipal Employees, which represents about 8,000 local and state workers. “It’s not necessarily the unions’ fault the state broke the contract.”
In Providence, the state capital, the City Council sought to prevent insolvency by passing a law in May modeled on Raimondo’s plan. Instead of awaiting a court challenge, Mayor Angel Taveras hammered out a deal with the city’s unions and retirees, putting in place much of what the legislation mandated. The agreement cut the unfunded pension liability by $170 million and reduced the required annual contribution by $18.5 million.
“She’s a smart politician,” Walsh said. Yet, he said, “she didn’t take the opportunity to consider all the reasonable alternatives.” Raimondo’s proposals were unreasonably harsh, and the Providence agreement may provide a precedent for a negotiated, out-of-court solution, he said. “With credit comes blame,” Walsh said. “How the treasurer deals with this will determine her political future.” The case is Rhode Island Public Employees Retiree Coalition v. Chafee, 12-3166, State of Rhode Island Superior Court (Providence).
Following is a pending sale: Minnesota plans to borrow about $659 million of general- obligation debt through competitive bid as soon as Aug. 7, data compiled by Bloomberg show. The deal includes $234 million of debt repaid with motor-vehicle taxes, according to bond documents. Standard & Poor’s rates the state AA+, its second- highest grade.
Providence Loan Fund Created Few Jobs Under Cicilline
In its findings, HUD suggested that 17 Providence Economic Development Partnership (PEDP) loans that were provided specifically for job creation failed to create any jobs for “low and moderate income people,” which was required for businesses receiving federal Community Development Block Grant (CDBG) funds. “Of the tiles reviewed, documentation of job creation or retention was either lacking or missing,” the report stated. “As a result, these loans were used to benefit businesses without demonstrating that they also provided the intended benefits to low and moderate-income people.”
But a closer look at loans provided between 2003 and 2010 under former Mayor and now Congressman David Cicilline paints an even gloomier picture. According to a loan report provided to GoLocalProv last fall, less than three dozen businesses reported creating new jobs under Cicilline. During that time span, approximately 100 loans were distributed, although not all were intended for job creation.
Some of the top job creators have already gone under.
In addition to raising questions about job creation, HUD’s report found that the PEDP had little oversight over funding recipients, failed to meet requirements for financial management standards and displayed questionable use of federal funds. Last month, more than two dozen loans were written off just over eight months after GoLocalProv first reported that a quarter of all loans issued by the PEDP were at least 90 days past due and that the city would be out over 3 million if the funds couldn’t be recovered.
“The message I’m getting is that PEDP was terribly mismanaged during the Cicilline administration,” said activist Judith Reilly, who has been raising questions about the city’s revolving fund for several years. “Basically, I would not trust any job creation or retention reports provided by the City for that period. As far as I’m concerned, zero jobs were created or retained unless sufficient documentation is provided to and vetted by an objective examiner.”
Politics Getting in the Way
But advocates for the loan program maintain that its risky nature (a borrower is supposed to be turned down by two banks before applying) and the economic recession are to blame for the loans struggling to create jobs. “Many small businesses and new business ventures struggled when the recession hit and continue to face really difficult times,” said Cicilline spokesperson Nicole Kayner. “David Cicilline, as Mayor, was very aggressive in promoting economic development and bringing new investment to the city.”
As chairman of the PEDP, Kayner said Cicilline implemented reforms within the agency when he took office, including establishing a loan committee of bankers and business experts who reviewed loan applications based on board-approved criteria and made loan recommendations to the full board. Kayner accused Congressman’s opponents of politicizing the issue.
“The PEDP loan program is only available to borrowers that were denied credit by traditional banks and was always intended to be a lender of last resort and during a difficult recession many businesses were not able to weather the challenging economic climate,” she said. “David’s opponents know that this is going to be a tough race and are trying to score political points by launching reckless and irresponsible accusations.”
Doherty: More of the Same
But Cicilline’s critics say the PEDP is another blemish on the Congressman’s record during his eight-year tenure as Mayor. Republican Congressional candidate Brendan Doherty’s campaign manager Ian Prior accused Cicilline of “pushing the same unsuccessful economic agenda that has left the City of Providence in so much turmoil and is now dragging the rest of Rhode Island’s economy down as a result.”
“This clearly shows that David Cicilline’s economic policies simply do not work,” Prior said. “Whether we are talking about CAPCO Steel, PEDP, or mismanaging the City of Providence overall, the result is always the same: Taxpayers are left on the hook for Cicilline’s failures while he moves on to his next job.”
Prior said Doherty is the only candidate in the race that realizes that the best way for the government to encourage job growth is to “level the playing field so that small businesses with no political connections can grow on the basis of their own merits, efforts, and ideas.”
“Brendan is committed to the free market ideals that allowed Rhode Island to become the birthplace of the American Industrial Revolution and will work tirelessly in Washington to put an end to the misguided political decisions that have led to the likes of Solyndra, PEDP, and CAPCO Steel,” Prior said.
The Saturday Morning Post: Quick hits on politics & more in RI
Welcome to another edition of my weekend column – as always, send your takes, tips and trial balloons to tnesi (at) wpri (dot) com.
1. If you want to understand why Mayor Taveras fought so aggressively to keep the City Council from controlling half the money in Providence’s $40 million road-repair bond, read this 2000 Providence Phoenix story by Steven Stycos. (Ironically, Stycos is now a councilman himself.) An Urban Institute expert described Providence’s way of doling out bond money as “unusually politicized,” with each council member having almost carte blanche authority over spending in his or her ward. Governments should borrow to fund long-term infrastructure projects that have a higher rate of return than the interest on the bonds, but back then bond money was used to pay a principal’s salary and develop a restaurant. Buddy Cianci, apparently confusing borrowed money with free money, told Stycos: “This way, we can make the improvements and the tax rate doesn’t go up.” Cianci left off the crucial word “now” – because the tax rate certainly will go up eventually if the projects aren’t ones that will boost the city economy and help offset the interest costs. Taveras would do well to burnish his reformer credentials further by finding a new, transparent way to allocate bond money if voters approve the proposal in November.
2. Speaking of Providence, the city’s website about previous mayors is a bit of a mess. David Cicilline is MIA; clicking his name leads to a page that says “Access denied. You are not authorized to access this page.” (Sounds like his emails.) John Lombardi served as mayor for just four months, yet he gets a longer biography than anybody else – it clocks in at 498 words, more than twice as many as Cianci, who was in the mayor’s office for 21 years. Perhaps that verbosity kept someone from noticing his name is spelled “Lomabardi”?
3. Jim Langevin, David Cicilline and Ron Paul – three peas in a pod? You wouldn’t think so, but the two Rhode Island congressmen broke with Nancy Pelosi and a majority of their fellow Democrats this week and supported the libertarian icon’s years-long effort to “Audit the Fed.” Cicilline’s spokesman tells me his boss wants “to advance an important discussion about how Congress should balance the need for an independent central bank with the need for meaningful oversight of the Federal Reserve’s use of authority.” Barney Frank, the top House Democrat on financial regulation, says they’re wrong: “This is a way to shake your fist at the big bad Fed, and it’s not a good way.” GWU’s Sarah Binder sees political motivations: “Not surprisingly, the Fed’s low public standing encourages endangered Democrats to throw their own punches when Republicans take out their Bernanke punching bag.”
4. I reported the other day that 38 Studios’ ex-CEO Jen MacLean is selling her home on the East Side. What I didn’t know until a regular reader informed me was that the Boylston Avenue house has a history – in 2009 it was the first “green” residential home in Providence designed for LEED certification. The house was built by Native Structures, which is based in the city and still in business; then-Mayor Cicilline even attended the groundbreaking.
5. Could Rhode Island take a page out of Estonia’s book? The country has a population of about 1.3 million, not much bigger than Rhode Island, and its economic development plan includes Estonia’s Friends International, which Businessweek describes as “a group of expats and foreign investors,” adding: “Estonia, like Israel and Ireland, is figuring out how to use its diaspora to draw foreign investment.” Rhode Island has lots of expats, too – both former residents who’ve moved away to pursue their fortunes elsewhere and alums who spent four happy years here at Brown, RISD, PC, URI, etc. Is there a way to tap that network?
6. Here’s something fun: newly minted Brown grad Joschka Tryba has launched LoveGov, a social-networking startup with a political hook and a snazzy look. It’s still in beta but it’s already got some buzz – check it out.
7. Treasurer Raimondo made a big move this week that got relatively little attention, ending State Street’s run as Rhode Island’s custodial banker and moving responsibility for $8 billion in pension and other assets to BNY Mellon, which she says will save more than $300,000 a year. Five treasurers have come and gone since State Street first got the contract 27 years ago. Raimondo promised a “top-to-bottom review” of Treasury when she took office, and this looks like evidence the unglamorous side of that is continuing.
9. There are lots of interesting primaries for General Assembly this year, and one of them is House District 63 in East Providence, where four Democrats are competing to succeed Bob DaSilva, who’s running against Dan DaPonte for Senate. The race features not one but two young candidates – Katherine Kazarian, a Columbia graduate who has the party endorsement, and Sam Lovett, a BC alum who recently left Governor Chafee’s employ. Either Dem would likely be welcomed by the party’s progressive wing – but will they split EP’s liberal vote? The other two candidates are Charles Britto and Charles Tsonos; check out all four, plus independent David Sullivan, discussing the EDC. [Update: A reader wrote in to argue the real progressive in the race is Tsonos because of his stands on labor issues, making the race even more interesting.]
10. Rhode Island’s own Tom Donilon, President Obama’s national security adviser, was in Beijing from Monday to Wednesday this week, where he held “constructive, detailed, and wide ranging discussions” with President Hu Jintao and his likely successor, Vice President Xi Jinping, spokesman Tommy Vietor reports.
11. Count me as a fan of three daily local news roundups: the Rhode Island Statewide Coalition’s RISC-Y Business, The Hummel Report’s Top News and RIFuture’s Progress Report. The three compilers – Harriet Lloyd, Bill Felkner and Bob Plain, respectively – always find stories and items I’ve missed on my own.
12. This week on Newsmakers – Boston magazine’s Jason Schwartz and Governor Chafee on 38 Studios. Watch Sunday at 10 a.m. on Fox Providence. This week on Executive Suite – Washington Trust Co. CEO Joseph MarcAurele. Watch Sunday at 6 p.m. on myRITV (or 6 a.m. on Fox). See you back here next Saturday morning.
The Whitehouse DUI, Childhood Well-Being & RIPTA’s Big Investment
Sen. Sheldon Whitehouse’s son pleads no contest to DUI charge
Alexander Whitehouse, the 19-year-old son of Sen. Sheldon Whitehouse pleaded no contest Friday to a charge of driving under the influence. As a result Whitehouse will lose his driver’s license for three months and must perform 30 hours of community service. Whitehouse will also have to a DUI/alcohol education class and pay a $760 fine. The incident occurred at approximately 1:30 a.m. Wednesday at a Middletown gas station. Whitehouse was arrested at the gas station shortly after a customer notified police that two intoxicated men had pulled into the parking lot.
According to police, Whitehouse failed a field sobriety test and scored a .09 on a breathalyzer test, which is above Rhode Island’s legal limit of .08. The police report also indicates that Whitehouse admitted to consuming three beers and four shots of gin at his friend’s Portsmouth home. The arresting officer pointed out that Whitehouse had a “strong odor of an alcoholic beverage,” and that his eyes were “severely bloodshot and glossy.” Furthermore, Whitehouse’s car contained an empty 750ml bottle of Svedka Vodka, an empty 12 oz bottle of Bass beer and a half empty bottle of 1.74 liter Hendricks Gin, according to police. Police also discovered a bag of what appeared to be marijuana under the passenger seat.
Aside from being charged with DUI, Whitehouse was also charged with transportation of an alcoholic beverage by a minor and with having an open container of alcohol in a moving vehicle. Whitehouse was then handcuffed and transported to the Middletown police station. Whitehouse’s passenger, 18-year-old Robert Bauer of Portsmouth, was charged with possession of alcohol by a minor and possession of marijuana.
Sen. Whitehouse responded to the news by issuing a statement saying that he and his wife were “deeply concerned and upset by our son’s poor judgment.” Back in June, the senator acknowledged that his son attended an underage drinking party hosted by Gov. Lincoln Chafee’s son Caleb. The May 28 graduation party resulted in an 18-year-old girl being sent to Kent Hospital for alcohol poisoning.
Newport more expensive than any other U.S. destination this summer
Earlier this month, America’s Cup Series drew nearly 60,000 visitors to Newport. Although a solid turnout, it fell short of initial projections. While officials may have been disappointed, one group that was probably pleased is the owners of Newport’s many hotels. A new study conducted by Cheaphotels.org found that Newport is the most expensive destination in the U.S.
According to the travel site, the City by the Sea’s hotel rates are costlier than anywhere else in the nation June through August. Just how pricey is it to stay in Newport? Cheaphotels.org reports that vacationers will spend an average of $319 for a double room in Newport. The amount was noticeably higher than Santa Monica ($287) and Calistoga ($285), which finished second and third respectively.
While Newport was the only RI destination to make the list, five Massachusetts locations including Martha’s Vineyard (4th), Cambridge (5th), Provincetown (6th), Boston (8th) and Falmouth (16th) cracked the top 20.
Click HERE to read the entire top 20.
RI ranks 25th in new child well-being study
This week, Rhode Island finished 25th in a new study that ranks children’s well-being. The data, which is collected in the 2012 Kids Count Data Bank, examined multiple criteria including overall child well-being, economic well-being, education, health, and family and community.
Although Rhode Island finished in the middle of the pack it was last amongst all New England states. In fact, New Hampshire (1), Massachusetts (2), Vermont (3) and Connecticut (7) all fared far better than the Ocean State.
“Many Rhode Island families continue to live in poverty, and struggle with high housing costs and a lack of jobs, a trend being seen nationwide as well,” stated Elizabeth Burke Bryant, Executive Director of Rhode Island KIDS COUNT in a statement. “While the economic well- being of Rhode Island families continues to turn around slowly, Rhode Island is making gains in health and education areas. Our teen birth rate is among the lowest in the nation and we are seeing improvements in reading and math proficiency.” Despite finishing last in New England Rhode Island did rank in the top 10 in teen birth rate and for child and teen death rate.
RI chooses new bank to handle assets
Rhode Island has hired Bank of New York Mellon to provide “master custody banking services” for the state. BNY Mellon will manage the state’s pension assets and cash, collect interest payments on the state’s behalf, and process banking transactions. The decision to select the bank was made by the State Investment Commission, which is led by General Treasurer Gina Raimondo.
Rhode Island issued a request for bank services in March to manage pension assets and cash. The state’s previous master custodian was State Street, which finished second to BNY Mellon. The new selection will save the state more than $300,000, according to the treasurer’s website.
“By selecting BNY Mellon, the state will receive excellent custody services, while saving money,” said General Treasurer Raimondo. “In these challenging times, it is my priority to continually assess the state’s financial service contracts and vendors to make sure taxpayers are receiving the best service possible.”
RI transit authority gets $1.2 million grant
On Tuesday, U.S. Sen. Jack Reed announced that the Rhode Island Public Transit Authority (RIPTA) will receive a $1.22 million grant from the Federal Transit Administration’s (FTA) State of Good Repair program. Of the $1.22 million, $820,000 will go to renovating the East Side Tunnel and $400,000 to a Bus Livability grant to better link Kennedy Plaza with the Providence Train Station.
“Public transportation is critical to our economy and downtown Providence is a major transportation gateway. These federal funds will help renovate the East Side Tunnel and make capital improvements to Kennedy Plaza and the train station to ensure the system is safer, more integrated, and more reliable,” said Sen. Reed.
The $820,000 grant to revamp the East Side Tunnel will support the first renovation to the location in 20 years. The two-lane tunnel runs east/west under College Hill, and connects Thayer Street to South Main Street. Originally conceptualized in 1903, the tunnel was opened in 1908 and cost approximately $2 million.
The $400,000 Bus Livability project will help provide residents with improved ease of access between Kennedy Plaza and the Providence Train Station. The project is primarily intended to improve access for pedestrians and bicyclists. The Rhode Island Department of Transportation (RIDOT) originally announced the reconstruction proposal in 2011.
Cicilline & Gemma have Ties to Controversial Providence Loan Fund
The PEDP came under fire last week when the Department of Housing and Urban Development (HUD) issued a scathing reportciting the city for not exercising “adequate oversight” over the taxpayer-backed loan fund. HUD found that over a ten-year period that included all of Cicilline’s time as Mayor of Providence, the fund had an “approximately 60 percent” default rate and several loans were given to businesses that may not have been eligible to receive federal funds.
Last October, GoLocalProv first reported that more than a quarter of all PEDP loans were at least 90 days past due and were likely to leave the city stuck for more than $3 million. In June, the PEDP board of directors, chaired by Mayor Angel Taveras (and previously Cicilline), voted to write off 29 loans that cost the city $2,171,125.66 once interest and penalties were figured in to the mix. Over the weekend, Gemma ripped Cicilline for accepting campaign contributions from several loan recipients during his time as Mayor and again when he ran for Congress two years ago. Some of the contributors were among those who had their loans written off last month. “I would expect loan recipients to focus on paying back their loans and growing their businesses, not sending money in to David Cicilline,” Gemma said. “Sadly, this news doesn’t surprise me. It appears to be just another case of David putting himself first at the expense of Providence taxpayers.”
No-Interest Loan, Tax Break
But records show Gemma himself got a sweet deal on the terms of his loan for the purchase and renovation of the Castle Cinema in 2000. Gemma and his brothers received a no-interest loan (most loans range from 3 percent to 12 percent) for $242,600 and were required to pay it back in 120 months.
The loan was part of the more than $1 million the Gemma family sunk into the movie theater, which had been a landmark in the city since 1925. According to a 2002 story in the Providence Journal, “the new proprietors gambled that they could save the old theater by turning it into the Castle Cinema and Café, offering full meals to diners who sit in seats made for Lincoln Town Cars and watch a movie. The theater also hosts live performances and the café serves diners who are not going to a movie or a performance.” In addition to the loan, the City Council in 2002 also approved a tax treaty for the Castle Cinema that was expected to save the Gemmas $113,597 over a decade. The deal was supposed to create jobs for city residents.
By 2004, the Cinema had again fallen on hard times. An Associated Press article from the time citied an e-mail that said, “co-owner Larry Gemma is seeking assistance from the theater community and the office of Providence Mayor David Cicilline” to help keep the theater solvent. The article also quoted former Councilman Cliff Wood, who said the Gemma family was $1.8 million “in the hole” on the project. The Cinema closed for good in 2004. In 2008, the Gemma family donated it to the Rhode Island Society for the Prevention of Cruelty to Animals (RISPCA). In both 2008 and 2009, the Providence Preservation Society labeled it one of the city’s ten most endangered properties.
Cicilline Campaign: Political Opportunism
On Sunday Gemma spokesman Alex Morash defended the loan, noting that it was paid off and that the family had to put up collateral to receive any funds. “For the Gemma family to receive the loan, they had to sign personal guarantees, and they had to put up collateral,” he said. “As for payment, all payments were made and the loan was paid in full with interest. In regards to the theater, the property was returned to the Gemma family’s possession and they chose to donate the property to the RISPCA.”
But Cicilline campaign manager Eric Hyers fired back at the Gemma campaign for taking a shot at a program that he directly benefited from. “We’ve come to expect this sort of political opportunism and hypocrisy from Mr. Gemma,” Hyers said. “Much like in 2010 when he attacked the Jobs Now program while GEM plumbing was actually benefiting from that program, now he is attacking the PEDP program when he took a $250,000 loan from the city and then ran a theater into the ground. These desperate attacks are what you see from candidates who have nothing positive to offer.”
Doherty: Government Should Get Out of the Way
Nonetheless, HUD’s report painted a picture of an agency that gave out loans to businesses that often failed to create jobs and wasted nearly $1.5 million on federal funds internally. “Seventeen of 52 loans which provided $2,990,000.00 in CDBG funds did not create or retain any jobs for low and moderate income people,” the report states. “Of the files reviewed, documentation of job creation or retention were either lacking or missing. As a result, these loans were used to benefit businesses without demonstrating that they also provided the intended benefits to low and moderate income people.”
On Sunday, the campaign for Republican Congressional candidate Brendan Doherty also took the PEDP to task, citing it as an example of government getting in the way of business. “The PEDP scandal is simply the latest example of the dangers of government being in the business of business,” said Doherty campaign manager Ian Prior. “Brendan has consistently stated that the best economic policy is one where our elected leaders create an environment for business to thrive, rather than creating more government programs that distort the market and invite waste, fraud, corruption and leave the taxpayers on the hook when the program fails.”
Many Lawmakers Get Free Ride to Office
No challengers emerged for more than two dozen members of the General Assembly as well as two non-incumbents, according to the Secretary of State’s website. All told, 20 House seats and nine Senate seats will not be up for grabs this fall after potential opponents failed to gather enough signatures or simply chose not to run for office. Instead, 27 incumbents, one candidate running for an open Senate seat and another who was expecting to challenge a sitting State Representative will sit back and watch as 84 other legislative races play out in the coming months.
In Senate District 10, newcomer William Conley, a Democrat who sits on the East Providence City Council, was expecting to face a primary challenge, but his opponent failed to qualify. In House District 71, Democrat Dennis Canario was handed the seat after Republican Dan Gordon was also unable to garner enough signatures to get his name on the ballot.
Gordon briefly mulled running a write-in campaign, but now says he plans to move on. He said he may run for office again in 2014 if he feels the district, which spans Portsmouth, Tiverton and Little Compton, is underserved. “Although there are a large number of candidates seeking office in the General Assembly this election year, it’s discouraging that many seats are going unchallenged,” Gordon said. “Sadly, it appears that our dismal economic situation hasn’t gotten bad enough to rile the constituency enough to field candidates for those seats. Either that or we have succumbed to a Stockholm Syndrome-like scenario. I feel badly for District 71 in particular, which is the seat I currently hold, because of my error in gathering some signatures in geographical locations that are no longer in the district, due to redistricting this year, and disqualified me for ballot placement.”
Several veteran legislators on both sides of the aisle are also running unopposed, including Senate Majority Whip Maryellen Goodwin, Senate Minority Leadership Dennis Algiere, State Rep. Charlene Lima and State Rep. Joe Trillo.
According to Brown political science professor Wendy Schiller, “voters are fundamentally underserved by their state legislature because there is so little competition for seats between the Democrats and the Republicans that state legislatures never really fear losing election (unless they are a Democrat targeted by strong labor opposition).” Schiller said Rhode Island’s problems with finding people to run for office is hardly unique, but she noted that the General Assembly being part-time position is a contributing factor. She said not having a full-time legislature means many residents cannot afford to take the time out from their jobs to run for office.
Moderate Party chairman Ken Block said that among part-time legislatures, “Rhode Island shares the title of having the most onerous time commitment with just a few other states.” “In my role as Chairman of the Moderate Party, I found that a lot of quality individuals felt that they could not afford to spend the large amount of time needed to serve in the legislature for the six month session,” Block said.
Block suggested a shorter legislative session might make residents more likely to run for office. “It is especially ironic that our session works this way given that most of the bills that are passed into law get passed in the last 24 hours of the session,” Block said. “It would seem to me that we should be able to function with a three month session where the legislative bodies have a floor session once a week, with committee hearings scheduled two other days of the week beginning after dinner.”
Rhode Island Tea Party president Susan Wynne said her group is “encouraged that so many new people have been jolted into action and are stepping up for the 1st time,” but agreed the Ocean State doesn’t make it easy to get involved in politics. Still, Wynne said she is concerned about the message that is being sent by having 29 candidates without an opponent this fall. “An incumbent running unopposed gives an impression that the office holder is entitled to the seat,” she said.
State Report: Another EDC Loan Flop, the Chafee Grad Party & Sex Offenders
Just weeks after the collapse of video game company 38 Studios, it has been reported that the Rhode Island Economic Development Corporation approved yet another bad loan. Earlier this week it was learned that the EDC has been making payments on a $5 million state-backed loan to Capco Steel LLC, which is currently in default. Like the 38 Studios loan, the Capco Steel loan was approved during the final year of former Gov. Donald Carcieri’s administration.
Capco Steel received a $6 million loan from Webster Bank courtesy of the EDC’s R.I. Industrial Facilities Corporation in 2010. The money was intended for Capco to expand its Providence facilities and to purchase new equipment. The loan was guaranteed up to $5 million by the EDC.
So how do lawmakers feel about the EDC’s decision to approve not one, but two substantial loans during the 2008 recession? Sen. James C. Sheehan (D- Dist. 36, Narragansett, North Kingstown) spoke out against the state-backed loans in a press release on Wednesday. “This may or may not have been a bad decision by EDC. But, the lack of transparency about Capco Steel’s default makes one question the wisdom of the initial decision,” said Sen. Sheehan.
Sen. Sheehan went on to add: “38 Studios made one seriously doubt the ability of the EDC to effectively run and oversee another loan guarantee program (Job Creation Guarantee Program) although the two situations may be quite different.” In related news, Sue Morgan, Chief Financial Officer of the EDC, stepped down from her position on Friday.
Sen. Tassoni named recipient of national award
Now on a more positive note, Sen. John J. Tassoni (D-Dist. 22, Smithfield, North Smithfield) has been named the recipient of the Bruce F. Vento Award, presented by the National Law Center on Homelessness & Poverty. Sen. Tassoni will be given the award at the 14th annual McKinney-Vento Awards Ceremony in Washington, D.C., in November. Maria Foscarinis, Executive Director of the National Law Center, spoke of Tassoni stating, “as a long-time advocate for homeless and poor persons, and as the architect of the landmark Homeless Bill of Rights, you have demonstrated the power of the law to change lives for the better.”
Signed into law in June, the RI Homeless Bill of Rights is based on legislation sponsored by Sen. Tassoni. The landmark law, which is the first of its kind in the nation, guarantees that no person’s rights, privileges or access to public services will be denied because he or she is homeless. Aside from being recognized nationally, Sen. Tassoni received the “Senator Jack Reed Advocacy Award from the RI Coalition for the Homeless earlier this year. In 2011, Sen. Tassoni was also the recipient of the Partners in Housing Public Service Award given by Rhode Island Housing.
Attorney General calls for more information about Chafee party
One month after news first broke of an underage drinking party at Gov. Lincoln Chafee’s residence, the attorney general’s office has confirmed that it requested additional information from police pertaining to the incident. Amy Kempe, spokesperson for the attorney general, said that more information is required before it can be determined if prosecutors have enough evidence to proceed with the case.
The event in question occurred at Gov. Chafee’s Exeter home on May 28. The party was hosted by the governor’s son Caleb and was also attended by Sen. Sheldon Whitehouse’s son Alexander. Although Gov. Chafee described the graduation party as “youngsters letting off steam,” an 18-year-old female fell ill at the underage party and was later treated for alcohol poisoning at Kent Hospital. To make matters worse, Caleb pled no contest in May to trying to purchase beer at a Jamestown liquor store. The charge was later expunged from Caleb’s record after he paid a $100 fine.
History: A woman leading the Office of the Public Defender
On Monday, Gov. Chafee swore in Mary McElroy to the head of the Office of the Public Defender. McElroy, a career public defender with nearly two decades of experience at the state and federal level, becomes the first woman to hold the position since it was established in 1941. “Mary McElroy has extensive experience as both a state and federal public defender,” said Gov. Chafee. “Over the course of her accomplished career, she has gained invaluable knowledge of the judicial system and its workings and is highly regarded on both sides of the courtroom. I am confident that Mary will live up to the high standards set by her predecessor, the beloved John Hardiman.”
McElroy received her undergraduate degree from Providence College, before attending Suffolk University School of Law, from which she earned her J.D. She went on to clerk for the Honorable Donald F. Shea of the Rhode Island Supreme Court and spent a year with the Providence firm Tate & Elias. Additionally, McElroy served as Assistant Public Defender in the Office of the Rhode Island Public Defender from 1994 to 2006. Since 2006, she has served as Assistant Federal Public Defender in the Office of the Federal Defender for the U.S. District of Rhode Island. In her new position, McElroy will oversee approximately fifty lawyers who provide legal representation to indigent adult criminals defendants and indigent juvenile respondents. The Office of the Public Defender also provides legal representation to parents faced with losing the custody of their children resulting from neglect.
ACLU sues RI over law targeting sex offenders
The Rhode Island chapter of the American Civil Liberties Union is suing the state over a new law that bars registered sex offenders from living within 300 feet of a school. The Rhode Island ACLU, which argues that the law is too vague and overly broad, is suing on behalf of three men who will face arrest if they refuse to move from their current residence.
According to the lawsuit, two of the men are developmentally disabled and one is a veteran with medical problems. Their lawyers state that the men will likely become homeless if forced to move. Such a circumstance would hinder their support structure, thus increasing the likelihood for them to reoffend, say the lawyers. The developmentally disabled men, Dennis Gesmondi (54) and Dallas Huard (38), live in Warren Manor II, a Providence assisted-living facility that provides mental health assistance. Gesmondi was convicted of sexual assault in 2008, while Huard was charged with child molestation but plead no contest to an amended charge in 1996. George Madancy, 65, who was convicted of possessing child pornography, lives in an apartment in Providence.
“These folks need someplace to live,” said Chris Stephens, President of NRI Community Services, which runs Warren Manor. “Subjecting them to arrest and eviction is not only contrary to their medical needs and increases their risk of homelessness, but categorically does nothing to make the community safer.” A 2008 law passed by the General Assembly makes it a felony for a registered sex offender to live within 300 feet of any public or private school. Those in violation face up to five years in prison.
HUD FAULTS CITY’S USE OF GRANT MONEY
Federal agency cites lack of ‘adequate oversight’; city may have to repay as much as $1.5 million in expenses
HUD’s July report says about 60 percent of the loans granted by the quasi-public agency are in default. Several loans were given to provide jobs, and HUD questions whether the promised jobs were created. It also challenges the agency’sefforts to monitor the businesses and collect loan payments.
Mayor Angel Taveras’ staff says it is working with HUD daily to provide additional information, hoping to decrease any repayment requested. The city has agreed to have HUD approve all future loans as part of its corrective action plan, which is detailed in a draft response to HUD. “The HUD report raises anumber of serious concerns, many of which we are already addressing head on,” says James S. Bennett, Taveras’ economic development director and executive director of the partnership since Planning Director Thomas E. Deller resigned in March. “We will continue to be straightforward about what has happened,” Bennett’s Thursday statement continued.
The report concerns two areas of the agency’s spending of federal Community Development Block Grant money: administrative costs and loan distribution. The questionable administrative costs date to 2006 when Cicilline was mayor.
HUD says the city did not “exercise adequate oversight” over the agency, and “the city is unable to ensure that expenditures are eligible, have adequate documentation, and prohibit fraud and waste of government funding,” read the 18-page report. It says written accounting policieswere lacking, and any payments using federal money need sufficient proof that the city hasn’t been able to provide. Costs of alcoholic beverages, for example, aren’t paid for, therefore all catering charges and travel expenses have to be detailed and “reasonable,” meaning they don’t exceed what would be incurred by a prudent person.
The detailed expenses confirmed by the Taveras administration — include:
Thousands for catered meetings of the Providence agency’s board.
December 2009 payments totaling $1,536 to Rockstar Limo.
$12,500 to the Clarendon Group, a former press relations firm led by a woman who is married to Cicilline’s former chief of staff, Mike Mello.
A $36.91 gift for a sick employee in 2008.
A $20 parking ticket in March 2008.
Nearly $75,000 to Schwadesign, the marketing and advertising firm that created the “P” re-branding for Providence.
Cicilline said Thursday that he and Taveras have worked “aggressively” to promote economic development in the city and preserve and create as many jobs as possible “whether through direct grants, helping our nonprofits, marketing the city or strengthening our neighborhood commercial districts.” He said the city is addressing HUD’s concerns, “and I have complete confidence that these issues will be properly sorted out.”
Brendan Doherty, who is running for Congress against Cicilline, criticized the former mayor in a statement Thursday about HUD’s concerns. He said the July report is another example of Cicilline’s mismanagement and attempts to work outside of federal regulations. Doherty’s comments focused on the agency’s loans. The report cites problems with the loans dating toJune 2003 when the agency was founded. Of the 79 loans that total $14.8 million, HUD says 52 were provided to retain or create jobs and 17 of those businesses didn’t follow through and other files lacked documentation to verify whether the businesses followed through.
Failing to maintain the records may result in the loan applicant being disqualified.
HUD also said the agency failed to enforce a federal regulation — businesses getting money through its innovation investment program must hire at least one low-to-moderate-income employee for every $35,000 borrowed — with a contractual agreement with the businesses.
It also questions whether the agency’s underwriting practices were adequate, particularly because about 60 percent of the loans are in default. Some businesses are 4,588 days past due on their payments, and “the city has spent an unreasonable amount of legal fees in pursuit of these collections with very little to show for its efforts.”
Since May 2011, for example, the agency’s board has written off 29 loans totaling 2.17 million, including late fees and interest, as uncollectable debt.
As Governor Lincoln Chafee said yesterday in the broiling sun on the south steps of the State House, “this is hot news.” He was right. It was hot, but it wasn’t exactly breaking news.
For months, state and airport officials, and even JetBlue’s President and CEO Dave Barger, have talked about bringing service to Green Airport. That news was confirmed yesterday at an event that pulled out all the stops including, appropriately, music by A Room Full of Blues, mascots from the state’s colleges and universities, a lineup of JetBlue employees who live in Rhode Island and, much to the relief of everyone, free Del’s frozen lemonade (including the apropos blueberry variety). The one thing missing was a flyover by one of the airline’s 180 planes.
But the planes will be here starting Nov. 29 when JetBlue initiates twice-daily nonstop service to Orlando International Airport and one daily flight to Fort Lauderdale/Hollywood International Airport in Florida. Barger announced special one-way fares of $75 for travel between Nov. 29 and Dec. 12, 2012. The deal expires on Aug. 1. “We’re very excited about the news here today,” said Chafee. “We worked hard to make this day happen.” Chafee recounted how he, former CEO of the Rhode Island Airport Corporation Kevin Dillon, Mayor Scott Avedisian and several others hopped into a van and journeyed to Queens, N.Y. to make their pitch to Barger. “He listened to us, and investigated what we had to say, and now we’re here today,” said Chafee.
Barger said it was the enthusiasm of those who made the pitch that served as the tipping point in JetBlue’s decision to come to Providence. “It was the personalized armada of people,” he said. “You need that commitment to community. The networking that takes place makes a big difference.”
Dr. Kathleen Hittner, chair of the Rhode Island Airport Corporation, left no doubt as to what RIAC and the state need to do to welcome the JetBlue team. She said the airline’s decision lives up to the adage that “good things come to those who wait.” Yet, she was quick to add that the “work is just beginning.” She said it is up to RIAC to ensure that those using JetBlue get fantastic service and she urged Rhode Islanders to buy tickets.
“Start booking those flights,” she said, “let’s fill those planes.” When the planes are filled, Hittner predicted, JetBlue would increase service.
Whether JetBlue is a game-changer for Green, which has watched a steady decline of passengers from a high of 5 million more than four years ago, remains to be seen. Nonetheless, House Speaker Gordon Fox called the announcement a “second renaissance” for the airport, the first being the opening of the terminal and the initiation of discount service by Southwest Airlines. “It is about building commerce,” Fox said from a podium on the marble steps of the State House. In front of the assembly of dignitaries with a backdrop of the State House and a blue banner welcoming the airlines was a smattering of brave spectators. There was a far bigger gathering in the shade of the nearby trees where it was easily 15 degrees cooler.
Fox said the General Assembly authorized $174 million in bonds to expand the airport in reference to projects to extend the main runway to 8,700 feet and increase the safety areas to the shorter runway. Asked about the financing after the JetBlue announcement, Fox said RIAC is seeking 75 percent federal funding of the projects. And even should the federal funding fall short, and should the projects turn out to be more costly than projected, Fox said RIAC and the state “need to find a way to do it [the longer runway].” Fox also talked about the need to find a successor to Kevin Dillon, who started in his new job as president and CEO of the Connecticut Airport Authority this week. Dillon orchestrated the process of gaining FAA approval of the longer runway and then an agreement with the council to drop litigation challenging that decision.
“It’s important to get some real leadership back there,” he said. Hittner said work of a selection committee started that morning. She also said that two gates have already been designated for JetBlue operations.
Barger talked of the full court press made by the Rhode Island business community led by the Greater Providence Chamber of Commerce, RIAC and state officials to get JetBlue to Rhode Island. Delegations visited him in August of last year and January this year. He mentioned the silver horseshoe given him by Governor Chafee and in a remarkable display of local trivia called on the team mascots, being sure to mention Paws from the Pawtucket Red Sox. Barger presented Chafee with a model of a JetBlue plane, and in turn, Chafee presented Barger with a Rhode Island flag. “We’re very, very, very excited about the future,” said Barger. “We’re delighted to be a part of the community.”
Barger said the Providence location will create 22 direct jobs, as well as other indirect positions. As Rhode Island will become the airline’s 75th city to serve, Barger called the state the airline’s “diamond destination.” It was a phrase Ward 3 Councilwoman Camille Vella-Wilkinson was pleased to hear. She favors making Warwick and the state a destination rather than simply a place to pass through.
Barger also announced the company will offer 50 complimentary seats on its first Orlando trip from T.F. Green to volunteers who will journey to Give Kids the World, a 70-acre “storybook” resort for children with life-threatening illnesses and their families. JetBlue will also donate a $10,000 check to FirstBook, which will provide free schoolbooks to local schoolchildren in need.
According to a release issued by the airlines, JetBlue is New York’s Hometown Airline™ with other focus cities in Boston, Fort Lauderdale-Hollywood, Los Angeles, San Juan and Orlando. Known for its award-winning service and free TV as much as its low fares, JetBlue offers the most legroom in coach of any U.S. airline (based on average fleet-wide seat pitch), as well as super-spacious Even More Space seats. JetBlue is also America’s first and only airline to offer its own Customer Bill of Rights, with meaningful and specific compensation for customers inconvenienced by service disruptions within JetBlue’s control. Visit www.jetblue.com/promise for details. JetBlue serves 71 cities with 800 daily flights and plans to launch service to Cartagena, Colombia; Samaná, Dominican Republic; and Grand Cayman, Cayman Islands this November, subject to receipt of government approval. With JetBlue, all seats are assigned, all fares are one-way and an overnight stay is never required.
Opponent drops challenge of House Finance Chairman Melo
Opponent drops challenge of House Finance Chairman Melo
John J. Rossi, a retired East Providence police officer and former union president, registered to vote in Melo’s House district on May 17 and then filed the initial paperwork required to challenge Melo in the September Democratic primary, while his wife, School Committee member Christine Rossi, filed to run for the town council from a different House district.
Leslie Shattuck-Moore, canvassing administrator for East Providence, confirmed Monday that Rossi did not return the nominating petitions required for his name to go on the September primary ballot.
More than one out of five incumbents are running unopposed.
More Independents running for office
37 candidates running for General Assembly seats
More candidates for the Rhode Island General Assembly are filing to run as independents. Thirty-seven independents have filed to run for legislative seats in this fall’s elections. Candidates interviewed by The Associated Press say partisan politics has failed to address Rhode Island’s 11 percent unemployment rate or chronic government budget deficits.
Rhode Island is one of the most loyally Democratic states in the U.S., and the party enjoys overwhelming majorities in the Legislature. The state’s congressional delegation and most statewide officeholders are Democrats. One notable exception is Gov. Lincoln Chafee, the nation’s only sitting independent governor.
Chafee says he thinks voters are increasingly open to voting for independent candidates. The former Republican says that while independence has advantages, it can also make winning elections more difficult.
State Report: 38 Studios, Legislative Raises & Casino Gaming
Rhode Island ranked the worst state to do business
For the second year in a row, Rhode Island has won the dubious distinction of being the worst state in the nation to do business in, according to CNBC. Not only did the state finish last, it was near the bottom of most of CNBC’s 43 measurements used for the study. The study’s 43 criteria were broken down into 10 broad categories: cost of doing business, workforce, quality of life, economy, transportation and infrastructure, technology and innovation, education, business friendliness, access to capital, and cost of living.
Each state was awarded points based on how well it performed in each category and the state earned a putrid 844. “Rhode Island just didn’t finish last in our rankings. With just 844 out of 2,500 possible points, the Ocean State was pretty much dead in the water,” said CNBC correspondent Scott Cohn. For sake of comparison, Texas finished first on the CNBC list, earning 1,604 points.
Rhode Island finished near the bottom in 6 out 10 categories including cost of business, workforce, economy, infrastructure and transportation, business friendliness, and cost of living. Out of the six, the state was dead last in one category: infrastructure and transportation.
The one positive aspect of CNBC’s data is that the Ocean State was ranked 10th best in nation in terms of access to capital. Last year the state ranked 35th in access to capital, but experienced a surge in the rankings due to large amounts of venture capital flowing into the state, according to Cohn.
Twin River Casino Campaign Ad Spot
On Wednesday, the Twin River slot parlor released a commercial encouraging the passage of its November ballot question. The ad asks Rhode Islander voters to vote “yes” when it comes to adding table games to Twin River. The ad maintains that adding table games to Twin River will not only help revitalize the Rhode Island economy, but also add about 650 new jobs. Voting “yes” will also protect 900 current jobs, generate $16.2 million in new revenue, and stimulate a projected $60 million in economic activity, according to Twin River.
The issue of table gaming in Rhode Island became paramount in late 2011 when Massachusetts approved three full casinos and one slot parlor. Not surprisingly, Twin River and Newport Grand slot parlor would have a hard time competing with neighboring casinos that offer table games.
A study commissioned by Gov. Chafee concluded that Rhode Island’s annual revenue would decrease by roughly $100 million when Massachusetts’s approved casinos open in 2017.
Twin River’s ad will run for two weeks on YouTube and can be viewed HERE.
Sen. Sheehan declines legislator pay hike
Earlier this week, Sen. James C. Sheehan (D-North Kingstown, Narragansett), announced that he would be declining the 3.2 percent salary increase being given to the General Assembly. Sen. Sheehan’s decision makes him just the first Democratic Senator to turn down the raise.
“Given the state of the economy and the fact that there have been budget cuts, I will not accept the constitutionally guaranteed pay raise,” said Sen. Sheehan. “I do not think it is appropriate in principle to accept a pay raise when sacrifices are being made all across state government and in most of the households in our state.”
Sen. Sheehan joins six Republican Senators and two House members in his decision. Senators Denis Algiere (R-Westerly), Dawson Hodgson (R-North Kingstown), Nicholas Kettle (R-Coventry), Frank Maher (R-Exeter), Christopher Ottiano (R-Portsmouth), and Glen Shibley (R-Coventry), all declined the raise. Additionally, Rep. Doreen Costa (R-North Kingstown) and James McLaughlin (D-Cumberland) also declined the increase.
38 Studios bankruptcy hearing
On Tuesday, the Chief Financial Officer for 38 Studios helped to shed some light on what caused the undoing of the now defunct video game company. Richard Wester, CFO for 38 Studios, told a bankruptcy court in Delaware that the company’s first game sold much less than projected.
Wester told the court that the company had projected to sell 2 million copies of “Kingdoms of Amular: Reckoning,” but ending up selling only 1.4 million units. According to Wester, 38 Studios would have been able to pay its bills and complete its second game Copernicus, if Kingdoms of Amular had fulfilled its potential. Wester also maintains that the company would have paid back its $75 million state backed loan with the revenue generated from Copernicus.
Aside from Kingdoms of Amular underselling, 38 Studios’ bankruptcy can also be linked to its partnership with Electric Arts (EA). In fact, 38 Studios had to split the revenue on the game with EA the publisher, 70/30. Thus, EA received 70 percent of the revenue generated from the game. Furthermore, 38 Studios had to pay back a $30 million loan to EA. In the end, the amount of money left over was not enough for 38 Studios to remain above water.
Central Falls bankruptcy update
On Wednesday, it was announced that Central Falls might make their way out of bankruptcy by September 2012. If the September date holds true, it will be one year and one month after the cash-strapped city first filed for bankruptcy. Conversely, it took Vallejo, Calif. three years to recover from filing for Chapter 9 in 2008.
Wednesday’s news specified that once governmental control is handed back over to the city, it must abide by the receiver’s five-year balanced budget plan. The state appointed receiver took over in July 2010 when the mayor, Charles Moreau, and William Benson Jr., City Council President, were demoted to advisers.
Under the plan, the city’s retirees, unions or the state reserve the right to go to court if city officials do not follow the arrangement. Bankruptcy Jude Frank J. Bailey will retain jurisdiction for the life of the plan. The judge has set Sept. 5 and 6 for hearings on the restructuring.Since filing for bankruptcy in August 2011, city employees and retirees have agreed to pay more for their health care and retirees have experienced pension cuts up to 55 percent. The only individuals to make it through the bankruptcy unscathed are the investors holding city bonds.
Half of Rhode Islanders Don’t Owe Income Taxes
At least half of all Rhode Islanders don’t owe any federal income taxes and likely no state income taxes either, according to Internal Revenue Service figures—raising new questions about the health of the state economy and the fairness of the tax code.
IRS estimates show that, at most, 558,293 Rhode Islanders ended up owing federal income taxes in 2010. With a population pegged at just over one million, according to the recent U.S. Census, that represents half the population.
The other half that don’t owe anything are comprised of those who are on public assistance, dependent children and college students, low-income retirees, and people who are out of work. It also includes a number of lower middle-class residents who may have paid withholding taxes throughout the year but ended up owing nothing when credits, deductions, and exemptions for dependents are taken into account—earning them a refund at tax filing time.
Who doesn’t owe: Those who end up not owing span a wide range of income, age, and employment status. They include the following:
■ The very poor: At the lowest end of the income spectrum are those who earned so little that they not only did not have any tax liability, they qualified for the earned income tax credit (EIC), a form of public assistance. “This is really a way to subsidize the working poor,” said Brown University sociologist John Logan. In 2010, nearly one out of every five tax returns—or, 81,051 out of 509,091—filed in Rhode Island was for the EIC. (The figures include joint and single filers.)
■ Some of the unemployed: The recession has also taken a toll, but the impact is less clear. The number of tax returns reporting unemployment compensation was almost equal to the number of EIC returns—74,785. But, unemployment compensation is taxable. Whether someone ends up owing, would, like other earners, depend upon individual circumstances—such how long that person was out of work during the year and how much was earned beforehand, among other factors.
■ Low income retirees: The same goes for retired residents taking Social Security: some will end up owing, others won’t. In Rhode Island in 2010, there were about 151,000 residents at or over the normal Social Security retirement age of 65. An elderly couple whose income exceeds $44,000 will owe taxes on 85 percent of their Social Security income.
■ Dependent children: In Rhode Island the number of dependent exemptions claimed was 280,199—a figure almost identical to the number of residents 21 and under who were counted by the U.S. Census, which was 281,295.
■ The rest: The rest of those not paying taxes includes a small sliver of wealthier Rhode Islanders who one way or another have been able to manipulate the tax code, legally, so they may not owe any income taxes in a particular year, according to Logan. For lower middle income earners, new tax credits can also reduce or eliminate their tax liability. For example, 2008 saw the institution of the first-time homebuyer credit, which initially was worth up to $7,500.
‘Not everyone has skin in the game’
“Talking about national statistics, one of the complaints is that only 50 percent of the people pay taxes. One of the problems is not everyone has skin in the game,” said Grafton “Cap” Willey, a managing director at CBIZ Tofias, an accounting firm. “I think everybody should be paying something, even if it’s a nominal amount because they all should have skin in the game as far as supporting the federal government.”
Recent national reports have shown that half of all U.S. residents owe taxes. GoLocalProv’s own analysis of IRS figures bears that out: about 156.7 million people who filed returns—either singly or jointly—owed taxes, out of a 2010 population of 308.7 million.
The pattern also holds true for other New England states, according to Peggy Riley, a regional IRS spokeswoman.
Willey said the system has been skewed, with the highest earners paying the bulk of the income tax burden in the country. For example, the top 10 percent of earners shouldered 71 percent of all federal income tax revenue in 2009, despite making 43 percent of income, according to the Heritage Foundation. “The problem is we are becoming a country where there are more takers than givers in the system and more people are dependent on the government for support,” Willey said. Willey said the system will only perpetuate itself as the 50 percent who don’t owe income taxes vote for politicians who won’t raise their taxes. Elected officials, in turn, will tend to support tax credits and other broad-based tax credits to curry favor with voters, he said.
Poverty advocate: poor do pay more in other taxes
But some caution that the figures on income taxpayers should not be interpreted to mean that the poor and lower-income aren’t contributing or paying their fair share. At the state level, residents also contribute to the state coffers through the sales, use and gas taxes, said Neil Downing, a chief revenue agent for the Division of Taxation. “The state relies on a different number of taxes … out of fairness because we don’t want to put too much of a burden on any one source,” Downing said. They may not be paying as much in personal income taxes, but poverty advocates point to other sets of data showing that lower-income residents pay disproportionately more in those other kinds of taxes.
For example, the sales tax eats up about 8 percent and the property tax takes up another 3.9 percent of household income for the bottom 20 percent of non-elderly residents. For the top one percent of earners—those making $419,000 or more— the corresponding figures are .7 and 1.8 percent, according to the Institute on Taxation and Economic Policy. “Make no mistake about it, low-income Rhode Islanders pay taxes and contribute to the cost of public services,” said Kate Brewster, Executive Director of the Institute for Economic Progress (formerly the Poverty Institute). “They pay through the sales tax, property tax, car tax, gasoline tax, and the payroll tax if they are working. It’s a good thing the federal income tax is progressive because it helps to offset other regressive state and local taxes.”
Another factor to consider: the personal income tax figures also do not take into account those who contribute through payroll taxes to Medicare and Social Security, taxes that Downing described as “hefty.”
It’s all about the economy
For Lisa Blais, spokesperson for the Ocean State Tea Party in Action, the number of actual taxpayers underscores the need to grow the economy more than anything else.
“People who truly need help should receive that help—think about the inscription on the Statue of Liberty,” Blais said. “However, without a robust private sector economy, the country will collapse under our own entitlement programs and will finally hit the fiscal wall of an absolute lack of revenue to pay for public services. In Rhode Island, people who are dependent upon government jobs or who depend on social welfare programs naturally vote with their own self-interests in mind.”
She said the state needs leaders who understand how to create a “legislative landscape” that will lift Rhode Island out of its 50th place ranking in the recent CNBC report on business-friendly states. She also called for leadership on education to “free our public school system from the obstacles that keep us from being considered among the best to educate all of our kids.” Logan said that, ideally, the state economy should be growing into one in which more people are paying taxes because they are earning a living wage and are in a position to contribute through income taxes. “That would be the most ideal situation, but we’re so far from that it’s hard to think about,” Logan said.
EXTRA: Understanding the numbers
How were the figures calculated? Data used to calculate the number of federal personal income taxpayers in Rhode Island was obtained from the Internal Revenue Service. In tax year 2010, the year for which the most recent data is available, there were 382,967 tax returns that had an income tax liability—which either could have been withheld throughout the course of the year, made in quarterly installments, paid at tax filing time, or some combination of the above.
The IRS figures do not specify how many returns within the above figure were joint returns. Assuming that it does include everyone who did file a joint return, the actual number of individuals who had a tax liability would be 558,293. That represents the maximum number of people in the state who could have owed taxes. The actual figure is likely less than that, but IRS figures are not detailed enough for one to say just how much lower with any meaningful specificity.
How many federal tax filers in RI are there? For all the reasons mentioned above, not everyone who files a tax return necessarily ends up having to owe anything for taxes. The total number of returns filed in Rhode Island in 2010 was 509,091. However, once again, that includes joint and single returns. When joint returns are broken out into individuals, there were an estimated total of 684,182 individuals who filed a tax return in Rhode Island in 2010.
How many Rhode Islanders pay state income tax? Unlike federal income taxes, exact estimates for those who owed state income taxes are not available. However, the state picture typically mirrors the federal one, state and federal tax officials said. In the most general terms, the number of people who owe state income taxes will be the same as, if not less than, the number who owe federal taxes, according to Neil Downing, a chief revenue agent for the state Division of Taxation.
How many Rhode Islanders file state income tax returns? The state does have figures available on how many residents file state income tax returns. For tax year 2010, the number of state income tax returns filed was 476,383, which includes single and joint filers, according to Downing. The figure is slightly less than the 509,091 returns reported by the IRS because the IRS tally includes amended returns that may have been filed for previous tax years, according to Downing.
Providence Expects to End Year Over $19 Million in the Hole
The Taveras administration refused to comment for this story, but City Council President Michael Solomon said the city is well on its way to recovering from the $110 million structural deficit the administration and the Council inherited when they took office in 2011. “Immediately after taking office in January of 2011, this Council was confronted with an unprecedented fiscal crisis,” Solomon said. “With a structural deficit towering over $100 million dollars and an unfunded liability growing exponentially each year, this Council recognized the need for immediate and decisive action. We have made significant strides along the path to fiscal stability, and, while we have not crossed the finish line yet, I am confident that we will continue to make the tough choices necessary to do so.”
Agreements Helped Save City
The agreements with the retirees and the nonprofits were considered crucial to helping the city stave off municipal bankruptcy, which Mayor Angel Taveras warned was a possibility earlier this year when reports of the city’s immediate cash flow problems came to light.
The pension reform deal, which was overwhelmingly approved by the city’s police and fire retirees, freezes cost-of-living-adjustments for retirees (COLAs) for ten years, eliminates five and six percent compounded COLAs, places a cap on pensions and moves retirees over the age of 65 onto Medicare. The city projects the pension reform savings will cut its unfunded liability by $170 million.
Of the nonprofits institutions, only Providence College and the Rhode Island School of Design (RISD) have failed to reach agreements with the city. Brown University agreed to pay $31.5 million over 11 years. Lifespan, the city largest hospital group, agreed to pay the city $2.4 million. Johnson & Wales agreed to pay at least $6.4 million.
“Getting a deal with retirees and reaching an agreement with the tax exempts were both major achievements, but we all recognize that there is still more that needs to be done,” said City Councilman David Salvatore. “We need to identify savings and spending cuts to close the budget gap.”
2013 Budget will be “Very Tight”
That budget gap is in part thanks to shortfalls in the two public safety departments and in public works, which faces a $3.3 million deficit. Salvatore said that while the majority of city departments have controlled costs over the last year, “every City department should understand that they have to manage toward their budget number.”
“We are no longer in a place where we can afford to turn a blind eye to excessive overtime or cost overruns in any city department,” Salvatore said.
Councilman Sam Zurier, who serves as vice chairman of the Council’s finance committee, agreed with Salvatore. He said he expects the 2013 fiscal year budget to be “very tight” and that the Council will have to monitor it more closely than it has in previous years. He predicted there will be more oversight hearings earlier in the fiscal cycle than in years past.
“I am concerned about the carryover deficit from last fiscal year to this one,” Zurier said. “The Internal Auditor is reviewing the figures with the administration. In addition to the budget deficit there is a cash flow issue the City faces in the coming year, because it is difficult to borrow money and there are no ‘one time fixes’ such as asset sales to employ at this time.”
Pension Contribution a Concern
While the city still faces cash flow problems, moving up the first quarter tax deadline and advances in state aid are expected to help the city avoid running out of money. As far as the budget, the city chose to draw down from what was left in the Civic Center fund (just over $3 million) to help lower the deficit.
But Salvatore and Zurier said they do remain concerned about shorting the annual pension contribution. Zurier said the finance committee will ask the administration to justify the proposed reduction and noted that is possible the reworked pension deal with retirees could allow for a lower contribution.
“If there is not an adequate justification for the reduction in the pension fund contribution, I anticipate the Finance Committee will ask the administration to propose alternatives,” Zurier said.
Salvatore said he is against not making the full payment, but suggested he is more concerned with a projected shortfall in the city’s retiree health care budget.
“I am not a proponent of postponing the municipal payment to the pension fund, however, I am more apprehensive about the $18 million shortfall surrounding the city’s retiree health care budget,” he said. “Next week I will be introducing a proposal that takes a serious look at unnecessary expenses being triggered in our health care contracts.”
Rampant Fraud Revealed in Providence Public Housing
When it comes to investigating residents cheating the Providence Public Housing system, Dan Murphy and Jack Costa have seen it all. There was the woman who was receiving subsidized housing based on a claim that she was bringing in no earned income until Murphy walked into the grocery store she owned on Elmwood Ave. and purchased a soda. The woman was forced to pay back $11,000.
There was the scheme a paralegal from a local law office pulled with her husband and elderly aunt that involved the use of both her maiden and married names to obtain a cheaper rent. She was found guilty of obtaining money under false pretenses and forced to pay back $13,000.
And of course, there was the recent case where a staffer in the Taveras administration was charged with conspiracy after investigators found she was renting a federally subsidized home from her stepfather for a decade, an act the Department of Housing & Urban Development (HUD) forbids. She owes over $85,000.
Murphy, an investigator at the Providence Housing Authority (PHA) and Costa, a security operations manager at the PHA, are the primary players in the agency’s efforts to crack down on Section 8 fraud in the capital city. Their work has led to the arrests of 15 individuals in the past year and since fiscal year 2008, 137 residents have been kicked out of public housing after the investigators found they weren’t reporting their income. The total amount they’ve managed to recover since FY 2008: $565,940.33 “We’re not here to come in and throw the old lady off a cliff,” Murphy said during an interview last week. “These are people that have been doing this for five years, ten years. These are cases of blatant fraud.”
Paper Trail is Key
Murphy said the agency has only recently begun filing criminal charges against the worst offenders. He said residents can be charged with obtaining money under false pretenses, conspiracy or giving false documents to public officials. Both former police officers, Murphy and Costa, who work with HUD on all cases, say their investigations mirror the criminal investigations police departments all over the country are conducting. The key, they say, is following the paper trail. And while both concede that nabbing someone in, say, a bank robbery might be more glamorous, Murphy and Costa are quick to note that the white collar criminals are probably stealing significantly more money.
Providence is hardly alone when it comes to public housing fraud. According to a report issued last September, HUD recovered $292,397,572 nationwide in fiscal year 2011 thanks to investigations. Over 1,400 arrests were made and nearly 1,500 subpoenas were issued.
For all the money Murphy and Costa have been able to recover, residents have still managed to defraud the government out of millions of dollars, they say. Providence alone received $1.5 million per month from HUD specifically for Section 8 housing and Costa said the tips about people cheating the system are endless.
The agency even includes a link on its website for residents to report fraud. “It’s important to know that these are mostly hard working people living in public housing,” Costa said. “They don’t like to see people getting by either. So we see people turning each other in all the time. Family members even do it.” One of the best ways to investigate fraud claims: Facebook. “I love Facebook,” Costa said. “What an investigative tool.”
“It’s like Technology Came up and Bit You”
Between tips, social media and a game-changing tool known as the Enterprise Income Verification (EIV) system, Murphy and Costa say public housing agencies all over the country have at least been able to begin going after the people defrauding the system.
The EIV, which basically streamlines all of the employment and income information for anyone participating in public housing, was launched in Providence several years ago and is now mandatory across the country. Murphy said they warned all recipients that a new computer system was going to be able detect if they were defrauding the system and even gave the residents an amnesty period where they could state their previously unreported income and simply pay a small fine. Many came forward. Many did not. And some have paid the price.
In the case of the Taveras administration staffer, Murphy said they began looking into the woman’s living situation last April and after raising some initial questions, they asked her to pay back less than $2,000. When she blew them off, they launched a full investigation, which led to her owing nearly 45 times the original amount. “It’s like technology came up and bit you,” Costa said. “The EIV is to us what [criminal background checks] are for police officers. Once word was out on the street that we had these tools, a lot changed.”
Murphy and Costa both agreed that while the system is working, there are always going to be flaws and there are always going to be people that attempt to defraud public housing. The problem, they say, is that in a down economy, the demand for public housing is great and people cheating the system are actually hurting other families.
In Providence, the Section 8 waiting list hasn’t opened up since 1998. 14 years. And there are still over 1,400 people on that list. That’s the real crime, Murphy said. “People think they are stealing for the government and that’s okay,” he said. “But they’re actually stealing from other people on the waiting list who need housing.”
KILMARTIN TO HOST THE 14th ANNUAL OPEN GOVERNMENT SUMMIT
Rhode Island Attorney General Peter Kilmartin will host the 14th annual Open Government Summit, to educate and inform public officials and the public about the state’s Open Meetings Act (OMA) and the recently amended Access to Public Records Act (APRA).
The Summit, which is free and open to the public, is scheduled for July 27, 2012, 9:00 a.m. -12:30 p.m. at Roger Williams University School of Law in Bristol, RI.
The presentation will include a 2011/2012 case law and legislative update and examples of frequent trouble areas. The summit will close with a panel discussion on “Open Government Requirements and Obligations” and a Q&A session.
This year’s summit will be held in the wake of the newly passed APRA amendments. The Act will make public various records that were not previously public and will hold public bodies more accountable for producing records. Coming into law September 1st, the changes will require public officials to certify annually to the Attorney General that they have received APRA training. Discussion of APRA at the summit will explore and explain these new laws and will help attendees better understand new statutory requirements.
“Rhode Island’s Open Meetings Act and Access to Public Records Act are critical to ensuring that our government remains open and accountable to the public. I am pleased that the General Assembly passed, and the Governor signed, amendments to the APRA that will further enhance a citizen’s access to public records, yet limit the additional burdens imposed upon public bodies. It is my hope that these changes will lead to an increased understanding of government operations as well as facilitating a citizen’s access to public records,” said Attorney General Kilmartin, whose office drafted and submitted the APRA legislation to the General Assembly and worked with Senator Sheehan and Representative Marcello on the final Act.
“I am committed to public outreach and education concerning the requirements of the OMA and the APRA. It is my hope that the Summit will lead to a wider understanding of open government laws, especially the recent changes to APRA. When implemented in September, it will be key for elected officials, public employees and the general public to have an understanding of these changes. I am confident that the thoughtful discussion and debate at this year’s Summit will strengthen that knowledge.”
Forbes Ranks Providence Poorly for Business
For businesses looking for the best city to locate, ForbesMagazine unveils which cities and metro areas are strongest – a comprehensive measure ranging from education, job growth and the overall business environment.
New England metro areas preformed weakly on the business publication’s list and the City of Providence did especially poorly.
While the US economy is in moderate growth, the cities that scored best were in the Midwest and the West lead by Provo, Utah – low unemployment, strong education and a low cost of operation a business. “You won’t find many of these (strong) areas on the two coasts. Cities in California and New England are saddled with high business costs and heavy regulatory burdens. States in the heartland, like Utah, Texas, Nebraska and Colorado, have the best business climates right now.”
The top performing New England metro areas were Cambridge and Boston in the Commonwealth. Sadly, Providence ranked #178 of the 200 ranked and only Norwich, Connecticut metro area scored lower at #183 in New England.
Of the New England metro areas, Providence ranked last for Job Growth and for Education.
Former Lawmakers Cash in Playing Revolving Door Game
Eleven former lawmakers combined to earn more than $2 million influencing their former colleagues on Smith Hill during the 2012 legislative session, according to a GoLocalProv review of lobbyist records filed with the Secretary’s of State’s office. In total, at least 21 former State Senators and Representatives walked through the revolving door to register as lobbyists this year, including former House Speaker William Murphy, who earned at least $78,000 representing four clients. And Murphy, who left office in 2010, is only at the beginning of what could prove to be a lucrative career as a lobbyist.
Former Senate Minority Leader Robert Goldberg, who is widely considered one of the most influential lobbyists on Smith Hill, will earn approximately $765,000 during the 2012 calendar year lobbying on behalf of more than a dozen companies. GTECH pays his company $12,500 per month. Twin River pays him $10,000 each month. CVS Caremark pays him $5,416.67 each month.
While many lawmakers-turned-lobbyists simply register because state law requires them to do so, some, like Goldberg, former Senate Finance chairman Stephen Alves, former House Majority Whip Chris Boyle and former House Majority Leader George Caruolo are making hundreds of thousands of dollars each year. By the end of 2012, that group alone will have raked in at least $1.7 million, records show.
“In an ideal world former Representatives and Senators would return to the work they did prior to running for office and not trade on the influence they developed for personal gain,” said Common Cause executive director John Marion. “Unfortunately we don’t live in that world and likely won’t for some time.”
Hiring Former Lawmakers Can Pay Off: Between becoming lobbyists or in some cases, magistrates or judges, Marion said it is becoming increasingly common for former lawmakers or staffers to trade their time in the General Assembly or as a staff member on Smith Hill for personal gain later.
The reason companies want to hire former insiders is simple: It works: Murphy was paid $50,000 by Advance America to lobby against legislation that would have placed a cap on payday loans at 36 percent interest, down from the 261 percent. Despite the bill having plenty of support in both chambers, Murphy was able to convince the House to table the discussion for a second straight year. (Murphy consulted with Advance America in 2011, but was not a registered lobbyist.) Last month, retiring State Senator John Tassoni indicated he too plans to register as a lobbyist as soon as he clears the one-year “cooling off period” in between the time former lawmakers can register as lobbyists.
According to the National Conference of State Legislatures, the Ocean State is one of 35 states that forces lawmakers to wait a certain period of time before they can become lobbyists. In most cases, the wait is one year. Seven states (Alabama, Colorado, Iowa, Kentucky, Louisiana, New York and Oklahoma) have implemented two-year bans while 14 states have zero restrictions at all. Marion said Rhode Island has strong revolving door laws but noted that they could still be improved. “We do have a very good revolving door provision in the Code of Ethics that prevents them from immediately lobbying,” he said. “Closing that door permanently would be really difficult to achieve.”
Cicilline Wants Lifetime Ban in Congress
While local lawmakers aren’t likely to change the state’s revolving door laws in the near future, Congressman David Cicilline is making the issue one of his top priorities in Washington. Earlier this year, Cicilline co-sponsored legislation that would enact a lifetime ban on members of Congress becoming lobbyists. “This is a simple idea,” Cicilline told MSNBC’s Dylan Ratigan earlier this year. “That is if you have the privilege of serving the Congress of the United States, that when your service has concluded, when you retire or move on, you can’t become a lobbyist.” Cicilline continued: “You should not be able to take your public service and leverage it to your own financial and private gain and to distort our democracy by amplifying the voices of special influences.”
There is little research on the revolving door at the state level, but a study released last year by LegiStorm found that 393 current and former members of Congress have appeared as lobbyists over the last decade. “For every person the American people have elected to sponsor legislation of public benefit, special interests have more than one former legislative advocate now working on the inside in Congress,” said Jock Friedly, founder and president of LegiStorm. “That represents a large network of people to influence decisions and to provide valuable intelligence.” Marion said voters don’t elect their representatives knowing they’ll one day be able to cash in from their experience. “We send our representatives to Congress and the General Assembly to represent us, not to burnish their resume so they can someday become lobbyists,” he said.
The Rhode Island General Assembly is playing a dangerous and disheartening game with justice in in the state by creating magistrates without the same scrutiny and vetting that state judges receive. Like judges, magistrates wear black robes, perform many of the same duties, receive high pay and may serve for many years. Unlike judges, they are not required to go through a selection process that includes being publicly vetted before the state’s Judicial Nominating Commission.
The result is what you might suspect. Magistrates seem to be chosen with alarming frequency on the basis of mostly political connections rather than skill or qualifications.
In June, the Senate voted to confirm two new magistrates with such connections: former Sen. Charles J. Levesque (D.-Portsmouth) — who famously showed up at 2:36 a.m. on March 28 at the Barrington Police Station to help Senate Majority Leader Dominick Ruggerio (D.-North Providence) after the latter’s arrest for driving under the influence — and John J. Flynn, legal counsel to House Speaker Gordon D. Fox (D.-Providence).
Indeed, the magistrate system seems to have been turned into a (very well paid) jobs program for retired lawmakers and their friends. Former Sen. John McBurney III (D.-Pawtucket) became a magistrate in April, while former Senate President Joseph Montalbano (D.-North Providence) became one last year. Watchdog groups complained about nepotism and political patronage when Patricia Harwood, the wife of then-House Speaker John B. Harwood, was appointed a magistrate during the week between Christmas 2001 and New Year’s Day 2002, when the public was distracted and less likely to make a ruckus. To her credit, Rep. Donna M. Walsh (D.-Charlestown) has tried to do something about it. She filed a bill calling for magistrate-selection reform seven of the last 11 years. The reform has been shot down each time by legislators who want to keep the current system in place as long as an apathetic public will hold its nose and go along with it.
Even under the state’s judge-selection system, political connections weigh heavily, arguably more heavily than other qualifications. But under that process, at least, the public can weigh in and have some role in what happens. And the mere fact that the public is watching makes those in power reflect a little harder about the propriety of selections. It’s long past time to reform the magistrate-selection system.
City Writes Off Millions in Economic Development Loans
The Providence Economic Development Partnership (PEDP) last week voted to write off 29 taxpayer-backed loans for small businesses, leaving the capital city on the hook for $2,171,125.66, GoLocalProv has learned. All but seven of those loans were more than 1,000 days past due and one –a $60,660 loan for Danal, Inc. issued in 1996— was 4,799 days late as of last week.
The majority of write-offs were applied to companies that barely made a dent in their original loan, including the Davin Wheel Company, which received a $350,000 loan in February 2006 and owed $502,752.84 with interest and late fees before the PEDP chose to eat their loss, records show. In total, a half dozen six-figure loans were written off, including one for Ada’s Creations ($153,402.08), a South Side bar that had its liquor license suspended for 11 days earlier this year after a teenager was shot in the establishment’s parking lot. Ada’s received only a partial write-off and still owes the PEDP over $200,000. While some of the loans date back as far as 1990, more than half were dished out between 2005 and 2009, including a $20,000 micro loan awarded to Mainelli’s Restaurant on Chalkstone Ave. in December 2009. As of last week, the restaurant hadn’t made a payment in 700 days and owed $23,273.64 on its loan.
The slew of write-offs came eight months after GoLocalProv first reported that a quarter of all loans issued by the PEDP were at least 90 days past due and that the city would be out over 3 million if the funds couldn’t be recovered. At the time PEDP lawyer Josh Teverow said the city was actively pursuing collections against 11 businesses that combined to owe $1,365,660. Seven of those loans were written off last week. By design, PEDP loans, which are funded through the U.S. Department of Housing and Urban Development (HUD), are meant to be a lender of last resort for companies. Business owners are required to be turned away from at least two banks in order to qualify. But the loans still have to be approved by the PEDP’s 15-member board of directors, which is chaired by Mayor Angel Taveras. The agency’s executive director is Jim Bennett, who also serves as the city’s Economic Development Director. In the year years leading up to Taveras taking office, the delinquency rate of the loans soared, leading HUD to conduct a full review of the agency. That report is expected to be released next week, according to HUD spokesperson Rhonda Siciliano, who said the agency now has to approve certain PEDP loans before they are distributed.
During GoLocalProv’s initial inquiry into the loan fund, former PEDP executive director acknowledged that number of delinquent loans was high, but said part of that was to be expected considering many companies only come to the PEDP after they have exhausted all of their options. “As a result our loans are very risky,” Deller said at the time. “Second, given this risk and the present economic climate, we have greater potential for delinquency. With that said, 25% delinquency is high. However, it is not our goal to put people out of business, but to give them every chance to succeed. We are concerned, we will work with our clients to give them every opportunity to succeed and we will continue to evaluate new loans to ensure that we aren’t taking too much risk.”
Councilman Calls for More Oversight
But while the PEDP may have the best intentions, Councilman David Salvatore said it is still in need of more oversight. Salvatore, who is expected to be named chairman of the Finance committee this week, said he is committed to taking a closer look at the agency. “The difficulties of the economy coupled with the City Council’s fiduciary responsibility to taxpayers, give good reason for expanded oversight surrounding economic development loans,” Salvatore said Monday. “The City Council’s committee on finance is committed to exploring oversight resources in the months to come.”
Salvatore said he understands the city needs to look for ways to improve the business climate, but it must continue to do its due diligence when it comes to investing.
“The bottom line is we must continue to look at new ways of curbing costs, while promoting economic development in Providence,” Salvatore said. “Clearly, if a municipality is participating with credit, then, as in the case of any other competent lending organization, the City of Providence should require an oversight process.
State Expands Controversial Film Credit Program
Fox recused himself from the floor vote on the budget article that expanded the credit program and he stayed away from discussions about it out of an abundance of caution, said spokesman Larry Berman. “He doesn’t even know what their eligibility would be,” Berman said, referring to PPAC.
The expansion of the program is favored by the broader arts community, although it was PPAC that first came up with the idea, according to Lisa Carnevale, spokesperson for Rhode Island Citizens for the Arts. And it was PPAC that requested lawmakers file the necessary legislation, according to Berman. “Again, we’re doing something like 38 Studios,” said state Rep Karen MacBeth, D-Cumberland. “We’re picking one business and we’re putting all our eggs in one basket.” But Berman said the legislation was not written for PPAC. “There’s really nothing that prevents the Dunkin Donuts Center from hosting a theatrical production,” Berman said.
Dunkin Donuts Center: We were excluded
Officials at the Dunkin Donuts Center, which has a maximum seating capacity of 14,000, said that, in theory, a Broadway show could play at their venue. But that has never happened and the center has no interest in doing so in the future, said Larry Lepore, the general manager. “It is not an arm of our business,” Lepore said. “We have plenty of competition throughout the New England area. We don’t need to compete with PPAC.” In fact, Lepore said the Dunkin Donuts Center had tried to get included in the bill. He said he had suggested the tax credit be modeled after a law in Louisiana which would allow a touring concert—say, Bruce Springsteen—to qualify for the credit if the development, rehearsals, and opening of the show were held at the Dunkin Donuts Center.
Lepore said he did not speak with lawmakers directly about the bill. Instead, he said he approached the president of PPAC, J.L. “Lynn” Singleton, who also happens to be one of the former board members for the state Economic Development Corporation that voted in favor of the 38 Studios deal. Lepore recalls that Singleton—who did not respond to a request for comment yesterday—was receptive to his idea. But the final version of the bill didn’t have it. “It was apparently taken out of the bill and that excluded us,” Lepore said. “One day we were included and the next day we weren’t included.”
Senator: Economic development, not insider politics
The lead sponsor of the original Senate bill, Sen. Josh Miller said that’s because “adventurous” arena shows like the ones at the Dunkin Donuts Center don’t have the proven track record of economic development that Broadway shows at the PPAC do. (Miller’s bill, along with its House counterpart, eventually got absorbed into the House budget, which passed last week.) He denied that the deal was yet another example of insider politics at work. “I don’t think it’s ‘insider.’ It’s the venue that’s appropriate for that type of production,” Miller said. “That type of production has a proven track record of economic development.” Miller said the goal was to create a vibrant theater and film industry in Rhode Island. Under the current program, once film productions are over, those who had worked on them either move to other states to find work or go unemployment, according to Miller. Plus, the film program, which allows up to $15 million in total credits annually, has been gradually languishing. In 2010, $11.4 million in credits were issued, as compared with $5.4 million last year, and $2.7 million so far for 2012, according to Peter McVay, the state associate director of revenue. Miller said expanding the credits to musical and theatrical productions would help spawn a year-round industry with jobs that are common to both types of productions—stage hands, set designers, carpenters, and costume designers.
Arts community on board
The change also has broad support in the arts community, according to Carnevale. “We would be immediately competitive, as there is no other state or city nearby that has this incentive,” she said. “Rhode Island is now one of the first to offer this. It should produce great economic benefit.” One of the theaters that was excluded also voiced support for the new law—The Trinity Repertory Company, which actually consists of two theaters, one seating about 240, the other about 540. “The legislation so widely excludes us I think it’s a non-issue,” said spokesperson Marilyn Busch. “We’re supportive of all the arts in Rhode Island. Period.”
Mazze agreed that expanding the program to music and theater is a positive move—as long as it is open to everybody. He also praised the legislation for dropping the budget threshold at which a production would qualify—from $300,000 to $100,000. But he disagrees with Miller that the expansion should be limited to venues like the PPAC. “Once you start doing things subliminally … this becomes a cash register for people either paying off political favors or looking for political favors.”
Another insider deal?
PPAC is not the only politically connected entity ideally positioned to benefit from the new legislation.
Also at issue is who would be selling the lucrative tax credits to finance the productions. The current film tax credit market is largely dominated by two individuals, Anthony Gudas and attorney Michael Corso, according to sources who are familiar with the market in Rhode Island.
The new theater credits are incorporated into the tax credit program, fall under the same $15 million annual cap, and would be administered through the state film office. Sources familiar with the market say that Gudas and Corso are the only local players in the film tax credit market best positioned to serve as brokers in buying and selling the new music theater credits.
Corso is reportedly a friend of Fox and is caught up in the botched film tax credit deal for 38 Studios. Neither he nor Gudas responded to calls for comment yesterday. Berman also declined to comment on any connections between Corso and the expansion of the tax credit program.
One state rep, Charlene Lima, D-Cranston, says that the work should not be going to just a select few individuals in a system that she describes as a “favor factory.” Instead, she said the state should regulate who gets to be brokers in the buying and selling of the tax credits. She says production companies should have to rotate through a list that has been vetted by the state Attorney General.
Miller told GoLocalProv that the idea is not one he dismisses.
‘Scandal finds money’
Under the version of the legislation that did pass, individual credits of up to $5 million may be issued to film, music, or theater productions. However, that limit can also be waived by the state tax administrator, raising yet another red flag for some.
“Go back to Bob Watson’s quote, ‘scandal finds money” and this is making big money available,” said state Rep. Laurence Ehrhardt, R- North Kingstown. “One has to wonder where it comes from.”
Setting aside the debate over the merits and mechanics of expanding the tax credit, some say it just isn’t the right time to do it in the first place—not in the wake of the 38 Studios scandal and the pending investigations by state and federal authorities.
“We oppose the expansion given the inside baseball associated with those tax credits,” said Lisa Blais, spokesperson for the Ocean State Tea Party in Action. “We oppose expansion given the fact that higher taxes and fees continue to be imposed on working people to feed Rhode Island’s structural deficit while taxpayers’ money is used for legislative grants. We need balance, transparency and a long-term plan not just more of the same practices created in silos.”
Study: RI’s swing voters make it ‘most elastic state’ in the US
Rhode Island never makes lists of the pivotal presidential swing states, and for good reason – only two states backed Barack Obama by a more lopsided margin in 2008. Nevertheless, one influential political prognosticator says Rhode Island voters are the most elastic in the country. Seeking a new way to slice and dice the 50 states ahead of November’s election, New York Times numbers guru Nate Silver created a formula to measure the elasticity of each state’s electorate based on how many true swing voters it has – voters who are open to supporting either party.
Rhode Island came out on top. Here’s how Silver explains it:
Rhode Island has a lot of swing voters and a lot of Democratic base voters, but very few Republican base voters.
In recent presidential elections, these Rhode Island swing voters haven’t been persuaded by the conservative options offered by Republicans. In these cases, where many or most of the swing voters side with Democratic base voters, the Democrat will win by a wide margin.
However, if the swing voters have a Republican option that is more suitable for them, they may break from the Democrats and give the Republican a narrow victory. This can be seen in gubernatorial elections, for instance, where the Republican or the independent candidate is selected locally and may be a better fit for Rhode Island moderates.
Silver’s conclusion fits with the long-running debate over whether Rhode Island is truly a blue state. Its two major parties are really Democrats and independents, with Republicans more or less a small third bloc. That’s why no Democrat has won the governor’s office since 1992 – coalitions of independents, Republicans and dissident Democrats picked the Republican four times and then, in 2010, an ex-Republican independent. By Silver’s calculations, five of the seven most elastic U.S. states are in New England: Rhode Island, New Hampshire, Maine, Vermont and Massachusetts. Again, that makes sense – Massachusetts has elected plenty of Republican governors and even a Republican U.S. senator, Scott Brown, just two years ago. However, out of that group only New Hampshire is a presidential swing state, because only New Hampshire has a sizable Republican base and consistently GOP-friendly independents.
Silver’s analysis also offers insight into the race between David Cicilline and Brendan Doherty.
Cicilline wants 1st District voters to link Doherty with Romney and the national GOP that those voters don’t support; Doherty wants them to see him as his own man, an acceptable choice despite the “R” after his name on the ballot, like Don Carcieri, Linc Almond and Ron Machtley before him. Put another way, Cicilline will try to run a national race – which Democrats always win here – while Doherty will try to run a state-level race, where Republicans usually have a fighting chance. David Scharfenberg has more on that dynamic.
Sasse knocks lawmakers for papering over unbalanced budget
There was much self-congratuling at the General Assembly over the last week and a half as lawmakers praised each other for balancing Rhode Island’s 2012-13 state budget without imposing all the new meals and sales taxes Governor Chafee proposed.
Not so fast, says veteran policymaker Gary Sasse. Democratic legislative leaders not only opened up bigger deficits down the road than Chafee – they also used a one-time fix to make the numbers work, which means there’s already a $148.9 million deficit projected for 2013-14. “A structurally balanced budget is achieved when current expenditures do not exceed current revenues, [meaning] revenues generated in the budget year,” Sasse told WPRI.com in an email. “The FY 2013 budget adopted by the General Assembly is balanced by the use of a nonrecurring $93.9 million free opening surplus.”
Lawmakers’ budget spends $8.1 billion, about $156 million more than Governor Chafee proposed back in February. He later suggested using the $93.9 million one-time surplus for “one-time expenses” such as moving state offices and promoting economic development, but lawmakers didn’t go for it. Using the one-time surplus for annual costs “effectively represents a significant structural deficit in the budget that begins on July 1,” Sasse said. “It was this type of budgeting that contributed to the state’s fiscal challenges. If we do not learn from history we are bound to repeat our mistakes.”
The House voted 57-15 to pass the budget June 8 at 3:38 a.m., and the Senate voted 30-7 to pass it Monday at 9:21 p.m. The tax-and-spending plan is now on the desk of Governor Chafee, who’s suggested he’s unlikely to reject it since lawmakers would likely just override his veto.
Senate Finance Committee Chairman Daniel DaPonte defended the measure: “This budget represents very difficult choices and tries to strike a balance between making critical investments to move our economy forward … while limiting the impact the budget will have on taxpayers so they can take care of their families.”
Chafee’s predecessor, Republican Gov. Don Carcieri, allowed the final budget passed during his tenure to become law in 2010 without his signature, after having signed the previous two. Carcieri’s final veto of a budget put together by Assembly Democrats came in 2007; lawmakers overrode his veto within hours.
Gary Sasse served in Carcieri’s cabinet after a long career at the Rhode Island Public Expenditure Council.
Arlene Violet: ‘Rookie’ mistakes continue to cost R.I. a fortune
Earlier this month, Rosemary Booth Gallogly, director of revenue for the State of Rhode Island, was on “Newsmakers,” where she discussed the 38 Studios transaction. It was so striking to see that the State of Rhode Island constantly proves inept on making and monitoring any of these so-called “deals.” Here are just a few examples as to why the state or its quasi-public agencies should get out of picking winners or losers. Many of you readers will recall the RISDIC collapse in 1990 and the humongous costs in making account holders somewhat whole. These credit unions with little insurance for customer accounts loaned money to favorite “developers” (aka politically connected people), without requiring personal guarantees, a fact that put all taxpayers instead on the hook.
Fast-forward 20 years to the Curt Shilling deal. No personal guarantee for the loan was asked of him. He is not in bankruptcy. His residual funds are safely ensconced in financial institutions so he can live the style to which he has become accustomed. The taxpayers must now pony up to cover the bonds. The bonds yielded upwards of 7 percent interest until 2020. The interest is high because presumably the full faith and credit of the state wasn’t pledged, which would have had a yield in the 2- to 3-percent range otherwise. Yet, the governor will, in effect, act as though it were, by paying the full tab. The bonds have reinsurance. There has been no satisfactory answer as to why that insurance coverage to pay the bonds hasn’t and won’t be tapped. That’s what the state paid premiums for, so put in a claim.
Readers who are bondholders also know that their bonds have early call dates, so a municipality or a company can cut the interest payments by calling for the principal and accruing interest to end at the call date(s). Ms. Gallogly stated that the deal negotiated for 38 Studios by the Carcieri administration has a call date before 2020, but there were so many added provisions and penalties to do so that the cost savings would be virtually negligible because of these onerous terms! How is it that just about everybody else who offers bonds know how to hedge its ultimate costs but Rhode Island leaders don’t? The Economic Development Corporation (EDC) apparently had a “brain trust” making these decisions and the board members failed miserably.
Further evidence that the state still doesn’t get it was the almost-successful legislative effort to pass the East Bay Energy Consortium (EBEC) which would have turned the three-year-old volunteer group into a new quasi-public agency with the capability to obtain as much as $60 million in revenue bonds to start a small wind farm in Tiverton. No competent feasibility study and analysis had been done. Even the Deepwater windmill project had to be vetted by the Public Utilities Commission. The “volunteers” do not have the credentials, even ostensibly, to monitor such a project as documented by their lobbying for passage in advance of any competent study. The claim that the state doesn’t have to back the bonds is specious since the same tired explanations in vogue now to bail out the 38 Studios bond would be recycled. Putting EBEC into competition with private developers would crush any private investment because the EBEC will have an unfair competitive advantage. But for the House balking at the bill’s language, EBEC would have been in business as far as the Senate was concerned. Unfortunately, the “rookie” mistakes in this state continue to cost us a fortune. It’s a travesty.
OUR STATE LEADERS ARE VERY FORGETFULL
The $75-million state loan guarantee granted to Curt Schilling’s 38 Studios, now bankrupt, is not the first time Rhode Island taxpayers backed a one-company deal in the hopes of sparking new jobs in a new industry.
There are similarities: The Rhode Island Economic Development Corporation sold $29 million in bonds in 1993 to lure Alpha-Beta from Worcester, Mass., in a competition between the two states for biotechnology manufacturing jobs. Proceeds from the state bond sale were used to build Alpha-Beta a new plant off Route 7 in Smithfield. Rhode Island’s leaders were betting on the company’s development of its lone product, Betafectin, an experimental drug to treat infections in gastrointestinal patients. But when the drug Follow John Kostrzewa’s posts at www.providencejournal.com/business and at www.facebook.com/johnkostrzewa
38 Studios not the first failed in clinical trials, Alpha-Beta filed for bankruptcy and defaulted on paying back the bonds, leaving taxpayers on the hook. State officials reduced the taxpayers’ loss by refinancing the bonds and then selling the closed plant to the Collaborative Group of New York. The plant changed hands again after Collaborative moved out and Dow Chemical Co. moved in. After Dow left, Alexion, based in Connecticut, took over the facility, upgraded the equipment and still makes Soliris, a drug to treat a rare blood disorder, at the plant.
But the idea in 1993 that Alpha-Beta, backed by state taxpayers, would become the hub of a cluster of biotech companies never panned out. Neither did state officials’ plans to bring 38 Studios here to form the hub of a video-game industry. The bankruptcy could cost taxpayers up to $102 million to pay back the bonds sold to get Schilling and his company to move from Maynard, Mass., to Providence.
Not much left of the $75 million
The bankruptcy filing by Curt Schilling’s 38 Studios on June 7 raised taxpayers’ questions about what’s left from the proceeds of the $75 million in bonds sold in 2010 to attract the video-game company to Rhode Island. The quick answer is not much. Here’s the breakdown:
$47.4 million — paid to 38 Studios. Rosemary Booth Gallogly, director of the state Department of Revenue, said that money is gone.
$12.7 million — set aside in a capital reserve fund for one year of principal and interest payments on the bond if 38 Studios doesn’t make them in 2013.
$10.6 million — set aside in a capital interest account to make interest-only payments on the bonds in 2011 and 2012.
$2.1 million — placed in a reserve fund to guarantee lease payments at 38 Studios offices at One Empire Plaza in Providence. The status of that money is unclear because in its bankruptcy filing, 38 Studios said it had a liability of $10 million in lease payments.
$2.2 million — paid in fees for bond underwriters and lawyers, bond insurance, trustee fees and analytical services.
Judge overseeing liquidation a sailor
Judge Mary F. Walrath has been assigned to preside over the liquidation of 38 Studios and three affiliated companies that Curt Schilling set up to operate a video-game enterprise from Providence but later went bankrupt. Walrath will oversee the case from U.S. Bankruptcy Court for the District of Del-aware, but at least in one regard she has something in common with many Rhode Islanders she’s a sailor. Walrath started out sailing as a young girl vacationing with her family in New Jersey. She reportedly ordered her first sailboat through the Sears mail-order catalog and over the years developed her skills to sail to the British Virgin Islands and the Baltic.
Walrath received her undergraduate degree from Princeton University and her law degree from Villanova University. 38 Studios and the affiliates filed for Chapter 7 under the bankruptcy code. A creditors’ hearing in Delaware is scheduled for July 10.
Schilling mum on his plans for future: What does a 45-year-old future Hall of Famer with three World Series rings do after he runs his first, big business enterprise into bankruptcy? Who knows.
ASSEMBLY 2012, GOOD, BAD, UGLY
Rep. Robert A. Watson, the acerbic East Greenwich Republican who is leaving the General Assembly after more than two decades, blasted changes made to a bill during the frenzied final hours of this year’s legislative session. “If this is the way we do business, we should be doing it behind closed doors,” he cracked, “because it’s utterly grotesque to see, in form and in fashion.”
Now, you’ll never see the words “utterly grotesque in form and fashion” etched on the State House marble, but perhaps they should be, given the annual paroxysm of last-minute amendments, the 3 a.m. votes, the litany of outrages. At the same time, Watson’s comments stemmed from a bill that strengthens the Access to Public Records Act, which shows that the session produced both long-overdue improvements and late-night mischief. With good reason, outrage mounted when a bill giving owners of auto-body shops the right to sue insurance companies cleared the Assembly at 2:58 a.m. Wednesday after an eleventh-hour push by relatives of Rep. Peter J. Petrarca, D-Lincoln, whose father runs Providence Auto Body. The process was so objectionable that a sponsor, Rep. J. Patrick O’Neill, D-Pawtucket, voted against it.
But the Assembly also increased state education aid by $33 million in a difficult budget year.
Outrage mounted when the Senate confirmed the latest batch of magistrates with ties to the legislature, feeding an “I-know-a-guy” system that reflects not only on lawmakers but also on members of the independent judiciary who make such appointments. But the Assembly also restored and even increased grants for programs, such as Rhode Island Meals on Wheels, that help older residents remain at home. Outrage mounted when a bill limiting interest on payday loans never made it to the floor for a vote, although it was cosponsored by two-thirds of the legislature. But the Assembly also improved the state’s incredibly weak Access to Public Records Act, drawing praise from open-government advocates and law-enforcement officials.
Let’s take a closer look at those last two items.
Early in the year, religious leaders said one concrete way to fight poverty would be to stop payday lenders from charging annual percentage rates of up to 260 percent. Payday lenders can provide loans of up to $500 that are intended to be paid in full in two weeks. Critics say such loans can trap borrowers in a cycle of debt when they can’t repay the original loan and take out new loans. Rep. Frank G. Ferri, D-Warwick, and Sen. Juan M. Pichardo, D-Providence, introduced bills calling for a 36-percent cap on those annual interest rates. But their bills died in committee, even though about two-thirds of the House and Senate signed on as cosponsors. Advocates said that showed the influence of former House Speaker William J. Murphy, D-West Warwick, who received $50,000 from payday lender Advance America to lobby against the bill. “It is sad to me that the voice of the community and of 26 senators and 50 House members are not being heard, but the voices of a lobbyist and of out-of-state companies are being heard,” said Margaux Morisseau, chairwoman of the Rhode Island Coalition for Payday Reform.
House spokesman Larry Berman noted that advocates hired an influential lobbyist of their own in former Senate Majority Leader Daniel P. Connors, D-Cumberland. And he questioned the significance of the number of cosponsors, noting that only the top five cosponsors are listed and that Rep. Lisa Baldelli-Hunt, D-Woonsocket, didn’t get nearly enough signatures to pull another payday-loan bill out of committee. Berman said advocates refused to sign onto a “compromise bill” offered by Sen. Joshua Miller, D-Cranston. “Speaker [Gordon D.] Fox listened, and there was quite a bit of merit on both sides of the argument. He was comfortable with Senator Miller’s compromise language. There was a lot of good regulatory language in it, but the advocates said they’d rather have nothing.”
The Rev. Donald C. Anderson, executive minister of the Rhode Island State Council of Churches, said Miller’s bill was no compromise at all because it did nothing about interest rates. While it called for a database and some regulatory provisions, those steps haven’t made a difference in other states, he said. One proposed compromise would have capped the number of payday loans you could get in a year, but the industry rejected that idea, he said. “If Senator Miller’s bill passed, it would put off real reform for years, because they’d say, ‘We haven’t given this approach a chance to work.’ That’s Politics 101,” Anderson said. “We want to solve this problem and not continue to see Rhode Islanders gouged by out-of-state firms.”
While the payday loan bill died, the House voted 65 to 2 and the Senate voted 37 to 0 to overhaul the Access to Public Records Act for the first time in 14 years.
The legislation — sponsored by Rep. Michael J. Marcello, D-Scituate, and Sen. James C. Sheehan, D-North Kingstown, and backed by Attorney General Peter F. Kilmartin — adopts a balancing test between the public’s right to know and “clearly unwarranted” invasions of privacy, a standard drawn from the federal Freedom of Information Act. It provides that all public pension records and contracts with public employees are public information. And it increases fines for willful violations.
Channel 12 investigative reporter Tim White, a New England First Amendment Coalition board member, said Rhode Island has been “in the Dark Ages” on public records, and while this bill doesn’t contain everything sought by advocates, “it is certainly a step in the right direction.” But now supporters fear the bill might be vetoed by Governor Chafee, whose office has been raising objections since April 24. “This bill contains provisions that are impossible to implement,” executive counsel Claire Richards wrote June 6. “This bill eliminates the bright-line definition of non-public records” and “may result in an increase in lawsuits.”
Marcello said that as a former U.S. senator, Chafee must realize the federal government has been implementing the Freedom of Information Act for decades, providing precedent to guide Rhode Island. Also, he said, “The attorney general is ultimately responsible for interpreting and enforcing the statute, and he hasn’t said it’s unworkable.” On Friday, the National Freedom of Information Coalition told Chafee: “Similar balancing schemes have been in place in Arkansas, Wisconsin, Connecticut and New Hampshire for many years without giving rise to a spate of lawsuits.”
White said that while an official might try to use the balancing test to hide a document, the public is bound to see more records than it does under existing law, which offers the public no chance of seeing a broad range of documents “identifiable to an individual.” White said: “The message to the governor is: You campaigned on the ABC’s, with the C being corruption, and if you want to follow through on your campaign promise, put pen to paper on this one.” While the legislative process is grotesque and the bill is imperfect, the status quo on public records law is abysmal. So, bottom line: Governor, sign the bill
CHAFEE SIGNS $8.1 BILLION BUDGET INTO LAW
PROVIDENCE –– Governor Chafee signed into law on Friday an $8.1 billion state budget that increases the cigarette tax to $3.50, opens the door to tolls on the Sakonnet River Bridge, and expands the state’s 7-percent sales tax to clothes and shoes costing more than $250, taxicab and limousine rides, pet grooming services and more. In a statement, he called the budget for the year starting July 1 “by no means a perfect” one, but one with at least some measures to “improve Rhode Island’s competitiveness” and help it reach a “more stable and prosperous future.” Chafee had submitted to lawmakers a $7.9-billion budget in late January, but it took the General Assembly until Monday –– just days before it recessed for the summer early Wednesday morning –– to pass the final version.
For Chafee, an independent governor elected in 2010, the tax-and-spending plan represents a partial victory. Some of his more significant revenue proposals made the cut, including parts of his sales tax plan, the 4-cent cigarette tax increase and the possibility for tolls on the Sakonnet Bridge. But the governor’s more controversial budget plans fell by the wayside. Chief among them was a proposal to increase the state’s meals and beverage taxes from 8 percent to 10 percent in order to boost state aid to local school districts.
The Democrat-controlled legislature boosted school-aid payments by some $33 million, as Chafee suggested, but it did so without raising the meals tax. And after hearing strong objections from the business community, lawmakers also rejected the governor’s plan to impose a total of13 percent in local and state hotel and lodging taxes on bed and breakfast inns and certain vacation homes, as well as his idea to expand the sales tax to car washes and moving, storage, warehousing and freight services.
Chafee said he was pleased lawmakers backed down from those tax increases, in light of improvements in the state’s revenue outlook. “Throughout this process, I urged the General Assembly, if May [revenue] numbers were improved over November estimates, to remove some of the difficult taxes and spending cuts contained in my budget recommendation,” he said. “I am pleased that they were able to do so.” He also applauded lawmakers for allocating $3.9 million toward efforts to redevelop land in downtown Providence opened up by moving Route 195, as well as for including budget provisions asking voters in November to approve capital projects such as building upgrades at Rhode Island College and a new veteran’s home in Bristol.
But Chafee expressed disappointment that lawmakers did not fully embrace his plans to provide financial relief to Rhode Island’s cities and towns by giving local officials additional powers to cut costs, change working conditions and curtail pension expenses. He said lawmakers adopted only the “easiest portions” of his so-called “municipal reform and relief” legislative package, and backed away from “meaningful changes.” “Several Rhode Island communities are on the brink of bankruptcy, and this failure could have consequences as soon as this summer,” Chafee said.
Bryant University’s Gary Sasse, who served under Chafee’s Republican predecessor, former Gov. Donald Carcieri, meanwhile, called the budget Chafee signed into law a “step back” for Rhode Island. Among the primary problems, he said, is that the budget relies too heavily on “non-recurring,” onetime revenues to plug budget holes, leaving the state with deficits in future years. “It was this type of budgeting decisions that contributed to the state’s past fiscal challenges,” Sasse said. “If we do not learn from history we are bound to repeat our mistakes.”
CONTRACTS WITH 17 STATE UNIONS TO EXPIRE JUNE 30
But officials say talks will begin soon and no changes in terms will occur when pacts end
PROVIDENCE — The contracts with 17 unions that represent nearly 9,000 state employees are to expire on June 30, and both the unions and the state say it’s a given that there won’t be any new deals in place on July 1. But neither side appears to be concerned.
Officials on both sides of the table said this week that they are just getting started and hope to get down to business with their negotiations in the coming weeks. In the meantime, the terms that were in place for the fiscal year that will end June 30 will remain for the fiscal year that will begin July 1, both sides say — meaning no pay raises but also meaning no givebacks or concessions on benefits or anything else. Should the negotiations ultimately result in raises, it is not clear how the state would pay for them. The $8.1-billion budget that state lawmakers approved this month for the new fiscal year contains no money for employee raises, other than step increases that will go to some of the state’s “newer employees,” Director of Administration Richard Licht said.
That means state officials would have to find the money to pay for any negotiated raises, perhaps through savings by not filling positions or through a “supplemental budget” request that would be made later in the fiscal year to deal with changes since the budget was adopted. “There’re lots of different ways to pay for it,” Licht said, “… if it ever got to that situation.”
Both sides were tightlipped about the nature of the negotiations and on which issues they will focus. “We’re talking and I’m cautiously optimistic that at the end of the process we’ll come up with something that we’ll both be happy with,” said Philip Keefe, president of Local 580 of the Service Employees International Union, which has about 1,000 members who will be affected. While Keefe said the unions felt mistreated under the administration of former Gov. Donald L. Carcieri — who ordered furlough days at one point to save money until the unions went to court and blocked the plan — said he is hopeful that negotiations with the Chafee administration will go more smoothly.
Robert Walsh, president of the National Education Association Rhode Island, said 16 of the 17 unions with contracts that will expire June 30 met with Licht last month and plan to negotiate as a group on big-picture issues. “That’s a pretty logical way to do it,” he said. “There are the local issues and the big issues.” J. Michael Downey, president of Rhode Island Council 94 of the American Federation of State, County and Municipal Employees, or AFSCME, which represents about 4,000 state employees, said his union will be negotiating separately. “I would expect things would get moving pretty soon,” he said.
Licht said 17 of 18 state employee unions have contracts that are to expire June 30. The exception is the one made up of state police troopers, but they also will be negotiating, he said, because they have a “wage reopener” and have “asked to reopen.”
Texas Town Defies Atheist Group, Reinstitutes Prayer at Government Meetings
A small Texas town has taken a bold stand for prayer and patriotism. CBS News reported that on June 12 the city council of Weatherford, a west-central Texas community, voted four to one to bring back the tradition of a regular invocation, as well as the Pledge of Allegiance to both the state and U.S. flags, following a 37-year absence of the rituals. The move was pushed by the Parker County Ministerial Alliance, a local group of Protestant ministers, who said they were saddened by the nearly four-decade omission. According to the Fort Worth Star-Telegram, the group has taken the responsibility of arranging for local religious leaders to offer the one-minute invocation at the council meetings, and has promised to allow leaders of other faiths in the area to participate if they wish.
The Star-Telegram noted that some residents had proposed a moment of silence instead of the prayer, which Father Scott Wilson (pictured at left), rector of Weatherford’s All Saints Episcopal Church, aggressively opposed before the council. “While we understand this effort to satisfy a variety of citizens — for us it’s not adequate,” testified Wilson, a member of the Ministerial Alliance. “We know that members of the city council pray privately before they begin their sessions and certainly that should be beneficial for those that pray. But a corporate prayer goes a great deal further; it becomes beneficial to the whole city.”
Wilson emphasized that an invocation would demonstrate that Weatherford is a city under God. “Our city council is a pinnacle of leadership of Weatherford and effectively for all of Parker County,” he said, explaining that “a prayer to God at this meeting is asking him to guide us, provide for us, preserve our culture, our families, our schools and indeed to bring prosperity to our lives.” Wilson urged the council “not to falter under tyranny or bullying of the small minorities whose thoughts are so different than the majority of us.”
Naturally, the atheist Freedom From Religion Foundation (FFRF) entered the fray, sending a letter to the city council admonishing its members that reinstituting the invocation may place the city on the wrong side of the debate over the supposed constitutionality of such prayers. Similarly, local resident Bobbie Narramore complained that the prayer would make those with no faith feel left out. “I am against an invocation,” Narramore declared, as if reading from a page of the ACLU’s talking points concerning the First Amendment. “I am for the separation of the church and state.” He added that “we have Muslims living here. We have Jews living here. By having prayer, we’re telling them, ‘Forget you because you don’t have a recognized church.’”
One council member, Mayor Pro-Tem Waymon Hamilton (pictured at right), who voted against the measure, expressed his fear over potential lawsuits filed by area residents recruited by the FFRF/ACLU axis. “If we do get into litigation over this, it will be the taxpayers that would in all likelihood pay for it,” Hamilton warned. “Win, lose, or draw, the only one that wins is the lawyers.” Hamilton insisted that he had nothing against prayer in general, saying that he often whispers one privately before council meetings. “I am not opposed to prayer,” he said. “The Lord is the one who knows who prays.” But, he added, “putting the taxpayers at risk of litigation is not prudent.”
According to the Weatherford Democrat, council member Jeff Robinson, who made the motion for the prayer-and-pledge addition, pointed out that the cities of Dallas and Fort Worth, as well as the U.S. Congress, open their sessions with prayer, a solid precedent that Weatherford should follow, he lobbied. “When I look at the fact that the Supreme Court of the United States has a prayer prior to starting each session, and the Senate and the House of Representatives, both in the United States and in Texas, have a prayer to each of their meetings, it’s something that I would very much like to see us do,” Robinson told his fellow council members. “Praying on your own is great, but when you pray as a group I think great things can happen.”
City of Woonsocket asks state to take over schools
WOONSOCKET, R.I. (AP) — The city of Woonsocket is officially asking the state of Rhode Island to take control of its public schools. WPRI-TV reports the city is sending a letter to Education Commissioner Deborah Gist saying its school committee can no longer meet its responsibilities of educating students and operating with a balanced budget.
The school department is facing a $10 million budget deficit: The General Assembly adjourned early Wednesday without approving a special tax increase on city residents to close the budget shortfall. The bill that would have imposed a 13 percent supplemental property tax stalled in the House. State Revenue Director Rosemary Booth Gallogly says the failure to authorize the tax could lead to sharp cuts to services or municipal layoffs.
KEITH STOKES TO RECEIVE BIG SEVERENCE PAY, IS IT PAY TO KEEP IS MOUTH SHUT?
Former EDC director will receive $63,955 in pay, benefits
PROVIDENCE –– Keith W. Stokes is entitled to receive $63,955 in severance pay, which includes 13 weeks of pay beyond the date of his departure from the Rhode Island Economic Development Corporation, from which he resigned as executive director amid the financial collapse of Curt Schilling’s video-game company. Stokes’ severance package — including $46,250 in extra salary — is outlined in a separation agreement he signed with the state agency on June 6, according to records released by the EDC in response to a public-records request from The Providence Journal. The total amount of severance includes medical and dental benefits and accrued vacation and personal time, EDC spokeswoman Judy Chong said Wednesday.
In return for that severance, Stokes agreed not to disclose any confidential information about the EDC and not to make any derogatory or disparaging comments about the agency, the state of Rhode Island, the governor or the governor’s office — “in any manner to any person or electronically through any social media or otherwise,” the statement says. In addition, Stokes agreed not to sue or to allow anyone on his behalf to sue the agency with regard to any claims arising out of his employment or termination. The severance benefits will terminate, the agreement says, if Stokes begins working “with an agency, department or instrumentality of the State of Rhode Island, including without limitation any office of the General Assembly, the Department of Administration, or any public or quasi-public agency (but not including any municipality or agency thereof).”
Stokes, 53, did not return calls for comment.
The agreement entitles Stokes to payment for accrued but unused vacation time through Aug. 15 of this year and for any personal time accrued through the date he left the agency, which was May 16. That was the day the EDC held an emergency meeting with Schilling to discuss finances and his efforts to secure additional investment for his company, 38 Studios. When Stokes resigned, he was earning an annual salary of $185,000 with a $400 monthly automobile allowance, the same terms under which he accepted the position of executive director of the agency back in January 2010. Then-Gov. Donald L. Carcieri hired Stokes, and Governor Chafee decided a year later to retain him as director of the agency charged with creating and retaining jobs. The separation agreement, dated May 24, said Stokes had at least 21 days to consider whether to agree to its terms. He was allowed to revoke the agreement for seven days following the June 6 date on which he signed it.
The agreement outlines that Stokes will be paid those 13 weeks of severance in biweekly installments beginning the week after his resignation and as part of the company’s payroll. A 2010 letter about his hiring notes that Stokes was eligible for 15 days of vacation that July. That letter also notes that 5 personal days and 12 sick days were to be awarded annually on July 1. He also earned 10 paid holidays each calendar year.
38 STUDIOS INVESTIGATION
Secret Documents Reveal True Risks of 38 Studios
Stephen Beale, GoLocalProv News Contributor
A confidential investment memo obtained by GoLocalProv reveals in painstaking and dramatic detail the true risks of the 38 Studios venture back in 2009—in marked contrast with the highly optimistic picture that consultants and staff presented to board members of the state Economic Development Corporation one year later. The document, technically known as a Private Placement Memo, was issued on May 1, 2009 by 38 Studios in a bid to secure $25 million in investment funds. The memo pulls no punches in describing the investment opportunity as “highly speculative and inherently risky.” It warns that membership interests in the company should be purchased only by those “who can afford to lose their entire investment.” The longest section of the 37-page memo is devoted to spelling out 16 categories of risk—the unique unpredictability of the video game market, the challenges of launching in overseas markets, and the inherent risk in investing in a brand new company where the success of the venture rested on a few key individuals, to name a few. “There is no guarantee of the economic success of any video game since the revenue derived from the production and distribution of a video game depends primarily upon the video game’s acceptance, which cannot be predicted,” the memo concludes. The memo is not mentioned in any of the meeting minutes or listed in any of the public documents the EDC has released regarding the deal with 38 Studios, the video game company founded by Red Sox star pitcher Curt Schilling.
Would memo have torpedoed deal? “The worst part of this deal is that all of the risk—all of the risk—went to the taxpayer. If this document had come out at the time the deal … was being made there would have been an uproar,” said Ed Mazze, business professor at the University of Rhode Island. In contrast to that memo, the three public slideshows presented to the EDC board of directors in the summer of 2010 devote a total of just two slides out of 38 total to discussing the risks, which had been whittled down to four brief bullet points. (Click here and here to view two of the slideshows.) And, in the space of two meetings prior to the vote approving the $75 million loan guarantee, the negative risks involved were discussed just twice. Instead, the presentations from three consultants and EDC staff dwelled on the lucrative opportunities in a $72 billion global industry, which they predicted would nearly double by 2013. One after another slides flashed charts and other graphs showing the rapid growth in video game use among youth, U.S. subscriptions to massively multiplayer online games, and software sales as compared with hardware. One slideshow was devoted entirely to the hypothetical scenario of creating a cluster of video game companies in Rhode Island, with 38 Studios as an anchor.
‘Due diligence’? In comparing the investment memo with the public presentations at the EDC meetings, it is clear that EDC board members—at least publicly—not only were not briefed on the full extent of the risks involved, but also that there were a number of additional risks that were not disclosed during the public board meetings. “To me if you had a 30-slide show, perhaps 10 of them should have been on risk,” said state Sen. Ed O’Neill, an independent from Lincoln and a retired executive with Texas Instruments. During his 35-year tenure with the company, O’Neill recalled his involvement in a number of complicated acquisitions, which he said required extensive due diligence. “We didn’t just peel the surface on those. We peeled 20 layers down to the core,” he said. The confidential memo raised three questions for businessman Ken Block, the founder of the Moderate Party and a critic of the deal: Did the EDC staff even ask for the such documents from 38 Studios? Did 38 Studios provide them? And, if so, were those documents ever shared with EDC board members? “The document you have contains a number of ‘boilerplate’ statements of risk that are standard for any such offering, the question is whether the EDC sought or prepared a comparable analysis of its proposed investment,” said state Rep. Laurence Ehrhardt, R-North Kingstown.
Such questions went unanswered by two spokeswomen for the EDC yesterday. “I certainly don’t see anything referred to that in the minutes,” said Ehrhardt, who was a treasurer for a Fortune 500 company before his retirement. Consultant reports on the video game industry, he added, are “not the same thing as a detailed investigation of the company itself.”
Board members in the dark: In the summer of 2010, the membership of the EDC board, with few exceptions was comprised of heavy-hitting local business leaders—a hospital CEO, a Verizon regional president, the chairman of a top toy-maker and a senior executive at a construction company. The risks listed in the confidential memo are common to the business and investment world, Mazze and Ehrhardt said. As experienced business people, EDC board members would have understood the general risks involved in the 38 Studios venture, Mazze said, but they “would not have understood how serious some of these risks are.” The fact that such risks were minimized during the consultant presentations, Mazze added, made it that much easier for board members to ignore them. “I think they were a load of nonsense,” Mazze said, referring to the presentations, which were delivered by Wells Fargo, Strategy Analytics, and EDC staff. Mazze credited the prodding and “moral suasion” of the Governor and then-EDC Executive Director Keith Stokes with getting the board to approve the loan guarantee.
The type of investment the memo was seeking was riskier than the “secured debt” involved in the EDC deal, Ehrhardt added. “However, if the collateral for the debt was the work product (the game being developed) all the warnings of risk would certainly apply to the potential value of the collateral (particularly in the event of failure) and argue strongly against assigning much value to the collateral thus rendering the statements of various people that the loan was safe because ‘it was secured’ absolutely unsupportable and meaningless,” he said.
Qualifications of board at issue too: The real issue, Mazze said, is the ability of board members to understand the risks involved and interpret the information presented to them. Having a member with banking experience would have been useful. A board member with investment experience—someone like state Treasurer Gina Raimondo, also would have been an asset to the board, O’Neill said. O’Neill also questioned the qualification of the EDC staff, such as Stokes, who has a background in tourism, O’Neill noted. “Does he have the wherewithal to make an assessment on an investment like that? Probably not,” O’Neill said. “You need to have highly skilled, highly qualified people making these decisions.” Efforts were made to reach every single member serving on the board in summer 2010. A handful were unavailable because they were traveling, but most simply did not respond to calls or e-mails requesting comments. Former board member Lynn Singleton, the head of PPAC, declined to comment and former board member Shivan Subramaniam, the CEO of FM Global, responded to a series of specific questions with this statement: “Based on the information provided at the time, I voted along with the majority of the RIEDC board of directors in favor of the state supporting the project. Long term, the future of the Rhode Island economy must be built, in part, on developing a cluster of knowledge-based businesses and creating a qualified and well compensated local workforce that such enterprises demand.” Messages left at the 38 Studios offices in Providence and Baltimore also were not returned.
Unsettling questions linger: Now, a week after 38 Studios declared bankruptcy, unanswered questions continue to pile up. In 2010, EDC board members were assured that a third party would be monitoring 38 Studios and its progress. Two years later, O’Neill wonders why the bankruptcy came as such a surprise. “They should have known when the train was wobbling on the tracks,” O’Neill said. “They didn’t know until it was in the ditch.” “The whole process on this from beginning to end smells,” Mazze said.
EAST BAY RENEWABLE ENERGY BILL DIES IN HOUSE
This Bad piece of Legislation would have allowed communities in the region to build wind farms, and the price of electricity to triple.
PROVIDENCE — Legislation that would have allowed nine East Bay communities to band together to build a wind farm in Tiverton died in the General Assembly before it adjourned early Wednesday morning. Sen. Louis DiPalma’s bill to establish the East Bay Energy Consortium passed in the Senate Tuesday evening but it never came up for a vote in the House of Representatives. DiPalma, D-Little Compton, Middletown, New-port , Tiverton, called the lack of a floor vote in the House “unfortunate.” “All I can surmise is there was still consternation as regards to language in the bill,” he said Wednesday.
The legislation, which would have allowed the East Bay communities to build a wind farm and share in profits from the sale of the energy it generates, had initially drawn opposition because it included a clause giving the EBEC eminent domain power. A subsequent rewrite removed that clause but aroused other concerns, because it would have established the consortium as an arm of the state Economic Development Corporation. DiPalma and other supporters said the move to put the EBEC under the authority of the EDC was necessary to give the consortium bonding authority. But even Governor Chafee, a supporter of renewable energy, was opposed to doing that, raising the possibility that the state could be on the hook if the EBEC defaulted on any bonds issued for the 25-megawatt wind farm. Last Friday, DiPalma submitted the latest rewrite of the bill to the Senate Committee on Environment and Agriculture. It removed the EDC language and would have created the EBEC as an independent nonprofit.
The bill was approved by the committee on Monday in a 5-to-1 vote with Sen. David Bates, R-Barrington, opposed. The vote by the full Senate was closer, with 25 for, 12 against and 1 abstention. Four senators in the East Bay — Bates, Walter Fe-lag, Christopher Ottiano and Frank DeVall — were among the opposition.
Bates had consistently raised questions about the legislation, noting that elected officials in Tiverton, Barrington and other East Bay communities either no longer supported DiPalma’s legislation or were simply unaware of the many revisions. In the House, Rep. Raymond E. Gallison Jr., D-Bristol, Portsmouth, the lead sponsor of a companion bill, substituted it last week with one that would have created a commission to further study the issue over the next six months, rather than establish the consortium immediately. His bill failed to go to a full vote of the House. Gallison said Wednesday that he had reservations with the newest rewrite of DiPalma’s bill because it still included language that created the EBEC as an “agency of the State of Rhode Island.” DiPalma said that he plans to introduce his legislation again in the General Assembly’s next session in January. “I’m sure there will be disappointment on the part of the people that have been working on this for the past three years,” he said.
10 LAST-MINUTE DEALS that Took Place in the General Assembly
Early this morning, lawmakers wrapped up the 2012 General Assembly session following another marathon evening that included votes on more than 100 items.
So what were the key issues considered (or avoided) in the finals days of the session?
Education Boards Merger
Rhode Island won’t have an education chancellor (as originally proposed), but the last-minute plan to get rid of the Board of Regents and the Board of Governors for Higher Education and create a new 11-member Board of Education did come as a shock to many. Critics say the General Assembly made the decision to abolish the two board thanks in part to the Board of Governors’ vote to bypass the legislature and grant in-state tuition to undocumented citizens late last year. The bill was viewed as payback. But lawmakers argue that the new board will help better coordinate and streamline the state’s education systems.
No Supplemental Tax in Woonsocket
The Governor’s office and Woonsocket’s House delegation spent virtually all of Tuesday attempting to draw up a compromise to impose an 8.5 percent supplemental tax on city residents. But a deal was never reached, leading the Chafee administration to accuse the delegation of lacking courage. “Representatives [Lisa] Baldelli-Hunt, [Jon] Brien, and [Robert]Phillips have done their city and their constituents no favors by failing to agree to what is necessary to begin to take steps to truly address the significant challenges facing Woonsocket,” said Rosemary Booth Gallogly, Director of the Rhode Island Department of Revenue.
The delegation meanwhile blamed the Governor’s office for being unwilling to compromise. “We cannot force our residents to pay a 13.8 percent supplemental tax,” said Rep. Baldelli Hunt “We originally started with a five-point plan and narrowed it down to a two-point compromise for the governor. But in the end, he said our proposal for an 8.5 percent tax, which would not have been added to the base, was not large enough.”
The controversial bill that will allow auto-body ships to sue insurance companies for what they believe they are entitled to for repairs has some critics claiming that Rep. Peter Petrarca quietly pulled the strings to push legislation that would directly benefit his father, who is the President of Providence Autobody. Petraca abstained from voting, but those who were against the bill say he orchestrated the entire plan with last-minute re-writes to the legislation. Now critics claim insurance rates could spike by over $160 per person in the state. Supporters of the bill, like Petrarca’s sister, Jina Petrarca, claim insurance rates will not increase and that the new law will actually benefit customers.
Carwashes Pulled Out of Sales Tax
While taxi companies and pet groomers will be forced to bear the burden of a seven percent sales tax, car washes were pulled from the plan after the group that represented the businesses hired Providence Licensing Board chairman Andrew Annaldo as a lobbyist for $10,000. Annaldo argued that car washes provide value to the environment by using less water than citizens who wash their own cars, but critics felt as though well-connected business owners were able to pull strings to benefit themselves.
Assembly Overrides Chafee’s Veto
After Governor Chafee stood up against legislation that would have exempted Warwick property owners from having to connect to available sewers by 2014, the General Assembly managed to override his veto on Tuesday. It was a rare veto for Chafee, who argued that the legislation would damage the financial health of the Warwick Sewer Authority and that cesspools could continue to “threaten public health.” Chafee also said the bill was a step in the wrong direction for water quality.
Access to Public Records
A watered down version of an open records law sponsored by Rep. Michael Marcello and Sen. James Sheehan was finally passed Tuesday evening. The new law will make employment contracts public and will also apply a balancing test that makes most documents that are identifiable to an individual public unless constitute a clearly unwarranted invasion of personal privacy. “Good governments provide their citizens with as much accurate and easily obtainable information as possible,” Marcello said. “We believe the changes being made in this legislation enhance the current law, make it easier for the public to seek and receive information and make more information that is pertinent to the public readily available. I see it as a significant move toward a more open and accessible government.”
For the second straight year, legislation that would have reformed payday lending rates but was opposed by former House Speaker (and now lobbyist) William Murphy never made it a vote in the House. A compromise was discussed throughout the day Tuesday, but the coalition calling for payday lending reform opposed an amended Senate bill and the discussion never made it to the House floor.
GTech had been lobbying hard for a provision in the casino gaming bill that would have allowed the company to avoid spending about $10 million on certain repairs at lottery terminals around the state, but the provisions were not included in the final bill Tuesday. The legislation, which had been in the works for several weeks, will award the state 18 percent of all net revenues on tables games.
Teacher Layoff Notifications
Education reformers were unable to muster enough last-minute support for legislation that would have moved the required teacher layoff notification date back to June 1. It was believed that a compromise was never worked out with labor leaders. The majority of education reform-related legislation was not considered during the 2012 General Assembly session.
A Ban on Tan
After a lengthy discussion, lawmakers voted to restrict young people from using tanning beds without consent from a parent or a doctor’s note. The bill was opposed by those who said the new law would hurt tanning businesses, but lawmakers said they wanted to put the risk to children over business interests. “This should prevent a significant portion of minors from increasing skin cancers including melanoma, which can mean treatment that includes toxic, very expensive drugs with lifelong negative effects, as well a lifetime of risk of reoccurrence,” said Rep. Eileen Naughton. “Since tanning can release endomorphins, it can also be addictive. Just like cigarettes, tanning should be regarded as something that is too dangerous for kids.”
WOOSOCKET FACES RECEIVERSHIP
Mayor: City’s options are now shrinking
PROVIDENCE, R.I. (AP) — Another Rhode Island city could be taken over by a receiver — with the power to declare bankruptcy — after the General Assembly adjourned early Wednesday without approving a tax increase that state and Woonsocket officials say is critical to closing a massive budget shortfall. A bill that would have imposed a 13 percent supplemental property tax on Woonsocket residents stalled in the House after hours of negotiations between members of the city’s delegation and Gov. Lincoln Chafee’s administration. State Revenue Director Rosemary Booth Gallogly said the failure to authorize the tax could prompt sharp cuts to services or municipal layoffs in the struggling city, which has a $10 million schools deficit and is quickly running out of cash.
The Woonsocket City Council and Mayor Leo Fontaine asked the General Assembly to approve the tax, but Democratic state Reps. Lisa Baldelli-Hunt, Jon Brien and Robert Phillips blocked the legislation. They were seeking a smaller increase and made other demands, initially including the removal of Fontaine and the city council president from the state budget commission that now oversees Woonsocket finances.
Mayor Leo Fontaine is livid.
“You’ve got to be able to have enough courage to say ‘this is what we need to do.’ Let the chips fall where they may, and let history show whether you were right or wrong. And if people want to vote you out of office as a result of doing the right thing, then so be it. You’re not willing to take that change, then maybe you shouldn’t be in office in the first place.” While saying “no tax is a good tax,” Gallogly accused the legislators of doing the city “no favors” by standing in the way of the tax increase. “After many months of attempting to achieve consensus on a solution that would avoid fiscal collapse and additional state intervention, they failed to make the difficult yet necessary choice to protect the city and its residents in the long-term,” she said in a statement.
Members of the House delegation blamed Chafee, with Brien calling their proposed 8.5 percent tax a reasonable compromise. “We made it known that we would be willing to meet in the middle, but we would not go back to the original proposal for the $6.6 million tax levy,” Brien said in a statement. “We’re all very disappointed.”
The two state senators from Woonsocket supported the 13 percent tax. The city of Central Falls was taken over in 2010 by a receiver, who filed for bankruptcy on the city’s behalf last August. Under state law, only a receiver has the authority to declare municipal bankruptcy. A receiver also may assume all the duties of the local municipal elected leadership.
Mayor Fontaine said Woonsocket’s options are now shrinking. “We can either, one, pursue having the school department going for a Caruolo action, to force a court order to mandate the funding to be raised. Or receivership and then potential bankruptcy,” said Fontaine. “All of this could have been avoided with just a little bit of courage on everybody’s part to do the right thing.” Brien and Baldelli-Hunt have said they support a receiver in Woonsocket. The Woonsocket budget commission is scheduled to meet this afternoon.
CENTRAL FALLS GRADS ABSENT for 90+ days
Chronic truancy does not shrink CF graduation rate
By Walt Buteau, Target 12 Investigator
CENTRAL FALLS, R.I. (WPRI) – Central Falls graduates from the class of 2011 missed months of un-excused time in the classroom but still received diplomas, according to records obtained by Target 12. During the 180 day school year, eight graduates missed at least 50 school days with some of them missing half the year.
“It could happen,” Central Falls Superintendent Dr. Frances Gallo said when we asked if a student could miss half the year and still graduate. “It’s rare but it could happen.”
•’F’ students passed in Central Falls
Twenty-six seniors from last year’s graduating class missed at least 30 days with the most truant students reflected in this list:
•Graduate A ABSENT-115 days TARDY-45 days.
•Graduate B ABSENT-91 days TARDY-21 days
•Graduate C ABSENT-83 days TARDY-28 days.
•Graduate D ABSENT-69 days TARDY-11 days
•Graduate E ABSENT-66 days TARDY-77 days
•Graduate F ABSENT-56 days TARDY-34 days
Gallo defends the graduates, saying they met state requirements and made up missed classroom time on weekends and in other programs. “You have to be in the trenches with the student, the parents, the teachers,” Gallo said. This rash of truancy happened the year Central Falls climbed from a 48 percent graduation rate to a 71 percent graduation rate. Several Central Falls teachers tell Target 12 they are skeptical about the 2011 rate. “I don’t think numbers ever tell the whole story,” Gallo said of the truancy stats.
She believes the graduation rate number. “Rhode Island Department of Ed. came in, audited everything. Those were real kids. Real people. Real make-up. They came and they conquered it,” Gallo said. But as one teacher who asked not to be identified said, they cannot teach students who are not in the classroom.
DAY of PORTUGAL Parking tickets at festival issued in error
The Providence police will void several parking tickets that were issued erroneously Sunday on Exchange Terrace. Sgt. Paul Zienowicz said organizers of the Day of Portugal feast held this past weekend in Providence had reserved parking spaces on Exchange Terrace for parade goers. The signs posted on the street listed the wrong date — permitting parking until 2 a.m. Sunday instead of 2 a.m. Monday, Zienowicz said. The parade started at 2 p.m. Sunday.
REFERENDUM ON BUDGET TODAY IN WEST WARWICK
WEST WARWICK — The budget proposal that will go before voters on Thursday includes a payment to the School Department of $4.3 million to settle a years-long funding dispute that has dragged through the court system. It also allocates nearly $5 million for the ailing municipal pension fund –– more than the town has ever contributed in one year, according to officials. Yet the $79.6-million spending plan that will be decided at an all-day referendum includes no tax increase for nearly everybody in town. Property tax rates for the fiscal year that starts July 1 would stay the same for the owners of single-family houses, the owners of commercial property and the owners of multifamily houses with two to five units.
So how has the Town Council been able to increase revenues for a proposal that’s $900,000 higher than the current year’s budget? In two ways.
The first comes from lowering the motor vehicle tax exemption from $3,000 to $2,500. With a tax rate for cars of $28.47 per $1,000, the lower cap would mean an additional payment of $14.24 per car. The second relates to a property tax system that, according to Tax Assessor Raymond Beattie Jr., is unique to this town. West Warwick is the only community in Rhode Island that has a separate tax rate for multifamily developments of six units or more ––apartment buildings and the like. That rate is currently lower than the rate for smaller multifamily homes, so the council would bring it in line by raising it by $6 to $30.95 per $1,000 of assessed value.
Much discussion at a public hearing on the budget Monday night was devoted to those two measures, which would generate millions in revenue for the town and prevent a property tax increase for the third year running for most residents. But the prime topic was the proposed settlement of a lawsuit between the Town Council and the School Committee that has tied the two sides up in court for four years. Last Friday, the council agreed to transfer $2.9 million that has been held in an escrow account to the School Department and also pay an additional $1.4 million in the next fiscal year. The payments are the result of a reversal of a 5-percent cut to the department’s budget that the council made in fiscal 2011 and rolled over in the following year. School Committee Chairman James Williamson said the settlement, which still requires approval from the state and the courts, signals a new spirit of cooperation between the district and the town. “I now have optimism where I hadn’t in the past,” he said.
With the new budget, the Town Council is also making an effort to channel more money into the local pension fund. For years, payments fell well short of the required contributions to the fund. For fiscal 2013, the town won’t meet the $7.9-million recommendation, but the $4.9-million payment is nearly twice the highest contribution made in the last decade. The payment relies in part on the settlement with the School Committee. The committee would take $1.7 million from the settlement and put it in the pension fund to cover missed contributions from the past three years. It would also pay another $1 million this year. The remaining $2.2 million falls under the municipal side of the budget.
In response to criticism from former council member Peter Calci that the town needs to contribute more to make up for an unfunded liability of nearly $100 million, acting Town Manager Malcolm Moore acknowledged that the payment is just a start. The referendum on the budget will be held on Thursday at the West Warwick Civic Center at 100 Factory St. Polls will be open from 7 a.m. to 9 p.m. email@example.com
U.S, R.I. investigators probe bond, loan deals
Chapter 7 filing shows company owes $151 million, has $21 million in assets; state may be on hook for millions
PROVIDENCE — The dream of former baseball star Curt Schilling and Rhode Island politicians to build a video-game empire in Providence came to a crushing end Thursday, as 38 Studios declared bankruptcy and the Rhode Island State Police and FBI confirmed that they are investigating the company. Four weeks of public turmoil that saw the company’s troubled finances exposed and its 400 workers laid off — including 291 in Providence — ended shortly past noon, with a Chapter 7 bankruptcy filing in Delaware.
Unable to find a financial savior, Schilling’s company and its three affiliates will be liquidated. 38 Studios reported in court filings that it owes $150 million and has just $21 million in assets –– including $12.7 million held in reserve by the state in public bond proceeds. The largest creditor is the State of Rhode Island. Taxpayers are on the hook for $115.9 million in principal, interest and fees, according to the filing. That stems from a controversial $75-million loan guarantee for 38 Studios that state leaders, led by former Gov. Donald L. Carcieri and House Speaker Gordon Fox, pushed through in 2010 to lure the company from Massachusetts. The potential was 450 jobs and a company that would anchor a cluster of gaming and high-tech companies in Providence.
The reality struck Thursday.
38 Studios listed among its debts $1.4 million in wages to its 291 former Rhode Island employees, $10 million on the lease of its downtown Providence headquarters and $247,000 in federal and state taxes. Schilling, the former Bos-ton Red Sox pitcher who told The Providence Journal last week that he launched the company with dreams of becoming “Bill Gates rich,” said he stands to lose $50 million — “everything I have.” Court filings show that he owned 82.9 percent of 38 Studios. Things had grown so desperate last winter that 38 Studios turned to Rhode Island film tax credits to stay afloat. That led to $8.5 million in loans early this year from Bank Rhode Island, secured by anticipated tax credits that had yet to be issued — and still have not been.
Those loans, revealed by The Journal Saturday, have caught the eye of law enforcement.
“The Rhode Island State Police, the Rhode Island attorney general, the U.S. Attorney and the FBI are working together investigating the activities that have recently come to light at 38 Studios,” said Col. Steven G. O’Donnell, state police superintendent. The investigation, O’Donnell said, revolves around the $75 million in state bonds for the company, as well as the Bank RI loans of $1.5 million in January and $7 million in February. “We’re looking into any activity around those transactions — the use of state money and federally insured banks surrounding 38 Studios,” said O’Donnell. The federal criminal statute for bank fraud states that it is a crime to obtain money from a financial institution “by means of false or fraudulent pretenses, representations or promises.”
Jim Martin, a spokesman for U.S. Attorney Peter F. Neronha, confirmed that federal prosecutors and the FBI are coordinating with the state police regarding 38 Studios. He declined further comment. The president and CEO of Bank RI, Mark Meiklejohn, said his institution has not received a subpoena for any records regarding the loans. “We have not yet been contacted by law enforcement,” said Meiklejohn. “Certainly, we will cooperate.” Meiklejohn declined further comment on a “customer matter” when asked why Bank RI would make such potentially risky loans, which were secured by $14.3 million in anticipated state film tax credits that have never been issued. As additional collateral for the $7-million loan, the bank also received a personal guaranty from Schilling, backed by a gold-coin collection valued at up to $5.5 million.
Michael Corso, the film tax-credit broker who borrowed the $8.5 million from Bank RI and loaned it to 38 Studios for operating capital, appears in bankruptcy papers as both a creditor and someone who was paid an unspecified amount for various services. Corso, a Providence lawyer who brokers tax-credit deals across the country and recently attended the Cannes Film Festival in France, also is a friend of Fox and was instrumental in brokering 38 Studios’ move to Providence as the company’s paid lawyer. Early in 2010, Corso helped arrange a pivotal meeting between Fox and Schilling in his downtown Providence law office. That led Fox and his ally, then House Finance Chairman Steven Costantino, to add $75 million to a $50 million job guarantee loan program that was approved by the legislature. Rank-and-file legislators say they didn’t know the $75 million was ticketed for 38 Studios until summer 2010, when the Rhode Island Economic Development Corporation approved the sale of $75 million in taxpayer-backed bonds for Schilling’s company. The loan was controversial, but pushed by then-Governor Carcieri, who early in 2010 had broached the idea to Schilling at a fundraiser honoring World War II veterans at Schilling’s home.
According to bankruptcy papers, 38 Studios owes Cor-so $77,600, and also owes his Preservation Credit Fund $11.5 million for the anticipated Rhode Island tax credits he used as security for the Bank RI loans early this year. The bankruptcy filing also reports other financial ties with Corso in a 13-page list of contracts and leases. Among them: a July 1, 2010, engagement letter for Corso’s Kings-ton Capital Group; a Nov. 7, 2011, developer services agreement for his Orb Development; a Dec. 7, 2010, personal engagement letter; and a Jan. 1, 2011, consulting agreement with Corso’s Kingston Capital. The papers do not say how much he was paid, and Corso did not return calls seeking comment. A list of checks written by 38 Studios in the last three months shows that Corso was paid $232,800 on March 30, 2012 — one month before 38 Studios missed a $1.12 million payment to the state that precipitated its demise. The list does not state what the payment was for. Corso and his companies are located at 155 Chestnut St. in Providence’s Jewelry District — an address shared with the Tool & Dye hair salon owned by Fox and his domestic partner, Marcus LaFond. Corso told The Journal last Friday that the hair salon is his tenant, and pays “market rent.”
The remains of 38 Studios are now in the hands of Jeoffrey L. Burtch, a court-appointed trustee in Wilmington, Del., with the authority to liquidate any assets and distribute any proceeds among creditors. A meeting of creditors is scheduled for July 10. As a secured creditor, Rhode Island is at the front of the line. But the list of creditors is long — 17 pages of single-spaced names, from Action Pest Control, in Acton, Mass., to Yellow Cab, in Cranston — and the assets few. The company does not expect unsecured creditors to receive any money. 38 Studios’ bankruptcy lawyer, Laura Davis Jones of Wilmington, reported being paid $36,000 in connection with Thursday’s filing. The only intellectual property awarded a dollar value in 38 Studios’ bankruptcy filing is its Helios platform for its computer games, valued at $3.75 million.
Jonathan Savage, a corporate and bankruptcy lawyer who has been advising Governor Chafee, said that he has been in talks with potential investors the past few weeks, and that 38 Studios’ unfinished massively multiplayer online fantasy game, “Project Copernicus,” could be worth “tens of millions” of dollars. In the bankruptcy filing, the value of “Copernicus” and other intellectual property is listed as “unknown.”
The company’s Maryland studio, 38 Studios Baltimore, formerly Big Huge Games until Schilling bought it, reported assets worth $335,000. The Maryland affiliate produced the company’s first game, “Kingdoms of Amalur: Reckoning,” which was released in February. According to court papers, the company was paid $22 million in 2010 and 2011 in a “work-for-hire” agreement with a subsidiary through an agreement with Electronic Arts, the video-game giant that distributed the game. In addition, papers show, Electronic Arts paid $28 million to Project Mercury, a 38 Studios affiliate that also declared bankruptcy Thursday, for a publishing agreement for January to May 2012. A fourth subsidiary, Precision Jobs, also declared bankruptcy. 38 Studios listed $302.29 in petty cash.
The company also owes $1.7 million to best-selling fantasy author R.A. Salvatore, a company “visionary” who helped develop the storylines for Schilling’s sword-and-sorcery games. While Schilling didn’t draw a salary as 38 Studios’ founder, chairman and “executive visionary,” he was paid $16,454 in medical and dental benefits in the past year, and $39,424 in travel expenses, bankruptcy documents show. Unlike a Chapter 11 bankruptcy, in which a company tries to reorganize its finances, Chapter 7 means “there’s … not even a whimsical chance of reorganizing the business,” said Jack Williams, a professor at Georgia State University’s College of Law. Unsecured creditors are often the people and companies who have provided goods and services to a firm, Williams said –– window washers, coffee sellers and others. “Often, the people in the least position to absorb it find themselves in a very difficult position.”
COMPANY OWES $150.6 M TO CREDITORS, EX-WORKERSC
RHODE ISLAND EDC, BANK OF NEW YORK MELLON ARE OWED $115.9 MILLION
38 Studios reports $150.67 million in liabilities in bankruptcy filings, with more than 100 unsecured creditors whose “nonpriority” claims total $32.62 million. Also, 291 former employees are owed more than $1.4 million in unpaid wages, listed as “unsecured priority claims.”
Unsecured creditors are paid back after secured creditors, such as the State of Rhode Island. Businesses with unsecured claims include: Blue Cross and Blue Shield of RI: $715,399. Citizens Bank Credit Card: $266,156. Rhode Island Convention Center Park (parking garage) Providence: $97,185. Silverman McGovern Staffing: $47,604. Carousel Industries of North America: $9,742. Coffee Express LTD of Pawtucket: $7,583. Gourmet Heaven, Providence: $6,996. Dave’s Fresh Marketplace, East Greenwich: $3,510.
All four entities associated with 38 Studios that filed for bankruptcy list $115.9 million in secured claims, listing creditors for that amount as the Rhode Island Economic Development Corporation and The Bank of New York Mellon, the trustee of the state’s loan agreement. The three other entities list what appears to be an additional $7.4 million of unsecured liabilities. It’s unclear, however, whether amounts listed to the same creditor on more than one bankruptcy filing overlap. 38 Studios Baltimore lists unpaid wage claims by 92 employees, totaling $354,108.18. Other creditors include: Electronic Arts Inc., Redwood City, Calif.: $3.4 million Blue Cross and Blue Shield of RI: $154,220. Citizens Bank Credit Card: $56,494. U.S. Treasury, electronic federal tax payment system: $55,000. Towson Sedan Inc. in Baltimore, Md.: $99.60 Shred-it Baltimore: $100.
Creditors for whom amounts owed are not listed include: Future Press Verlag und Marketing GmbH in Germany; Go Massage in Chicago, Ill.; Sony Computer Entertainment America Inc.; Transgaming Inc. in Toronto, Canada. Mercury Project LLC’s unsecured claims –– Electronic Arts: $1.9 million.
SENATE THE ROADBLOCK TO PUBLIC RECORDS REFORM
After 14 years – and innumerable scandals – are Rhode Island lawmakers finally going to fix the state’s lousy public records law before they adjourn this month? It remains an open question, and the ever-inscrutable Senate is the holdup. On Wednesday night, the House Judiciary Committee held for further study a strong reform bill [H 7555] written by state Rep. Michael Marcello to let him continue offering concessions to the upper chamber. “As the legislature moves toward its typical rushed ending, they still have time to do right by the people of Rhode Island and open up more information about government for the citizens,” said John Marion, executive director of Common Cause Rhode Island, part of a large coalition that backs Marcello’s bill.
The Senate is considering two inadequate public records bills of its own – one from Attorney General Peter Kilmartin [S 2652] and another from state Sen. James Sheehan [S 2511]. ”We remain worried that the Senate bills on public records will undermine our hard work unless they are changed substantially,” Marion said. Tim White told the House committee Wednesday he was “stunned” to discover how many restrictions Rhode Island places on the public’s access to information compared with neighboring Massachusetts. After seeing this blacked-out North Providence police report, Rep. Charlene Lima urged her colleagues to pass the bill.
The Senate must now decide whether it will let Rhode Islanders see what’s being done in their names. Pass along your perspective to Senate President M. Teresa Paiva Weed (firstname.lastname@example.org, 401-222-6655) and Senator Sheehan (email@example.com, 401-885-1988).
The EDC’s Next Boondoggle?
Proposed legislation would turn the East Bay Energy Consortium (EBEC)—a self-described, three-year-old volunteer group—into a new quasi-public agency, make it a subsidiary of the state Economic Development Corporation, and allow it to use the EDC to obtain as much as $60 million in revenue bonds for a small wind farm in Tiverton.
“This is the stuff … you just can’t make up,” said Ed Mazze, a business professor at the University of Rhode Island.
It may not be a repeat of 38 Studios, but skeptics say there are nonetheless troubling parallels that call the whole project into question, especially when a prominent private developer is interested in doing the same project on its own. “This is just another example of ‘let’s pick up something which may be good, may be justified, and may be beneficial and let’s plunge into it, even though we don’t know what we’re doing,’” Mazze said.“This is definitely not the time for anything new to be added to the Economic Development Corporation,” he added. Instead, he said the state should be undertaking a review of its overall economic development strategy and what role, if any, the EDC should have in that. Mazze, who believes that the EDC should now be dissolved, said it’s an example of individuals or agencies of questionable competence taking on additional responsibilities, creating further incompetence. It’s a common management problem that he has dubbed the “theory of creeping meatballism.”
Backers of the project insist that state has learned its lesson from the 38 Studios fiasco and they say such concerns are reflected in the explicit wording of the legislation—which does not provide for a loan guarantee. “It’s different here, because the state is not liable,” said bill sponsor and state Sen. Louis DiPalma, D-Middletown. Not everyone is not convinced, not the least of them Governor Lincoln Chafee, who issued an eleventh-hour letter last night to the House environment committee, announcing his opposition to creating a new division of the EDC and “the potential financial exposure” to the state, according to state Rep. Laurence Ehrhardt, R- North Kingstown, a committee member. (The Governor’s office was not able to provide a copy of the letter in time for publication.) That committee voted to table to the original House version of the legislation, accepted a dramatically altered version calling for a study commission, and then tabled that too. Tonight, the counterpart committee in the Senate is expected to vote on the bill.
Communities withdraw support
The legislation has been bedeviled with controversy since it was first introduced months ago. Critics initially took exception to granting the new quasi-public agency the power of eminent domain—a necessary power in order for it to be able to sell bonds, according to DiPalma. It has become so controversial that even some of the nine East Bay communities that created the EBEC have either withdrawn their support from the legislation or distanced themselves from it, including the Barrington and Tiverton town councils. On May 21, Tiverton council members passed a resolution voicing “serious concerns” with “drafts of the legislation,” including granting the consortium eminent domain powers. Since then, the bill has been changed twice and the eminent domain powers have been removed. In all, between the House and Senate, the legislation has been through at least five revisions, in an effort to accommodate concerns of local officials and others, DiPalma said. But some say the bill has been changed so much that they’ve lost track of what it would really do. “We were getting to the point of a blizzard of versions of this thing,” Ehrhardt said. “Nobody really knew what was going on and it was time to call a time out.” He said some of the most important issues, such as how financially feasible the EBEC wind farm is, had yet to be addressed. In fall 2010, the EBEC published a consultants’ report that was predicated on the assumption that the organization would be able to use “net metering” to make it economically viable. (Net metering, put simply, allows anyone who generates renewable energy to deduct what they create from their utility bills.)
Since that study, the General Assembly passed a new law limiting net metering facilities to 5 megawatts, Ehrhardt said. The EBEC project would be six times that size. For Ehrhardt, the last-minute legislative maneuvering and questionable financial projections make for troubling parallels with 38 Studios. The EBEC is even using the same law firm, Moses and Alfonso, that was the bond counsel in the 38 Studios deal.
Private investors turned away
Some are questioning why the state should go to all this trouble, when at least one private wind farm developer, Apex Wind, has expressed interest in building a $55 million wind farm in Tiverton—on its own dime, without state assistance of any kind. Apex had approached the EBEC about two years ago about forming a partnership, but was turned down. “They just completely closed the door and said we don’t need them,” said Andrew Shapiro, a former vice chair of the EBEC and now the New England representative for the EBEC. As a result, the two have become competitors on the project. “Another quasi-public agency should not be created under the highly questionable EDC when it is on record that a private investor is interested in the project,” said Lisa Blais, spokesperson for the Ocean State Tea Party in Action.
One of the purposes of the Economic Development Corporation, according to its mission statement, is to bring new companies into the state, which raises the question as to why it has already invested more than $400,000 in the EBEC and now is sponsoring its efforts to become a quasi-public agency—effectively giving it an advantage over Apex Wind, which is based in Charlotte, North Carolina. A spokeswoman for the EDC was not able to answer that question in time for publication. Even the bill’s sponsor, DiPalma, agrees that the state should not compete with private business. “Government should not be in the business of competing with private business,” DiPalma said. “We need to enable private business to flourish and thrive.” He said he was not familiar with the details of Apex’s interest in the project.
The current EBEC chair, Jeanne-Marie Napolitano, a Newport city councilor, confirmed that her organization had met with the EBEC and decided against any partnership with the company. But she questioned whether the company—which she described as a “johnny-come-lately”—was truly interested in the project. The project could affect economic development in neighboring properties as well, according to Gerald Felise, the owner of hundreds of acres of undeveloped land next door to the proposed wind farm site. Felise told GoLocalProv yesterday that he had lined up as much as $150 million from a private investment firm for a project on his properties that would combine geothermal, solar, and wind power. His investors, whom he declined to disclose, have told him that they will pull out if EBEC moves forward with the wind farm, Felise said. “They would disappear tomorrow morning,” he said. “Why would they put any money into any project when the government can go in, look at their economics and their models and go into the project themselves?”
‘We want the ability to compete’
Napolitano said the EBEC is not trying to stifle economic development. “I’d say, the more, the merrier,” Napolitano added. “We just want the ability to compete. I’m all for private investment.” Their project, she suggested, would be as much economic development as anyone else’s. She said it would create jobs. Plus, there’s something in it for the nine East Bay communities: a promise of sharing in the profits made by the EBEC, at $200,000 annually per community, according to Napolitano. From her perspective, that’s what the EBEC is all about: a group of communities collaborating to promote renewable energy and help each other weather the challenges of cutbacks in state aid.
Last night, after Chafee’s letter and the House committee vote, she expressed frustrations that her group has been caught up in the political controversy over the EDC. She said her organization would be OK with operating under the auspices of another state agency. “That’s fine. We don’t care what agency it is—just give us the ability to compete,” she said.
The Six States Where Homes Lost The Most Value
Home prices may have stabilized in some markets, but recent data from sources which include S&P/ Case-Shiller demonstrate in some major cities, prices continue to fall. The free fall is also evident in a number of states. New Corelogic data shows that in five states the April Home Price Index fell more than 4% year over year. Some of these states have suffered sharp drops since the 2006 home price peak:
Delaware: One of the smallest housing markets in the nation, it is dominated by activity in Wilmington, a city which has most of the state’s population. Like Detroit and Providence, it is an older market which has suffered as manufacturing jobs leave. Wilmington is the headquarter of DuPont. Home prices in Delaware dropped 11.9% when distressed homes are added to normal inventory.
Illinois: One of the largest home markets in the US, Illinois also have a number of old industrial cities which include Gary, Joliet, and Springfield. Most of these cities continue to have high unemployment and have not had the kind of growth in high paying service jobs that have increased in parts of California and Massachusetts. Unemployment in Kankakee and Rockford is over 10% is over 10%.Home prices in Illinois have dropped 6.8% April to April
Alabama: Part of the string of states with poor states and relatively large rural populations, Alabama, Louisiana, and Mississippi to also have relatively low average wage bases. Alabama’s unemployment is below the national average, but education and poverty are noHome price in Alabama fell 6.6%
Rhode Island: Like Delaware, Rhode Island is dominated by one large, old industrial city–Providence.It was once a milling and jewelry manufacturing hub, but most of those industries have left. Several small towns in Rhode Island are in deep financial trouble. Central Falls went bankrupt last year. Rhode Island’s unemployment is 11.1%Home prices are down 6.2% year over year including sales of distressed home.
Georgia: The state continues to have high unemployment of 8.9%. Much of the state is dominated by agriculture. In Rome and Dalton, two cities in rural areas, unemployment is above 10%. Atlanta’s unemployment rate at 8.5% is also above the national average. Home prices have dropped 5.6% April over April
Methodology: The CoreLogic HPI incorporates more than 30 years’ worth of repeat sales transactions, representing more than 65 million observations sourced from CoreLogic industry-leading property information and its securities and servicing databases. The CoreLogic HPI provides a multi-tier market evaluation based on price, time between sales, property type, loan type (conforming vs. nonconforming) and distressed sales. The CoreLogic HPI is a repeat-sales index that tracks increases and decreases in sales prices for the same homes over time, including single-family attached and single-family detached homes, which provides a more accurate “constant-quality” view of pricing trends than basing analysis on all home sales. The CoreLogic HPI provides the most comprehensive set of monthly home price indices available covering 6,700 ZIP codes (58 percent of total U.S. population), 619 Core Based Statistical Areas (86 percent of total U.S. population) and 1,166 counties (84 percent of total U.S. population) located in all 50 states and the District of Columbia. Read more: The Six States Where Homes Lost The Most Value – 24/7 Wall St. http://247wallst.com/2012/06/05/the-ten-state-where-homes-lost-the-most-value/#ixzz1x1LvzsLP
HASBRO CHIEF UNAWARE OF CNNECTION TO SCHILLING
The collapse could leave Rhode Islanders to foot the bill for the loan.
Schilling’s financial interest in Multi-Man in Millersville, Md., predates by several years the 2006 start of his video-game venture. Multi-Man sells a string of war-themed board games, some of them published under a license tied to Avalon Hill. Once produced by a standalone company known as Monarch Avalon, the games are now part of the Avalon Hill line controlled by Wizards of the Coast in Renton, Wash. Wizards of the Coast is a Has-bro subsidiary. “I had never heard of that company before your message,” Verrecchia told a reporter Monday night, referring to Multi-Man. “We have thousands of licensing agreements.”
Verrecchia is a longtime executive and current chairman of the board at Hasbro, the global toy company with headquarters in Pawtucket. He was appointed the EDC’s vice chairman in January 2010. By the spring of that year, Rhode Island officials, former EDC director Keith Stokes among them, were meeting with Schilling about financing for 38 Studios.
With Verrecchia voting in favor, the EDC board approved the loan guarantee in late July 2010.
“At the time of the decision making I had no knowledge of Multi-Man and Avalon Hill,” Verrecchia told The Journal. “If I’d known that, I clearly would have asked Rob Stolzman, or somebody,” about the potential conflict. Stolzman was the EDC’s lawyer at that time. “I probably wouldn’t have voted on it no matter what they said,” Verrecchia asserted. “My company and my reputation are too important.” Verrecchia resigned his EDC post in January 2011. The Journal could not reach executives at Multi-Man.
Schilling said Multi-Man is a venture inspired by his desire to preserve the old Avalon Hill board games he had grown up with, games like Squad Leader, Panzer Blitz and Gettysburg. He told The Journal last week that he knew Verrecchia prior to the creation of 38 Studios, but that there was no “coordination” between 38 Studios and Hasbro when Schilling moved his company to Rhode Island.
Schilling said he looked forward to Hasbro’s planned move from Pawtucket to downtown Providence. “Hasbro is a company that, as we grow, we want to be intimately involved with them as partners,” said Schilling. “Al’s a man of principle.”
Brian Youse, vice president of Multi-Man, is in Normandy, France, this week, attending the dedication of the Richard Winters Leadership monument. Schilling, listed as a cohost of the ceremony marking the 68th anniversary of D-Day, wrote on his Facebook page Monday his regrets that he couldn’t attend, but sending his “thoughts and prayers.” Lt. Richard Winters was the leader of the “Band of Brothers,” the World War II Army unit made famous by a book and miniseries. The monument is funded by the World War II Foundation, a nonprofit group in South Kingstown. The foundation’s head, Tim Gray, is a former television sportscaster-turned-documentary filmmaker. Schilling and one of his key 38 Studios advisers, Thomas Zaccagnino, are foundation board members. It was during a fundraiser in March 2010 for a Gray documentary at which then-Gov. Donald Carcieri said he first met Schilling. Carcieri and Stokes asserted it was that meeting that set in motion the 38 Studios loan guarantee.
Gilbane executive Paul J. Choquette served on the EDC board along with Verrecchia. He said he also was unaware at the time of the loan-guarantee vote that Hasbro had a connection to a Schilling company. Choquette said Verrecchia “was strongly supportive, but he wasn’t the only one” highly favorable of the guarantee
CONNECTED LAWERS PLEDGE TAX CREDITS
BEFORE THEY WERE APPROVED
Dan McGowan, GoLocalProv News Editor
Less than a week before Curt Schilling’s 38 Studios defaulted on a $1.125 million payment due to the Economic Development Corporation (EDC), the state’s Film and Television Office was questioning whether the video game company was even eligible to receive tax credits that might have saved the cash-strapped company, according to e-mails obtained through a public records request.
On April 26, Film and Television Office director Steve Feinberg sent an e-mail to former EDC executive director Keith Stokes asking whether 38 Studios’ agreement with the state qualified the company for tax credits. Feinberg questioned whether the company was entitled to access tax credits based on the $75 million loan guarantee it received from the state. “According to 38 Studios, and my understanding, 38 could not access the tax credit program based on the funds that were guaranteed by the state,” Feinberg wrote to Stokes. “However, they are stating that they are not using funds which were guaranteed by the state. These are new, additional funds.” Stokes never responded to Feinberg’s e-mail. A follow-up e-mail sent on May 7 was also not returned. Nine days later, Stokes resigned from his post.
38 Studios Lobbied for Tax Credits in 2010
Despite the confusion, the Providence Journal reported Saturday that $14.3 million in anticipated tax credits had already been pledged as collateral to secure about $8.5 million in loans for the struggling company, which was unable to make payroll and laid off every single employee in May. The pledged tax credits and loans were arranged by Providence lawyer Michael Corso, a top tax credit broker with close ties to House Speaker Gordon Fox. The loans came from BankRI, which was co-founded Malcolm G. Chace III. Coincidentally, Corso used to work for Chace’s cousin, Arnold, at Cornish Associates.
Governor Chafee said Monday that he first learned 38 Studios was asking about tax credits last November, but noted that the discussion “went away” quickly. That didn’t stop 38 Studios from continuing to press Feinberg to approve the credits, however. Three days after Christmas, the company’s Chief Financial Officer, Rick Wester, sent a letter to Feinberg claiming the company was eligible under its agreement. “Specifically, Section 6.02 (u) of the Agreement, which governs the Company’s use of Motion Picture Production Tax Credits, permits the use of the tax credit program once the Company has met certain conditions,” Wester wrote.
Still, Corso was taking a significant risk by posting the tax credits as collateral when it had only initial certification from the Film and Television Office. According to the rules and regulations of film tax credits, “the letter of initial certification is only a statement of conditional eligibility for the production and, as such, does not grant or convey any Rhode Island tax benefits.” 38 Studios was also never incorporated in Rhode Island, which is part of the requirements for tax credit eligibility. “To assume, an individual or an organization will get tax credits is risky just because an application is filed,” said Dr. Edward Mazze, distinguished University Professor of Business Administration at the University of Rhode Island. “There is a considerable amount of information required before any tax credit is granted which may include audited financial statements, payroll records, supplier invoices, company information and personnel records. Anywhere in the review process, the application can be denied.”
Mazze said it would be illegal for unauthorized individuals to promise tax credits.
“Buying or selling tax credits before they are approved is a bad decision because the credit may never come about,” he said. “It would be criminal if someone outside of a tax credit granting authority promises tax credits to individuals and organizations without authority.”
For State Representative Teresa Tanzi, who has consistently called for more oversight over tax credits since she was elected in 2010, the 38 Studios saga is just the latest problems to arise from a tax credit system that has few checks and balances. Tanzi said that while the film tax credit laws are written “quite well,” only seven percent of all tax credits have “any stated purpose.” She compared the situation at 38 Studios to low-income residents who seek payday loans, noting that Schilling was desperate for any money he could get to keep the company afloat. “38 Studios puts a spotlight on why we need consistent oversight on these things,” Tanzi said.
Chafee: “We’ve Been Scorched”
Separately, Col. Steven O’Donnell, head of the Rhode Island State Police, told GoLocalProv on Monday that he is still looking into what happened at 38 Studios. He said an investigation is not yet underway. During a press conference Monday, Chafee referred any State Police questions to O’Donnell.
The Governor also nominated three Rhode Islanders (Roland Fiore, Stephen Hardy and William Holmes) to join the EDC board. Coincidentally, Holmes represents Rhode Island Carpenters Local 94, which worked on the interior of 38 Studios’ downtown headquarters. Chafee pledged a more conservative approach from the EDC when it comes to loaning taxpayer funds in the future. “We’ve been scorched, we’ve been burned,” he said referring to the 38 Studios deal.
Chief of staff won’t answer questions about past employer
The chief of staff in Central Falls again Tuesday refused to answer NBC 10′s questions about her past employment. An NBC 10 News investigation in February revealed that Gayle Corrigan was fired from her previous job and some have questioned whether she should be running the bankrupt city. NBC 10 News has tried reaching Corrigan many times over the past four months: in person, on the phone and through email. Under the receivership, Corrigan has replaced the mayor and runs the city’s day-to-day operations. She’s paid $100 an hour; her deputy gets $60 an hour. That’s about $26,000 a month and more than $300,000 a year. The bill is paid by city taxpayers. “Way too much money. More than anyone I’ve heard any two or three people together making this amount of money,” City Council member Pat Szlastha said.
Before landing a contract in Central Falls with former state-appointed receiver Robert Flanders, Corrigan was the chief financial officer of Senesco Marine in North Kingstown. NBC 10 reported that Corrigan was fired when her bosses at the ship and tug boat building company learned she was cashing in on a labor scheme. At the time, NBC 10 asked Flanders, who hired Corrigan in Central Falls, if he knew. “I now know that she was (fired), but I didn’t know that when I engaged her,” Flanders said Feb. 17.
Corrigan was supposed to be at that February interview, but she never showed up.
On Tuesday, she was the one answering questions about Central Falls’ future. NBC 10 asked if she’d like to set the record straight about her past employment at Senesco Marine. “Of course, I was very disappointed with the shoddy journalism from WJAR,” she said. Here’s what NBC 10 News found in a document from the Rhode Island Commission for Human Rights. “Gayle Corrigan was terminated for cause as a result of violating her fiduciary duties to Senesco Marine, LLC while an officer of the company. Unbeknownst to Senesco, Gayle Corrigan had incorporated and was surreptitiously running a staff leasing company which provided contract labor to Senesco, from which she was profiting.”
Corrigan didn’t answer our questions and unclipped her microphone. Under the terms of the bankruptcy plan, Corrigan’s company, Municipal Management Solutions, will stay six months longer in Central Falls than her originally signed contract. The cost is an extra $200,000. She said it’s less than what a mayor and staff would make.
CITIES LOSE PROPERTY TAX & STATE AID: REPORT.
(Reuters) – For the first time since 1980, property tax revenue and state aid to cities across the United States are shrinking simultaneously, the Pew Charitable Trusts said in a report on Thursday. The downward double spiral is likely to continue for at least two to three years at a time when local governments have already been squeezed by increasing costs and falling revenue, Pew researchers said. “More tough choices lie ahead as leaders look to balance the day-to-day needs of their communities with their long-term prospects,” said Robert Zahradnik, research director for the Pew American Cities Project. The project is examining the biggest city in each of the country’s largest 30 metropolitan areas. The report, which uses U.S. Census Bureau data, is its first. www.pewstates.org/localsqueeze
Since the Great Recession began in late 2007, local governments have laid off public workers, cut services, raised taxes and fees, privatized or consolidated services, and taken other measures to trim their budgets to the bone. Though the recession is officially over and many state economies are beginning to show signs of recovery, some cities and towns are still reeling. In fiscal 2010, the most recent year for which Census data was available, local governments lost 2.6 percent of their state aid and 2.5 percent of their property tax revenue – or nearly $25 billion altogether – from the prior year, Pew found, bringing the combined revenue that year from both sources to $942.7 billion.
The property tax revenue drop was the largest in three decades, Pew said. By 2009, state aid and property taxes combined covered a smaller share of local expenditures than at any other time since the Census began tracking the data in 1972, Zahradnik said. The two revenue sources together make up more than half of local revenue. They also normally counterbalance each other, with one falling when the other rises. Cities and towns across the country have had to adjust. Cleveland, Ohio, laid off more than 300 employees – at least half of them police officers and firefighters – after state lawmakers cut $36 million in funding the city would have used for its fiscal 2012 budget. The city also closed five fire companies and cut six trash collection crews, Pew noted. In 2011, Sarasota, Florida, increased property rates for the first time since 2007 after the city lost $3.5 billion – or a third of its tax base – in property tax receipts over three years, Pew said. Residents of Belvidere, New Jersey now must haul their own garbage to the landfill or pay for private services after the small town cut trash collection entirely in early 2012. Altogether, cities and towns have shed about 500,000 employees altogether since 2008, or more than 3.4 percent of the local government workforce, through layoffs, furloughs, hiring freezes and attrition. Half of the affected workers were teachers and other school employees, Pew found.
Pew researchers say that recovery will be slowed in some places by lags in the time it takes to assess home values, along with continuing foreclosures and the “sheer magnitude” of the slide in property values. They also note that efforts to reduce the federal deficit are expected to shrink grants to states for low-income housing, workforce development, education and community development, among other federal aid that has already begun to ebb. Despite a budget gap bigger than a quarter of its general fund, Connecticut in 2010 boosted local aid by more than 10 percent, according to the Pew report. Alaska, flush with oil severance tax revenue, helped its municipalities pay down unfunded pension obligations between fiscal 2010 and 2013 by more than $1.7 billion, the report said.
Many localities have also found more efficient ways to operate, including sharing service needs with neighboring areas, Zahradnik said. “Going forward (cities and towns) are just going to have to pay that much more attention to maintain their fiscal solvency as some of their key revenue sources are slowing,” Zahradnik said. The United States has about 90,000 local governmental entities, including nearly 19,500 small and large cities, more than 16,500 towns, about 13,000 school systems, 3,033 counties and nearly 37,400 special districts like fire protection and hospitals.
STATE HOUSE REPORT:
Anthony Faccenda, GoLocalProv News Contributor
Although the General Assembly introduced and passed a multitude of legislation this week, the marquee news was Thursday’s big reveal of the state’s 2013 budget. The bill, which looks to remedy numerous severe cuts made last year, tackles education, developmental disability funding and new tax revenue, among others. Aside from the budget, lawmakers also tackled casino gambling, foreclosures, natural disaster relief and medical marijuana compassion centers.
Finance Committee approves 2013 state budget: On Thursday, the House Finance Committee approved the state’s 2013 budget with a 15 to 1 vote. The $8.1 billion spending plan significantly repairs cuts made to developmental disability funding, speeds up school aid funding and looks to protect Central Falls retirees by giving the struggling city $2.6 million allocation. Furthermore, the 2013 budget avoids most tax increases proposed by Gov. Chafee, including the meal tax expansion. “This budget is excellent news for education and for our struggling cities and towns,” said Rep. Helio Melo, chairman of the House Finance Committee. “In an era when we’ve often struggled to even maintain funding for many of our programs, we were able to get more money to schools sooner than expected, and also speed up money for distressed communities. It’s also good for taxpayers, because we were able to prevent several tax and fee increases. We were able to use a great deal of Governor Chafee’s proposal, and we’re grateful to him and all of those who brought their ideas to the table so we can do as much as we can for the state with the resources we have.” As previously stated, the new budget looks to mend some of the massive cuts made to developmental disability programs. The bill would return $9.6 million in state and federal funding, as well as maintain dental coverage for adults on Medicaid. Dental coverage, which lawmakers previously considered cutting, was restored through state funding and money from Neighborhood Health Plan. Education wise, the legislation includes $22 million to fund the second year of Rhode Island’s new state education aid formula. Additionally, the budget also allocates an additional $11 million to accelerate the program’s execution. Also notable is bill’s dismissal of the “maintenance of effort” law that requires cities and towns to pay local contributions to schools if funding falls below a certain threshold. Aside from dismissing Gov. Chafee’s meal tax increase from 8 percent to 10 percent, the bill would also repeal last year’s proposed scenic tour and transportation services tax. Although the House Finance Committee approved bill avoids quite a few new taxes, it also allows for several others. For example, it allows for a new luxury clothing tax on items costing more than $250, which is projected to generate roughly $5.9 million in state revenue. The budget would also make taxi and limousine rides, car washes and pet services subject to the sales tax. In a further attempt to generate additional revenue, the bill proposes raising the state’s cigarette tax from $3.46 to $3.50.
Mortgage conciliation bill approved in House: Although the economy has demonstrated slight signs of improvement, home foreclosures have continued to destroy communities both locally and nationally. In an attempt to protect homeownership, the House has just approved a mortgage conciliation bill. Proposed by Attorney General Peter F. Kilmartin and introduced by Rep. Richard P. Morrison (D-Dist. 68, Bristol, Warren), the legislation looks to help individuals avoid foreclosure by participating in a conciliation process, which is offered at no cost to the state or the homeowner. Aside from offering a conciliation conference, the proposal will also provide homeowners with the opportunity to receive housing counseling. “This bill will help protect Rhode Island homeowners, which is its first and prime intent, said Rep. Morrison. “At the same time, the bill will be beneficial for the banks, which until now have been anything but cooperative with mortgage holders who find themselves in financial difficulties. The goal is to keep people in their homes and this bill will help do that. It will provide critical help at a critical time in the lives of some hard-hit homeowners.” Housing conciliation has already been implemented in certain communities in Providence, Cranston, and Warwick and to great success. By the end of 2011, nearly three-quarters of all homeowners that participated in the process were able to reach agreements with their lenders to remain in their homes.
General Assembly gives final approval to compassion centers compromise bill: On Tuesday, the General Assembly finally granted its support to legislation designed to address concerns about Rhode Island’s medical marijuana compassion centers. Sponsored by Sen. Rhoda E. Perry and Rep. Scott A. Slater, the legislation (2012-S 2555A, 2012-H 7888A) is essentially a compromise amongst sponsors, legislative leaders and Gov. Lincoln Chafee. Although a 2009 law authorized the establishment of three compassion centers, Gov. Chafee delayed the issuance of licenses last year due to concerns over the bill. In particular, the governor felt that several loopholes in the original legislation would invite federal intervention. “Since the Rhode Island medical marijuana law invited federal action, I have been working with advocates on a remedy. I applaud Senator Perry and Representative Slater for their work and I look forward to passage of a bill that will avoid federal intervention and bring needed medicinal relief to those who stand to benefit,” said Gov. Chafee when the bill was proposed earlier this year. The new legislation addresses Gov. Chafee’s concerns, including putting a cap on the amount of marijuana compassion centers can grow. The 2009 legislation did not set a limit on marijuana quantities, which may have attracted federal attention and possible raids. Additionally, the bill specifies that registered patients or caregivers who grow their allotted maximums to sell excess amounts back to compassion centers. This stipulation looks to tackle fears that excess amounts may be sold illegally. “This bill means hope for the many patients in Rhode Island who have been waiting for years to be able to get their medicine safely, without having to turn to the streets and the black market. I’m very hopeful that the compassion centers that were already in the process of becoming licensed will be able to pick up where they left off and be up and running in the near future,” said Senator Perry.
Bill introduced to set state share from Twin River, Newport Grand among nation’s highest blended rates: The never-ending state casino saga continued on Tuesday with a hearing that discussed legislation looking to preserve the success of the states two gambling facilities, Twin River and Newport Grand. The bill (2012-S3001), establishes Rhode Island’s share of table games at 18 percent at both casinos. The bill, however, does note that Twin River’s rate would be lowered to 16 percent if it should experience a considerable drop in revenue. Since Newport Grand is a smaller facility, it would sustain a 1.5 percent rate increase on video lottery terminals, aside from the 18 percent table game rate. “The primary goal of this legislation is to preserve the revenue Rhode Island receives from Twin River and Newport Grand,” said Sen. Maryellen Goodwin, Chairwoman of the Joint Committee on Lottery. “That means providing a fair tax rate on the more labor-intensive table games which enables the facilities to thrive while taking steps to mitigate, as much as possible, new competition from Massachusetts. The rate maintains Rhode Island’s position as among the highest in the nation, but it is also fair to the facilities which we all want to see succeed.” Preserving the state’s gambling revenue has been an issue for lawmakers since neighboring Massachusetts approved the construction of three full casinos last year. A comprehensive 99-page study, commissioned by the governor recently concluded that Rhode Island’s annual revenue would decrease by nearly $100 million when Massachusetts’ permitted casinos open in 2017.
House passes Kennedy bill to facilitate out-of-state help during emergencies: With the start of hurricane season in mind, the House has passed a proposal, which would facilitate out-of-state help during emergencies. The bill, proposed by Rep. Brian Patrick Kennedy (D-Dist. 38, Hopkinton, Westerly), would apply to natural disasters such as tropical storms, blizzards and flooding. “Time is of the essence, in and after an emergency, and the shorter the time it takes to return things to normal the better for our state’s citizens,” said Rep. Kennedy. “If a disaster should hit the state and conditions are ever so bad that Rhode Island must rely on out-of-state businesses and companies to help out, we need an expedited process for allowing those companies to come in and provide our state with the resources it needs to restore service and operations.” Rep. Kennedy’s bill aims to hurry the process in which out-of-state businesses enter Rhode Island in the event of an emergency. Companies aiding the state will not be hampered by any requirements during their temporary stay in the Ocean State. “We don’t want utility employees waiting at the state line while the paperwork is being submitted,” said Rep. Kennedy. “This bill clears the way for assistance when it is needed, and lets out-of-state business employees and affiliate company employees, come here to do what needs to be done to get Rhode Island back in operation in a timely manner.
NEW STATE BUDGET
WINNERS AND LOSERS
Stephen Beale, GoLocalProv News Contributor
The new $8.1 billion House budget unveiled last night is a mixed bag of good and bad news for taxpayers, labor unions, business advocates, and local communities—angering some constituencies, and benefiting others. The budget, which the Finance Committee voted to send to the full House, does not make any sweeping changes to the landscape of state and local government—and that may be its biggest problem, say some conservatives and progressives. But there is nonetheless plenty in the budget for activists, lobbyists, and Rhode Island citizens in general to like and dislike.
The Biggest Loser—Broke Cities and Towns: If there was anyone that was upset over the results last night, it was those cities and towns that are counting on the state to help them turn around their troubled finances. As alarm bells started going off across the state earlier this year—Providence, Woonsocket, West Warwick, East Providence, Gov. Lincoln Chafee stepped in with a series of bills to help rescue bankrupt or near-bankrupt cities.
Some of his proposals: such as one that would loosen state mandates on school spending, were adopted in the House Finance Committee budget, but the most controversial measures were not. Among those were proposals that would have allowed cash-strapped cities and towns to suspend COLAs for retirees, slash disability pensions, and strictly limit union negotiations to just base salaries. “Unfortunately, the communities that need the help the most won’t be getting it,” said Dan Beardsley, head of the Rhode Island League of Cities and Towns. “What does that say about public policy regarding the state’s relationship with its subdivisions? I think the relationship has been nonexistent.” The local pension and collective bargaining reforms still have a shot at passing the House as separate bills—but their exclusion from the budget can hardly be a good sign for municipal mayors and managers. But that’s all good news for labor leaders like George Nee, president of the AFL-CIO, who said the General Assembly had respected the collective bargaining process. “So, that’s a plus,” Nee said.
Winner and Loser: Public Unions: Unions were spared major changes to local pensions and contract negotiations, much to the chagrin of fiscal conservatives like Lisa Blais, the spokesperson of the Ocean State Tea Party in Action. “Hands down, the top winners are the public-sector unions without the governor’s bills hence making the cities, translation the taxpayers, the losers,” Blais said. “They win again without the budget incorporating freedom of choice and demanding a quid pro quo by securing tenure for public school teachers, to push up the date in which lay-off notices must be provided.” However, there isn’t much else for labor unions to celebrate in this budget. A number of key state union contracts expire this summer—and this budget, which takes effect in July, does not include any salary increases, according to House Finance Chairman Helio Melo, D-East Providence. The budget also leaves intact the pension reform passed last fall, despite efforts earlier this year by some state lawmakers to roll back provisions that they viewed as harmful to the poorest retirees. (Asked for comment several labor leaders said they were not in a position to comment on whether public employees overall were winners or losers in this budget.)
Taxpayers: Governor Lincoln Chafee’s effort to hike the meals and beverage tax was scrapped by the Finance Committee. Lawmakers also rebuffed his proposal to treat vacation rental homes like hotels for the taxation purposes. “Some of this budget is a win for taxpayers and some of it definitely is not,” said Donna Perry, executive director of the Rhode Island Statewide Coalition. “Taxpayers are winners in two key areas which included the rejection of any new broad based taxes and preserving the gains made last year in pension reform for the statewide system. “There were several bills which could have undermined the savings achieved for local communities through last fall’s passage of the sweeping statewide pension system overhaul and it’s significant that they didn’t gain traction,” Perry added. “It’s also a win to see the Governor’s meals tax hike was rejected as it would hamper one of the state’s few thriving industry sectors by hurting family-run restaurant businesses that dominate a lot of local downtowns, as well as hurt larger restaurant and hotel groups.” However, she said it’s far from clear that that the General Assembly will handle a $102.7 million surplus in the “best interests of the taxpayer” and she expressed concern that the money might be dumped into programs rather than addressing state debt and looming future deficits.
Central Falls retirees: It might be small consolation after everything else that’s happened to them, but the Finance Committee budgeted $2.6 million to help soften the blow for those that saw the severest cuts to their pensions. Under a settlement, the money will ensure that their retirement will not be less than 75 percent of what it was pre-bankruptcy. It’s not ideal—but it sure beats getting just 55 percent of what they once had. State lawmakers seemed unconcerned that other cities and towns might follow the example of Central Falls and ask for help to shore up their struggling pension funds.
PBS: Earlier this year, some people were caught off guard when Governor Chafee proposed cutting funding to Rhode Island PBS. That may still happen—but not for at least another year. Instead, this budget calls for the development of a plan to transfer the Rhode Island Public Telecommunications Authority from state to private support as part of the 2014 budget.
Developmentally disabled community: Some people were shocked when the state last year cut services to the developmentally disabled to the tune of $24 million. The budget would increase funding for such services by about $9 million—described as a “substantial restoration” by Melo. The move earned praise from both labor and the Tea Party. “Obviously we’re gratified that there was restoration of significant funding for the developmentally disabled community,” said Nee. “It looks like the developmentally disabled will get something back. That’s a good thing if the money is spent to directly meet their needs,” said Blais. “But, this just shows that the General Assembly doesn’t have the big picture plan to set public policy that will create an environment that screams that Rhode Island is the place to be. They take away one year, giving back another year.” Some businesses, especially developers: The state is setting up a uniform statewide electronic plan review, permit management, and inspection system. This is welcome news for developers whose top complaint is all the red tape they have to cut through to get projects approved. Most school districts: Overall, cities and towns might not be getting as much as they want, but school districts that have historically been ‘underfunded’ have to be happy that state lawmakers want to accelerate the increase in funding they are receiving under the new state education formula. The total accelerated funding is $11 million and those districts benefiting include Pawtucket, East Providence, Warwick, and West Warwick. In total, there are about two dozen districts that will be seeing sooner-than-scheduled increases in state aid.
Portsmouth and Tiverton drivers: It’s not a done deal yet, but the House Finance Committee cleared the way for a toll on the Sakonnet River Bridget—affecting drivers in those two communities. Under the proposed budget, ownership of the Sakonnet River Bridge and the Jamestown Verazzano Bridget would be transferred from the state Department of Transportation to the Rhode Island Turnpike and Bridge Authority. It would be up to the turnpike authority to decide how much the toll would be. State lawmakers say it’s a fairer way of funding maintenance of all East Bay bridges—but that probably won’t make local drivers feel much better.
Taxi and limo drivers: Not everyone was spared tax increases. Under the proposed budget taxicab, limos, and other private transportation services will now be subject to the 7 percent state sales tax.
Pet groomers and car wash businesses: They too will also be subject to the sales tax. Veterinarian services, however, are exempted.
Corporate ‘Double dippers’: Companies cannot apply for a film tax credit in the same year that they are receiving a loan or loan guarantee from the state. (Think 38 Studios.)
Smokers: Cigarette taxes, already among the highest in the country, at $3.46, will go up 4 cents. Some say this only encourages a black market in cigarettes, but state law has stiff fines of $10,000 or more for smugglers.
Luxury clothing: The sales tax was also expanded to ‘luxury clothing’ $250 and over. “Creating a ‘luxury’ tax on small businesses that sell high-end clothing and shoes adds privately owned boutiques to the list of losers,” said Blais.
All Rhode Islanders: A conservative leader and prominent progressive agreed on one point yesterday: because it does not make any fundamental changes to how the state collects revenues and spends money, all Rhode Islanders lose out in this budget. For fiscal conservatives, the failure to reduce spending or taxes is a major drawback. From the progressive viewpoint, the state is not investing enough in things like education and transportation. Progressives also have to be disappointed, but probably not too suprised, that tax rates aren’t going up for the wealthiest Rhode Islanders. “From what I see so far, we’re all losers because the budget is just a continuation of the same old squeak-by-another-year philosophy,” said Tom Sgouros, a progressive blogger and former Democratic candidate for state Treasurer. “Taxes stay low on rich people and everyone else can dine on less. You thought music classes are important to education? Sorry. The Legislature is fully funding the education formula, but that formula is inadequate by their own study.” Blais, the spokesperson for the Ocean State Tea Party in Action, agreed that all resident lose out—but for entirely different reasons. “We are all losers by the circular nature of mandates that our General Assembly easily creates but rarely if ever repeals,” Blais said. “And so the cycle begins and never ends, the mandates result in increased costs, leading to increased (political) risk in the decision making process. We point to the mandates imposed on our cities and towns that are forcing them into bankruptcy, but there is no sign that the General Assembly will provide relief.” “Bottom line, we still don’t get it,” Blais concluded. “We have yet to receive a budget that reduces overall spending while sharply focused on improving the cost and delivery of basic government services.”
INSIDERS HAD HANDS ALL OVER 38 STUDIOS
Dan McGowan, GoLocalProv News Editor
The owner of the construction company that was awarded a contract to work on the interior of 38 Studios’ downtown headquarters has close ties to House leadership and other prominent local politicians. Steven Nappa, who owns Nappa Construction Management, has contributed over $16,000 over the last decade to top politicians including House Speaker Gordon Fox, Congressman and former Providence Mayor David Cicilline, Providence Mayor Angel Taveras, former House Speaker William Murphy and former House Finance chairman Steven Costantino. In June 2011, Nappa also contributed $1,000 to the Fund for Democratic Priorities, a political action committee maintained by House leadership. Nappa is the latest name to surface in connection with 38 Studios, the Curt Schilling-owned video game company that received a $75 million loan guarantee from the state in 2010 and was forced to lay off all of its employees last Friday.
Nappa is also connected with Michael Corso, a Providence lawyer who has made a fortune helping to sell state tax credits and was involved in the earliest meetings between Schilling and Rhode Island officials. The two hosted a private fundraiser at the Peerless Lofts for then-Majority Leader Fox in 2007. Nappa also helped build the movie screen located in the open space next to Tazza, the downtown café owned by Corso. Corso himself has contributed $11,625 to Fox, Cicilline, Taveras, Murphy and other local politicians in recent years. On Wednesday, neither Nappa nor the Economic Development Corporation (EDC) responded to inquiries about the amount the construction company made from the 38 Studios deal, but a Providence Journal story from last March cited a carpenter’s union official who said between 15 and 30 employees were working on the project.
Par for the Course: While House and Senate leadership have remained quiet regarding the Schilling’s company in recent weeks, concern over which connected individuals or companies benefited from the 38 Studios deal has only increased. In addition to Corso and Nappa’s connections to 38 Studios, several top local law firms made hundreds of thousands of dollars off the deal, including Adler Pollock & Sheehan ($124,790), Taft & McSally ($36,990), First Southwest Company ($120,620), Moses & Afonso ($190,000) and Pannone Lopes Devereaux & West ($12,250).For Common Cause executive director John Marion, it comes as no surprise that insiders may have profited from the deal. “It appears that the politically connected have benefitted from the 38 Studios debacle,” Marion said. “This is par for the course in Rhode Island politics, however. Powerful construction businesses, law firms, and others have long been beneficiaries of government’s largesse and have at the same time been financially supportive of powerful politicians in the state.”
Deal Only Possible Because of General Assembly: Schilling’s loan guarantee was only possible thanks to last-minute legislation that allowed the EDC to expand its Job Creation Guaranty Program from $50 million to $125 million, the exact amount that ended up being awarded to 38 Studios. At the time, lawmakers expressed concern over the lack of information they had regarding the fund, but the bill overwhelmingly passed anyway. The bill was first included as part of a supplemental budget that passed in the House but never made it out of the Senate. At the time, six Representatives (Rod Driver, Larry Ehrhardt, Robert Jacquard, Charlene Lima, Brian Newberry and Bob Watson) voted against the article in the budget. “If you don’t want it to be a favor factory, kill the article,” Watson, who was serving as House Minority Leader, said at the time. “This is like an attractive nuisance for all sorts of skullduggery.” When the issue came up again in May of that year, Watson was the only Rep. to vote against the bill.
Forensic Audit Underway: This week, Schilling, whose company was unable to make payroll in the days before it opted to lay off every employee, blamed Governor Chafee for scaring off potential investors with comments he made about company. Schilling was said to be seeking tax credits to help keep the company afloat, but Chafee was unwilling to offer any more incentives to save the company. Chafee announced Wednesday that the state has hired Deloitte to conduct a forensic audit of the company. And while Chafee has said he still hopes to company can find a way to pull through, he has also acknowledged that he isn’t optimistic.“This is a business that punishes those who don’t know what they’re doing,” Chafee has repeatedly said.
ANALYSIS: BAD MATH ON CITY PENSIONS
Union chief ignores lucrative lump-sum payouts
PROVIDENCE, R.I. (WPRI) – The president of Providence’s firefighters union is stretching the stats in his efforts to offset what I like to call the “Gillie” effect. In recent interviews, Paul Doughty has tried to put gold-plated pensions like that of former Fire Chief Gilbert “Gillie” McLaughlin in perspective by pointing out the average annual pension in Providence is only “$25,000.” By contrast, records show McLaughlin takes home that much roughly every six weeks. The former chief – who retired in 1991 – now collects an annual tax-free accidental disability pension of roughly $197,000 a year, a massive increase over his starting pension of $59,000 21 years ago. The impressive raise is all thanks to a guaranteed 6 percent compounded cost-of-living adjustment (COLA). Doughty is absolutely correct when he points out that most retirees make nowhere near that amount. He has criticized six-figure pensions for years and has proposed caps on retirement benefits. ( It now looks like he might get his wish.)
But here is what Doughty isn’t saying: the average retired firefighter’s pension is $48,142 a year – nearly double the average amount Doughty highlights in radio, print and television interviews. That’s according to 2011 pension data the city provided to WPRI 12 in response to a public records request. We found the average retired police officer makes $37,739 annually, while the average municipal worker – think non-public-safety workers at DPW or City Hall – gets a measly $16,452 a year. These retirees, however, also receive Social Security and another city-funded pension through their union, Local 1033; police and fire personnel in Providence are not eligible for Social Security. Another important fact not mentioned by Doughty in those interviews: many retirees take out a lump sum when they retire in exchange for a smaller pension. It’s called “Option IV” and it has a dramatic effect on the pension averages that are in play here. Here’s how “Option IV” works, based on an actual example from city records: When Firefighter “X” retired in 2012, he opted to take $153,000 out of his pension account in a one-time cash payout, which is the amount of money he contributed to the pension fund from his paycheck over the years. That reduced his annual pension from $34,000 to $24,000. Records show 1,475 of 3,148 retirees – nearly half of all Providence pensioners – used “Option IV.” The ratio is even higher for public safety retirees, with 55 percent taking the lump sum cash payment upon retirement. If “Option IV” wasn’t available and those retirees had been forced to leave the money in their pension accounts, the average city pension would be much larger than the amounts Doughty cites in interviews. As WPRI 12 has previously reported, 54 percent of retired Providence firefighters were collecting a tax-free accidental disability pension for being hurt on the job as of last year. What hasn’t been reported is that many of those disabled pensioners were also allowed to take back their own pension contributions as a lump sum cash payment upon retirement – without a reduction in the size of their pensions. This was a perk that used to be given to those awarded a disability pension and it’s no longer offered to those hurt on the job (though “Option IV” still is offered to regular pensioners). But it played a key role in draining the city pension fund, which has fallen from 64% funded to 32% funded since 1989. The landmark settlement tentatively agreed to this week by Mayor Angel Taveras, city workers and retirees is mainly focused on public-safety pensions. Current and retired police and fire personnel will feel the proposed pension caps and COLA freezes more than other city workers, mainly because they make more. Doughty deserves credit for always being accessible, even when he knows the interview isn’t going to be pleasant. But he’s not giving the complete picture when he cites the $25,000 average without context.
BUDGET COMMISSION TAKES OVER CITY’S FINANCES
Five-member group will have its first meeting Friday to rush state aid to city schools
By JOHN HILL JOURNAL STAFF WRITER
WOONSOCKET — A five-member state Budget Commission took control of the city’s deficit-ridden finances Tuesday, Governor Chafee announced. Budget commissions have authority over all city and school spending, as well as the power to approve or veto contracts and order the sale of city property. They also have the power to accelerate state aid payments without getting legislative approval. That hurry-up of state aid, moving up Woonsocket’s end-of-June school aid payment, will be the commission’s first order of business at its inaugural meeting Friday, state Director of Revenue Rosemary Booth Gallogly said. School officials have said that would enable the schools to remain open next week.
The next job, Booth Gallogly said, would be to persuade the House to approve a bill permitting a 13-percent supplemental tax assessment the school system needs to keep the schools open through the end of the school year. he commission will not only deal with the school deficit, she said, but will craft a five-year plan of cuts and revenue increases to stabilize the city’s retirement benefit funds as well. The Budget Commission members include East Greenwich Town Manager William Sequino Jr., Rhode Island League of Cities and Towns Associate Director Peder A. Schaefer, former Woonsocket School Department business manager Dina Dutremble, Mayor Leo T. Fontaine and City Council President John F. Ward.
Though appointment of the Budget Commission means a loss of local control, Fontaine said Booth Gallogly’s choices were heartening. “I’m actually pleased” with the group Booth Gallogly picked, he said. Sequino has been town manager in East Greenwich since 1988 and is well-known in municipal government throughout the state. Schaefer, a former Warwick finance director, also served as chief budget analyst for the of the state Office of Municipal Affairs before joining the league. Dutremble was a particularly good choice, Fontaine said. She worked in the Woonsocket School Department’s business office from 1989 to 1999. When the school system’s financial problems that have resulted in an anticipated $10-million budget deficit were discovered by city auditors in December, she was called in to help with a virtual check-by-check reconstruction of the school system’s 2011-12 budget.
Booth Gallogly said budget commissions were her preferred method when state intervention was called for. She appointed a budget commission in East Providence in December. Chafee announced the creation of the Budget Commission at a Tuesday news conference, five days after the House failed to pass the supplemental tax bill and two days after the Woonsocket City Council asked for the commission. Citizens Bank had promised to lend the city $3.2 million if the supplemental tax bill was signed into law. City Finance Director Thomas M. Bruce III has said that would have gotten the schools to the end of the year. Without it, city officials have said, the schools could run out of money in about two weeks. The city’s deteriorating finances have led to multiple downgrades of its credit rating. The most recent was Thursday, when Moody’s Investors Service dropped Woonsocket’s rating to B2, five steps into junk-bond status. Moody’s says such a rating means the municipality’s bonds are considered “speculative and subject to high risk.” It made that announcement before it knew the House refused to vote on the supplemental tax bill. The announcement noted that failure to pass the supplemental could trigger a further downgrade.
MAYORS WANT PROVIDENCE TO PAY FOR MUTUAL AID
Proposal to bill flat-fee for providing emergency services, mutual aid to Providence
By MARK REYNOLDS JOURNAL STAFF WRITER
The mayors of North Providence, East Providence and Johnston announced Tuesday that they have asked Providence to pay up to $500 whenever their emergency rescue technicians provide service in the capital city, suggesting that Providence’s extensive and lopsided use of an existing mutual aid arrangement slows emergency response in the three neighboring communities and isn’t fair to taxpayers. Emergency medical technicians and fire rescue trucks from North Providence, East Providence and Johnston went to Providence nearly 1,600 times in 2011, but the city’s own fire rescue trucks visited the three neighboring jurisdictions fewer than 100 times during the same period, according to Mayors Joseph M. Polisena, Johnston, Mayor Charles A. Lombardi, North Providence, and Bruce Rogers, East Providence.
Speaking at a news conference in Johnston, the mayors said they are going public with their billing proposal in an effort to dispel a rumor. They have not threatened to cutoff emergency service to Providence or issued any ultimatums to the city, they said. The mayors said they met with Providence’s public safety commissioner, Steven M. Paré, on May 4, and met with Mayor Angel Taveras on May 16. They have asked Providence to re spond to their proposal for a flat $500 fee by June 18, they said. Paré provided feedback from Providence far ahead of that deadline in an interview Tuesday afternoon, saying the city cannot agree to the proposed flat fee because it doesn’t have the money and because a flat-fee arrangement will not address the root public safety issue, which is the unnecessary use of the fire rescue service. Developing a program to lower the reliance on fire rescue isn’t something that can happen in 30 days or 60 days, Paré said, adding that Providence will make a formal response to its neighbors’ request, but the city will not agree to the flat fee.
Paré also noted that Providence provides other types of public safety services to its neighbors, including powerful radio equipment that supports communications between emergency personnel in surrounding communities. Reaching rental arrangements for the use of each community’s public safety equipment and personnel isn’t the way to solve the problem, Paré said. “It’s a little more complex than saying, ‘Look it’s costing too much money and you’ve got to reimburse us,’ ” he said.
In response, Polisena said he is willing to give Paré and Providence additional time, beyond June 30, to devise a plan for addressing the issue. Rogers said he’s willing to agree to extending the time frame but “the situation has to change.” “We need to take care of our own,” he said. Earlier in the day, the three mayors said the diversion of rescue crews to Providence means their constituents must sometimes wait longer for service during an emergency. To not receive any compensation “adds insult to injury,” Polisena said.
Each of the mayors also said that taxpayers in their financially addled communities can no longer afford to subsidize Providence’s emergency service. Rogers said that East Providence’s budget is under the microscope of a state overseer who is demanding a full accounting of fire rescue expenses. The city is in the process of trying to determine exactly how much it spends on rescue service to Providence. In Johnston, about 10 percent of all 4,917 rescue calls made during 2011 provided service in Providence, Polisena said.
Providence handles 32,000 fire rescue calls per year, according to Paré. Johnston charges about $1,060 for the average rescue service and $1,270 when the rescue requires advanced life support, Polisena. Under the proposal, the three communities would collect the money either through individual patients’ health insurance or from Providence when no insurance reimbursement is available.
If 38 Studios can’t pay off its $75 million EDC loan, as appears likely, it’ll be up to Rhode Island taxpayers to step in and cover the principal and interest payments bondholders are due through 2020, at a cost of nearly $90 million. But as Marcia Van Wagner of Moody’s noted last week, these are moral obligation bonds, not general obligation bonds, which means the state only promised to ask for money to pay them off: “Once the appropriation request is submitted [by the governor] to the legislature, the state’s legal obligation has been met and the legislature may decide not to appropriate the funds,” Van Wagner wrote. The possibility that Rhode Island would actually default seems remote; state officials from Governor Chafee on down told Moody’s taxpayers will make bondholders whole, and the Department of Revenue is already mulling how to deal with the burden left by 38 Studios. But writing in his new Boston Globe column, Josh Barro suggests Rhode Island should seriously consider stiffing bondholders:
Generally, states should perform on their moral obligations. But Rhode Island’s government has more moral obligations than it can possibly service. The state still struggles under a huge unfunded public employee pension obligation, even after a major set of pension reforms last year, which will freeze cost of living adjustments for current retirees for as long as 15 years. Surely, the state had a moral obligation to pay those pension benefits in full. If it couldn’t afford to meet that obligation, how can it afford to appropriate the nearly $100 million that it will take to pay off the 38 Studios bondholders with interest? A default will surely make it difficult for Rhode Island to issue more moral obligation bonds — but if that means no more 38 Studios-style deals, so much the better.
Read the rest here. And Josh isn’t the only one writing about the 38 Studios deal:
- The Globe’s reporters looked at why it unraveled so fast and the demand for 38 Studios’ ex-workers.
- CNNMoney’s Ken Sweet reports the deal was flawed from the start and suggests the Chafee administration should have sought an injunction to keep the workers in place.
- Joystiq’s Alexander Sliwinski reports a “Reckoning” sequel was already in the works, though Electronic Arts passed on it.
- Big Huge Games’ lead designer wrote about the collapse and why it means no “Reckoning” patch.
- My WPRI 12 colleagues tried without success to interview Governor Carcieri.
- Chafee’s comments about the violence and sexism in video games sparked some debate.
- The Worcester T&G’s Peter Cohan explained why Massachusetts didn’t do what Rhode Island did.
Lastly, Curt Schilling wrote Sunday on Facebook: “Phillipians [sic] 4.4-4.9.” (Here’s the verse.) Oh, and if you missed it Friday night, Chafee and Raimondo are arguing over why she wasn’t at a 38 Studios briefing.
Lincoln’s Krawetz fights termination
LINCOLN, R.I. (WPRI) Twice convicted Lincoln police officer Edward Krawetz who was caught on video kicking a handcuffed woman in the head, will fight the town’s effort to fire him. A Twin River surveillance camera recorded Krawetz kicking Donna Levesque who was sitting on a curb near the officer at the time. Levesque was told to leave the slot parlor for unruly behavior right before the May 31, 2009 incident.
During his January bench trial, Krawetz claimed self defense, telling the court that he reacted to Levesque kicking his shin area. The 20 year veteran was convicted of felony assault by Judge Edward Clifton who decided against jail time. Krawetz was ordered to undergo counseling and given a 10 year suspended sentence. Krawetz’s termination case will be heard and decided by three police officers in a system outlined by the Law Enforcement Officers’ Bill of Rights . Krawetz will choose one officer, the Lincoln police chief will choose a second and the two sides will choose a ‘neutral’ officer.
The town’s attorney in the termination case, Vincent Ragosta, told Target 12 if Krawetz prevails he could receive back pay, Krawetz’ attorney Gary Gentile would not comment on the case. Krawetz’ attorney in the assault case, John Harwood, filed an appeal after the conviction and told Target 12 the appeals process could take years. Krawetz is suspended from the police force without pay, but Ragosta said he will continue to receive medical benefits while the cases move forward. This was the second conviction for Krawetz who was found guilty of misdemeanor assault in 2001 after an off duty confrontation with a man who was jogging in Cumberland. Krawetz was suspended from the police force for 30 days following that conviction and Eyewitness News learned that several town officials recommended to the police chief at the time that Krawetz should be fired.
SCHILING BLAMES STATE FOR COMPANY’S PROBLEMS
Says Chafee, EDC officials reneged on tax-credit deal needed to keep firm afloat; states governor’s comments scared off investors
By MIKE STANTON and ANDY SMITH JOURNAL STAFF WRITERS
PROVIDENCE — Curt Schilling sits in a glass-walled conference room in the video-game company that he built. The former Boston Red Sox pitching star is gaunt, unshaven and wearing a wrinkled 38 Studios T-shirt and green camouflage shorts. He is not sleeping and has lost 33 pounds in the past 45 days, which he calls a “surreal” stretch that has seen 38 Studios — the company that he and Rhode Island have bankrolled to the tune of more than $100 million — brought to the brink of financial ruin. His controversial partnership with the State of Rhode Island, forged with $75 million in taxpayer-guaranteed bonds two years ago, is hanging by a thread, in large part, he says, because of broken promises by the state and damaging public comments by Governor Chafee regarding 38 Studios’ finances.
If 38 Studios fails, Rhode Island taxpayers will be liable to repay more than $100 million. Also, Schilling says, he stands to lose $50 million of the fortune he earned as a likely Hall of Fame baseball pitcher and committed to the venture — “everything I have.” In exclusive interviews with The Providence Journal over Memorial Day weekend as he struggled to save his Blames state for problems company, Schilling broke his silence, defending his beleaguered company and denying that he sought a government “bailout.” Schilling, the founder and chairman, says state economic-development officials reneged on a deal to approve film tax credits to which 38 Studios is legally entitled, and to allow the company to defer a $1.12-million payment due to the state on May1so that 38 Studios could meet its May 15 payroll. Schilling also criticized Chafee’s “devastating” public remarks about 38 Studios’ financial health, which he says scared off private investors.
Within 72 hours of Chafee’s May 14 statement that the state was trying to keep 38 Studios “solvent,” Schilling says, a video-game publisher pulled out of a $35-million deal to finance a sequel to “Kingdoms of Amalur: Reckoning,” the fantasy game that 38 Studios released in February. Chafee said Monday night that he was trying to strike a balance between providing information to the taxpayers and not jeopardizing 38 Studios. As a candidate in 2010, Chafee opposed the state’s deal with 38 Studios but said he would be the company’s biggest cheerleader once it was in place when he took office in 2011.
On Thursday, 38 Studios was forced to lay off its 286 workers in downtown Providence and 100 in Maryland. “The governor is not operating in the best interest of the company by any stretch, or the taxpayers, or the state,” says Schilling, who invited two Journal reporters and a photographer into the usually off-limits offices at One Empire Plaza, in downtown Providence. “We’re trying to save this company and we’re working 24/7. The public commentary has been as big a piece of what’s happening to us as anything out there.” Chafee says he wants to do whatever he reasonably can do to help, but that he’s opposed to throwing “good money after bad” or allowing 38 Studios to receive film tax credits after receiving $47 million in state bond money. Responds Schilling: “That money is going into the hands, wallets, mouths of families who live in Rhode Island — right back into the system. … We’re not trying to take advantage of the taxpayers. We’re trying to be a successful business in the State of Rhode Island that helps the State of Rhode Island get out of the doldrums that we are in.” Furthermore, Schilling says, all of the money he received from the state and all of his own money that he invested has gone into the company, much of it into the Rhode Island economy. According to 38 Studios, 182 of its Providence-based employees live in Rhode Island, earning an average salary of $86,000. “To be clear, I’ve never taken a penny out of this company,” says Schilling. “If this company fails, I will be financially devastated, and so will other people.” Schilling says that talks continue with potential investors, who might be willing to step in if the state agrees to yield its first position on 38 Studios’ collateral to a private investor.
Is 38 Studios finished? “I don’t know,” says Schilling. “I pray that it’s not. We’re doing everything we can do to make that not be the case.” Jonathan Savage, a business lawyer who is representing Chafee, says that he is in daily discussions with 38 Studios and with potential private investors. He says that he believes Chafee was merely stating the obvious when he commented publicly on the company’s troubled finances; the governor’s remarks haven’t proven damaging in Savage’s talks with private investors. He is not aware of any potential deals falling through but says those publishers would be welcomed back at the negotiating table. “It’s a fragile situation,” Savage said Monday night. “The governor has made it clear that he wants no new taxpayer money spent, but he has also encouraged me to forge ahead to find fresh private capital.”
Savage said the state is willing to yield first position to 38 Studio’s assets –– its intellectual property –– to attract a private investor. “The state is not going to be a barrier,” he said. The current crisis began in mid-April, when Schilling and 38 Studios executives met with Chafee and House Speaker Gordon Fox to discuss a cash crunch at the company. Schilling attributes the crunch to the normal growing pains of an “early-stage startup” company. Disputing Chafee’s assessment, Schilling says that “Kingdoms of Amalur: Reckoning” had enjoyed a successful launch in February, selling more than 1 million copies in its first 90 days and exceeding the projections of its publisher, Electronic Arts. Schilling says 38 Studios hasn’t seen any money from “Reckoning’s” sales, nor did it expect to: that money was committed to EA, which had paid 38 Studios an up-front publishing fee of $35 million. But he says the positive buzz from Reckoning created interest and potential customers for the bigger, multiplayer online fantasy game that the company is developing, dubbed Project Copernicus, which is set in the same universe.
“That changed the tenor and velocity of all of our investor discussions,” says Schilling. “We felt we were in an extremely positive place.” Still, given 38 Studio’s previous inability to attract private financing, Schilling says the company needed short-term help from the state to stay afloat until private deals came through. At the April meeting with Chafee, says Schilling, 38 Studios’ executives said they needed to use $8.7 million in 2011film tax credits to provide that financial bridge and to meet the May 15 payroll. They also discussed the need to lure private investors by giving them “senior security interests” in 38 Studio’s assets, most notably its intellectual property. That meant Rhode Island taxpayers would take a back seat to any private investor — something that Schilling says always was going to be necessary and had been discussed previously with the Rhode Island Economic Development Corporation, which issued the job-guarantee bonds.
Schilling says 38 Studios’ inability to give a private investor “first position” had created hurdles to attracting private venture capital, “but I’d always been operating under the assumption as our partner we’d come to agreements.” As 38 Studio’s April talks with the state progressed, Schilling says, Chafee’s position was that “we are partners” and that he wanted to help. The paperwork for approval of the film-tax credits was moving along. Two EDC board members, Helena Foulkes and J. L. “Lynn” Singleton, were briefed on the plan, which would require approval of the EDC board, which is chaired by Chafee. 38 Studios was dealing with Keith Stokes, then-EDC’s executive director, and David Gilden, the EDC’s lawyer. On April 30, Schilling says, the company talked to Stokes about deferring the $1.12-million payment that was due the next day, May 1, and using the money for the May 15 payroll. But the company also said that if the tax credits were issued in time, 38 Studios wouldn’t need the extension.
Stokes declined comment. Gilden could not be reached. The company missed the May1payment. As a result, on May 4, the EDC issued a notice that 38 Studios had defaulted on its state loan agreement, making the company ineligible for the film-tax credits that it needed to stay afloat. Schilling says the company was blindsided by the notice. Under terms of 38 Studio’s original agreement with the state, he says, the company should have had 30 days to address the missed payment before being declared in default. That touched off frantic negotiations among 38 Studios, the EDC and Chafee. By the end of the following week, the word had begun leaking to reporters. Then, on Monday, May 14, Chafee said publicly that the state was working with 38 Studios to keep the company “solvent.” In the ensuing days, as the 38 Studios story went viral, Chafee made other public remarks that Schilling calls damaging. The governor said the Reckoning game released in February had been an “abject failure.” He also revealed the projected release date of Project Copernicus, June 2013, and 38 Studios’ “burn rate” ––that it was spending $4 million a month, the lion’s share on payroll.
The release date of a game is “the most costly piece of information we own,” says Schilling. And the burn rate is a closely guarded industry secret. “Those two nuggets were given out as if, ‘Here’s the weather and here’s the time.’ “We made it clear in EDC meetings how damaging it was, what was happening to our company. [My workers] are sitting there, busting their [humps] without a paycheck, we’re grinding through this, and then he’s press-conferencing on a daily basis, saying this company is a failure, our games are a failure, this was a mistake –– over and over and over again.
“Our partner.” On Saturday, May12, Schilling says, 38 Studios learned that the president of a video-game publishing company had approved a $35-million deal to publish the sequel to Reckoning, and was going to his company’s executive committee that week for the money. But Chafee’s comments killed the deal, Schilling says. The company also says Chafee’s public comments derailed discussions that 38 Studios says it was having with another publisher for a $55-million deal on Project Copernicus, as well as a venture capitalist about additional financing. 38 Studios declined to identify the would-be investors, citing confidentiality.
Meanwhile, Schilling says, the EDC’s Stokes and Gilden had agreed to a deal in which 38 Studios would pay the $1.12-million fee and then EDC would facilitate the release of the tax credits, by certifying that 38 Studios was no longer in default. The night before it was to go through, company director Thomas Zaccagnino says, he learned that the embattled Stokes, who was drawing heavy criticism for the 38 Studios deal, had resigned. Since Stokes had been a point person in talks with 38 Studios, a worried Zaccagnino texted Gilden, “Please tell me that this won’t affect our agreement.”
Responded Gilden: “it will not.” But the next day, when 38 Studios tried to pay the $1.12 million with money from a tax-credit investor, executives say they found themselves in an embarrassing scene in which Chafee announced that 38 Studios had sent a bad check with insufficient funds. Richard O. Wester, 38 Studio’s chief financial officer, says he went to the EDC’s offices at 5 p.m. that day with a check. Meanwhile, 38 Studios’ controller was back at the office, waiting for the funds to be wired from the buyer of the tax credits into 38 Studios’ account. When that happened, Wester would receive the green light to give the EDC the check. But the tax-credit buyer, whom 38 Studios declined to identify, backed out –– because the EDC lawyer Gilden would not provide a state guarantee to the buyer. When Wester learned that, he says, he never handed over the check. Fifteen minutes later, he says, he saw a news story on The Providence Journal’s website, quoting Chafee’s spokeswoman that the company had given the EDC a bad check.
The next day, Friday, May 18, another tax-credit investor wired the $1.12 million directly to the EDC. But the state did not release the tax credits to 38 Studios, and still hasn’t ––raising doubts about how that investor will ultimately be repaid. When Schilling appeared at a closed-door meeting of the EDC board the following Monday, May 21, he says, he was faced with skeptical board members. “The first question I was asked was, ‘Why did you lie to us?’ ” says Schilling. “You said you didn’t have the money, then you went out and wrote a check. I said, ‘I didn’t write the check. I don’t have the money.’ ”
In two weeks, the partnership between the state and 38 Studios has come close to breaking down. “Given where we’re at, it’s not flourishing,” says Schilling, slumped in a chair Sun-day in the 38 Studios conference room, his left cheek puffed out by a plug of chewing tobacco. The state has declared 38 Studios in default of its loan agreement again, saying that it failed to notify the state when it laid off its employees last week. Bill Thomas, the 38 Studios president, produced a May 25 letter and e-mail notifying the state, which was within 24 hours of the layoffs. The company didn’t tell the state sooner, Thomas says, to avoid leaks. “We wanted our employees to hear it from us first.” The state also has questioned 38 Studios’ eligibility for the film-tax credits because the company is incorporated in Delaware.
Thomas, the 38 Studios president, countered with a May 25 letter that he wrote to the head of the state film office, Steven Feinberg, noting that the tax credits already had received “initial certification,” which “by your own admission” means that a company registered to do business in Rhode Island, as 38 Studios is, qualified. Wrote Thomas: “There was a fully negotiated deal and agreement on behalf of the State of Rhode Island by RIEDC executive director and its executive counsel to issue all the 2011 tax credits upon payment of the annual guaranty fee,” wrote Thomas. Says Schilling: “I don’t know how we suddenly became ineligible. Delaware didn’t move.”
Meanwhile, Schilling and his partners are holding intensive discussions with private investors, both short- and long-term. The salvation of 38 Studios, and the intertwined fates of Rhode Island taxpayers, 38 Studios’ employees and Schilling’s fortunes, depend on a Rubik’s cube of investors and aid from the state. Time is running out. Schilling, 45, is alternately despondent and animated as he shows a reporter around the vacant fifth-floor offices. State-of-the-art cubicles are equipped with computers, decorated by statues of super heroes, photos from the fantasy worlds of Amalur, a Lego airplane, a water gun. The carpet is a colorful patchwork of yellow, orange, green and gray squares. A foosball table stands in a corner, near a kitchen, bright light streaming in from large windows overlooking Empire Street and downtown.
Since the company moved into these offices in April 2011, Schilling says, he has generally been at work every day by 8 a.m., trying to build a company that he says is like a family. Noting the throngs of reporters camped outside his doors, he praises the loyalty of his workers, a top-notch group of artists and engineers and designers, who have maintained their silence and stuck together. With the layoffs, some have brought groceries in for others, and offered coworkers a place to sleep. Criticized for his silence, Schilling says he has wanted to respond to the charges against him but had been restrained by his advisers and directors, given the sensitivity of efforts to save the company. He is asked to respond to critics who call him a hypocrite for having conservative, small-government values yet taking what they view as a big-government handout.
“I have done whatever I can do to create jobs and create a successful business, with my own income,” he replies. “Fifty million dollars, everything I’ve ever saved, has been put back into the economy. The $49 million from Rhode Island has been put back in the economy. I’ve never taken a penny and I’ve done nothing but create jobs and create economy. And so how does that translate into welfare baby? I’ve tried to do right by people.” He says he is speaking out now, in hopes of having people know the full story as they weigh 38 Studios’ fate. He has sunk $38 million into the company that bears his jersey number with the Red Sox, and also is on the line for another $12 million in personal loan guarantees, he says.
“We’re at a potential endgame scenario, one way or another, at some point in the near future.”
Council member warns of city’s financial woes
But mayor and state officials say, while there are concerns, city is not on verge of crisis
By BARBARA POLICHETTI JOURNAL STAFF WRITER
WARWICK –– A veteran member of the City Council is pointing to Warwick’s annual audit and its pension debt and warning that the community “is facing eye-popping liabilities.” Over the past couple of weeks Democratic Councilman Joseph J. Solomon has issued three press releases warning about different aspects of the city’s finances, in one statement saying that the city is “trending towards financial calamity.”
Solomon, a council member for 12 years, said he wants to put together a “blue ribbon” commission that will draw on financial experts to review Warwick’s pension debt and other financial liabilities.
His assessment of the city’s financial condition is being refuted by Republican Mayor Scott Avedisian. Also, state experts in municipal finances disagree with Solomon’s interpretation of some of the data and his financial predictions. Auditor General Dennis Hoyle said last week that while Warwick, like most communities, has one pension plan that is critically underfunded, he has not seen evidence that it is on the verge of a crisis.
In addition to sounding the alarm on an older city pension plan that is funded at about 22 percent, Solomon, who is a lawyer and an accountant, says that a section of the annual audit shows a continuing decline in city assets, which he says is indicative of a “dangerous financial trend.” Hoyle and Susanne Greschner, chief of the state Division of Municipal Finance , said many communities’ audits are showing declining net assets because newer accounting standards require them to deduct future pension debt –– and the cost of other post retirement benefits such as health insurance — from current assets.
“I do not want to minimize issues that are clearly important, but I do not view it that way,” Hoyle said when asked about Solomon’s prediction that the city is trending toward a financial disaster. Greschner said that some future costs, such as health care for retirees, are “soft liabilities” that can change if a municipality alters its pension benefits.
Avedisian said that the city has talked openly about its one underfunded pension plan for years and “it should come as news to no one.” The city is 18 years into a 40-year plan to fully fund that plan, which is closed to new members and represents roughly 250 retired police and firefighters and 60 active employees in those departments, he said. Avedisian noted that the city’s three other pension plans are considered healthy, funded at near or above 80 percent. Regarding declining municipal assets, Avedisian said it is like a family assuming its house is worth nothing because its value does not equal what the mortgage payments will be over 30 years. “These are debts that are to be paid over time,” Avedisian said. Solomon said that he understands that there are communities with worse pension woes, and state officials can point to other municipalities also seeing a drop in assets but that doesn’t mean that Warwick is without problems that need to be addressed. firstname.lastname@example.org
Council to ask state to take fiscal reins
By ALEX KUFFNER JOURNAL STAFF WRITER
WOONSOCKET — The City Council on Sunday night voted to ask the state to appoint a budget commission that would take control of the city’s finances and help find a way to bridge a budget deficit in the School Department. The Council voted 5 to 2 to request the creation of the commission, with members Roger Jalette and Albert Brien opposed. Brien and Jalette had instead proposed bringing in a state-appointed receiver, arguing that doing so could present more options, but the Council rejected their motion, said President John Ward.
“The only reason this has become necessary is that our cash flow is compromised and we will be out of money in two weeks,” Ward said. Council members had been counting on the passage of legislation that would allow the city to levy a supplemental tax to raise $6.6 million for the struggling School Department. But on Thursday the bill was sent back to committee after failing to clear the House of Representatives.
Some on the Council think that a state-appointed budget commission would be able to secure a $3-million school aid payment earlier than the scheduled release of the money in June. But Ward said the Council is still hoping for passage of the supplemental tax bill.
The House sent the legislation back to the Finance Committee after Rep. Lisa Baldelli-Hunt, D-Woonsocket, expressed concern that the city did not have a specific plan to resolve the financial problems. Auditors in December found that the School Department overspent millions of dollars during the last two years.
“We are still in a situation in which we will have to come up with some other way to make payroll,” Ward said.
Most local plans found lacking
Study commission provides eight-tier ranking system to help guide communities
PROVIDENCE –– A special state commission charged with helping cities and towns get their locally run pension plans in order has ranked roughly three dozen plans in its attempt to give a clearer picture of the work needed in each community. The eight-tier ranking system ranges from plans that are well-funded and have undergone required financial reviews to those that are severely underfunded and have not been assessed recently by professional actuaries. Susanne Greschner, chief of the state Division of Municipal Finance, said that the ranking system is intended to help municipalities and the state’s Locally Administered Pension Plans Study Commission see where progress is being made.
“We’re just trying to provide them with further guidance,” she said. “This is very much a work in progress that will change as we get more information from communities.” “If they feel that they are not in the right category or have since completed a step, they just need to tell us,” she said. “We want to work with them.” The pension study commission had given communities until April 1 to show that they had completed necessary reviews of their plans and followed recommended changes. The municipalities are supposed to have actuaries conduct an “experience study,” which looks at such assumptions as life expectancies and interest rates predicted on pension-fund investments.
The commission is also requiring cities and towns to have an “actuarial valuation” that would look at how much a municipality has in its pension system, how much it is expected to pay out in the future, and what it should be contributing every year. According to the state, any plans that are below 60-percent funded are in “critical status,” and all plans should be at least 80-percent funded. In March, the commission said that, based on initial information coming from the communities, it looked like the various local plans could have a collective $2.3-billion gap between the assets they have on hand and what they need to pay their pensions.
The study commission was formed last year as a requirement of the pension-overhaul legislation passed in November –– intended to help cities and towns deal with pension plans that are not in the state retirement system. Many of the local plans are severely underfunded. Of the new rankings issued last week, only the City of Warwick has plans rated as “Tier 1,” which means the state considers them sufficiently funded plus the fact that the city has conducted all requisite reviews and adjusted its plans based on actuaries’ recommendations.
Three of Warwick’s four retirement funds — for municipal employees, firefighters and police — received the Tier 1 ranking. The city’s fourth retirement plan, a plan for police and fire retirees that has been closed to new employees for years, was rated at Tier 4. According to the state, that ranking is for plans that are critically underfunded (60 percent or less), but have had sufficient review and been adjusted according to professional recommendations. That Warwick plan is about 22.3-percent funded, but city officials have said they are on track with a 40-year payback plan that was started 18 years ago.
Some communities, such as Jamestown, Little Comp-ton and Woonsocket, are at Tier 3 with pension plans the state considers sufficiently funded but the municipalities have not completed the required experience study. The largest group of communities (15) was ranked at Tier 5 with plans in critical status, requisite studies completed, but no evidence that recommended changes have been made. Communities in that group include Providence, Cranston, North Providence, East Providence, Johnston, and Newport. The eighth tier contained only one police retirement plan from the town of Narragansett , which is closed to any new members, but is not funded at all. Those pensions are paid out of the town’s operating budget. email@example.com
Carcieri still won’t discuss 38 Studios
Ex-governor who lured Schilling avoids questions
EAST GREENWICH, R.I. (WPRI) – Former Gov. Donald Carcieri still won’t face taxpayers despite the stunning implosion of the $75 million loan guarantee he got them to give Curt Schilling’s video game company, 38 Studios, less than two years ago. WPRI 12′s cameras tracked down the elusive Republican on Saturday in East Greenwich, his former hometown, after he was reported to be helping his daughter, Alison, pack up her family’s house there. Upon arrival, a woman who didn’t identify herself told WPRI 12 the former governor would not answer any questions from reporters. She and others continued to pack up the house, and Carcieri was never spotted.
- Nesi’s Notes: Full coverage of 38 Studios
- PDF: EDC fact sheet on 38 Studios
- Timeline: How the 38 Studios deal unfolded
Carcieri, 69, has avoided the limelight since leaving office in January 2011 and has made no public statements since 38 Studios’ apparent insolvency became public earlier this month. He also refused to speak with reporters while dining with his former aides at the Cowesett Inn in West Warwick last week. Carcieri began discussing the possibility of bringing fellow Republican Schilling and his company to Rhode Island after meeting the former Red Sox ace at a fundraiser in March 2010. Democratic legislative leaders and Keith Stokes, the R.I. Economic Development Corporation chief appointed by Carcieri, strongly supported the idea.
State lawmakers quickly expanded and enacted a new $125 million loan-guarantee program, and in late July the EDC board of directors, which was chaired by Carcieri, signed over $75 million of the program’s resources to Schilling and 38 Studios. The company moved to Rhode Island the following April. “I commend the RIEDC Board for its extensive due diligence and for taking this significant step to bring jobs to Rhode Island,” Carcieri said the night the agency approved the loan to Schilling. “I welcome 38 Studios and am confident Rhode Island will provide the environment and workforce to make the company a leader in the interactive entertainment and video game industry.”
A WPRI 12 poll later that year showed 54% of Rhode Island voters opposed the $75 million loan guarantee to 38 Studios, with just 28% in favor of the deal. 38 Studios laid off all its employees Thursday after defaulting on its loan agreement with Rhode Island earlier this month and then failing to make payroll after apparently running out of cash. There was no sign of activity outside its Empire Street headquarters on Saturday. “There is only a risk if everything goes wrong,” Carcieri later told The Providence Journal when asked about the wisdom of putting taxpayers on the hook to support a company in the massively multiplayer online game industry. Taxpayers could owe nearly $90 million in principal and interest payments if 38 Studios can’t pay the loan.
Stokes, who was kept in place by Governor Chafee when he succeeded Carcieri despite his vocal opposition to the 38 Studios deal, resigned last week amid questions about the way he structured the loan and whether his agency kept a close enough eye on the company’s fiscal condition. Carcieri served two terms as governor of Rhode Island, from 2003 to 2011, and described himself as the state’s first “CEO governor.” He entered politics after a long career at Cookson Group, the London-based materials company, during which he eventually rose to become chief executive of its American operations. Ted Nesi ( firstname.lastname@example.org ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi
Can RI economic development focus on investment instead of cronyism?
The Curt Schilling 38 Studios fiasco is a symbol of what’s deeply wrong with Rhode Island’s political culture. RIPR political analyst Scott MacKay explains. The cliché about Rhode Island is that you can put the decision-makers all in one room. In our cozy state, it’s easy to gather everyone who matters together and hammer out a decision, goes this theory. If that’s the case, it begs the question: Why is our political culture so dysfunctional? The latest example of this, of course, is the deal that gave Curt Schilling, a washed up Red Sox pitcher, $75 million in state loan guarantees so he could follow his retirement dream of creating a video game company in Providence.
Now, Schilling’s company, 38 Studios, is on the rocks. And taxpayers are on the hook for as much as $102 million. It doesn’t have to be this way. We got into this swamp because of the way the General Assembly works, or doesn’t, and the whims of then-Gov. Donald Carcieri, who turned the state’s economic development checkbook over to a ballplayer with no discernible business track record.
That’s because the beauty of Rhode Island is also its bane. Sometimes getting all the decision-makers in a room yields benefits – the drive to lure Fidelity Investments to our state and the construction of the Providence Place Mall are two good examples. Yet far too often, this you `gotta-know-a-guy’ way of doing business makes our state a national joke. Remember the insider State House dealing that led to the 1991 banking crisis? Or the doomed Alpha-Beta bio tech foray.? How about the look-the-other-way Smith Hill culture that gave us the Institute for International Sport at the University of Rhode Island?
Someday we will figure out how Schilling was handed this crony capitalism plum. We’ll follow the money and find out which law firms benefitted, which p.r. firms got business and maybe even whose brother got to sit in the Fenway Park box seats with Big Schill. We don’t call Rhode Island a theme park for federal agents and reporters for nothing. The reporters get their prizes, the feds get their collars and our state will shuffle on to the next scam. And someday, Thanks Don Carcieri, House Speaker Gordon Fox, D-Providence and Senate President Teresa Paiva Weed, D-Newport will emerge from their take-no-questions bunkers and try to justify the actions that foisted this mess on our state. For way too long, Rhode Island economic development efforts have focused on the Silver Bullet theory: That it is worth spending government money on a glitzy project that will make our state a big player in whatever industry is the flavor of the month.
The `smallest state with biggest egos’ syndrome is also at work here. Why do we always have to be the `I, me’ state and not the `we’ state? Wouldn’t it have been nice if General Treasurer Gina Raimondo, who has a strong private sector record in venture capital, had picked up the phone and offered to help Governor Lincoln Chafee cope with the 28 Studios fiasco. Instead, she went on talk radio to say basically that she really didn’t know anything specific about the video-game company. Can’t the 2014 election cycle wait until we at least get through the 2012 campaign? There has been a role for government in economic development since John Adams built the lighthouses along the New England coast in the 1790s. Remember that government subsidies built the transcontinental railroads, the interstate highways and the Internet. It was government that created the state universities that gave the ordinary a chance at accomplishing the extraordinary.
Governments can be effective at creating the conditions- good schools and infrastructure – for economic growth. But politicians and bureaucrats, either state or federal, aren’t so good at picking winners and losers in the free marketplace. You only have to jump on one of those government-subsidized commuter rails to Boston to see how smart job growth works. Remember that Massachusetts Gov. Deval Patrick raised sales taxes to support schools ( those Massachusetts teachers are also union members) and communities when Rhode Island’s Governor Carcieri was cutting taxes for the rich and slashing aid to communities and URI.. Now, the Massachusetts unemployment rate is about 6 percent and Rhode Island’s is more than 11 percent. Education is the fulcrum to economic success is the global, knowledge-based economy. These investments have paid off; a 2011 report shows that the Bay State has the highest per capita venture capital, patents and technology licensing of 10 leading high-technology states. And Massachusetts has the second-highest per capita personal income among the 50 states.
And let’s not forget which state passed on the Schilling deal because it was too risky an investment for taxpayers and which rube state gave him the money. Patrick is a smart, liberal Democrat with a 61 percent approval rating. And yes, Bishop Thomas Tobin, Massachusetts was the first state to embrace same-sex marriage. The result: Massachusetts, the nation’s most Roman Catholic state, also has the lowest, or one of the lowest, heterosexual divorce rates among states. So much for marriage equality undermining traditional marriage.
Massachusetts political history is littered with as many rouges, florid pols, petty corruption and ethnic rivalry as Rhode Island. The Bay State has talk show idiots. Yet, Boston is much more of a what-you-know city than Providence, where all too often it is all about who you know. It’s time for Governor Lincoln Chafee and our business and educational leaders to stop traveling to Pittsburgh and Texas to view how economic development investments work. Boston is a lot closer. They could even take in a game at Schilling’s old stage, the emerald lawn at Fenway. Boston is trying very hard to keep the well-educated young from leaving the state. For example, the Greater Boston Chamber of Commerce last year started a website for members to list internships. The Massachusetts Life Sciences Center, a quasi-public agency, pays interns a $7,200 stipend and places them at small companies that might not otherwise be able to recruit or afford them, according to the Boston Globe. Why don’t we do this in Rhode Island? Rhode Islanders would be approvingly startled if our state embraced the investment model of economic development instead of the cronyism model. Why not try it at McKim, Mead and White’s majestic State House?
This we know: Whatever we have been doing, it isn’t working. It’s well past the time for Rhode Island politicians to heed the words of that great philosopher Sam Clemens. “Do the right thing. It will gratify some people and astonish the rest.’’ Scott MacKay’s commentary can be heard every Monday on Morning Edition at 6:40 and 8:40. You can also follow his political reporting and analysis at the `On Politics’ blog at RIPR.org
23 Local Pension Plans in ‘Critical’ Condition
Dan McGowan, GoLocalProv News Editor
Nearly two dozen local pension plans are less than 60 percent funded and are considered in “critical status,” according to the latest experience studies and actuarial valuations required by state law. Now state officials have grouped the municipal plans into eight tiers, ranging from the best-funded plans that aren’t in need of an intervention (Warwick’s municipal, police 2 and fire 2 plans) down to several plans that are well-under 35 percent funded and have yet to complete experience studies. The state’s pension reform law passed last fall required all municipalities to submit their actuarial valuation studies to a pension study commission. All plans that are less than 60 percent funded are considered to be in “critical status” and communities are required to submit a corrective action plan to improve their funding status within six months.
The plans in critical condition include: TIER 4 Tiverton (54.1%), Warwick fire and police 1 (22.3%), West Warwick (26.3%), Scituate (27.5%); TIER 5 – Bristol (47.5%), Coventry municipal (25.3%), Coventry police (11.3%), Cranston (16.9%), East Providence (33.6%), Johnston police (27%), Johnston fire (32.4%), Narragansett (59.4%), Newport police (57.1%), Newport fire (39.6%), North Providence (40%), Portsmouth (55.3%) Providence (32.3%), Smithfield police (18.5%), Westerly (51.7%); TIER 6 – Coventry school (30.5%), Pawtucket (30.3%); TIER 7 – Cumberland (38.9%); and TIER 8 Narragansett police (0%).
The Chafee/Raimondo Battle
But while communities have begun taking steps toward addressing their pension woes, Governor Chafee is still hoping the General Assembly will consider his municipal relief package, which will let distressed communities (Providence, Pawtucket, West Warwick and Woonsocket) freeze cost-of-living-adjustments and will allow mandate relief and binding arbitration reform on those municipalities. Chafee’s package also includes disability pension reform, grants communities more control over their school budgets and would advance state aid.
The Governor blames cuts in state aid as the reason cities and towns across the state have fallen on hard times. Since the beginning of the recession, the state cut funding to communities by more than $240 million and Chafee believes the result has been skyrocketing property taxes and growing deficits that have already forced Central Falls into bankruptcy and others to take drastic measures to remain solvent. “Massachusetts raised the sales tax and Deval Patrick took a beating over it, but it stabilized Massachusetts,” Chafee said during a recent interview with GoLocalProv “We did it differently. We hit the cities and towns. We just passed it down to the local levels. That’s what cost us.” The Governor has been critical of General Treasurer Gina Raimondo for not taking a more proactive approach to municipal reform when during last year’s statewide pension reform debate. He has said that because legislators are now facing reelection, they have only offered lukewarm support for his package even though 35 cities and towns have now passed resolutions supporting his plan.
Raimondo meanwhile has said cities and towns needed to do their homework before overhauling their pension systems. The current plan also addresses all communities as opposed to just the highly distressed ones. But the criticism led Raimondo to question whether Chafee had even reviewed the pension reform bill in a recent interview with local talk show Dan Yorke. “Maybe the Governor hasn’t reviewed the legislation that was passed by the General Assembly, but there was an entire chapter dedicated to independent municipalities and that work is happening,” Raimondo said.
Cities and Towns Begin Making Changes
But while Chafee has been pushing for his relief package, cities and towns have been conducting actuarial valuations and have begun the initial steps of addressing their unfunded pension liabilities. In Portsmouth, for example, the town recently lowered its return on investment rate to 6.75 percent, down from 8 percent in prior years. “I should point out that the town has consistently made its annual required contribution to the pension plan as determined by our actuary,” Town Administrator John Klimm wrote in a letter to pension recipients recently. “Due primarily to the poor financial market results in fiscal year 2008-09 and the lowering of our projected investment rate of return from 8 percent to 6.75 percent, the town’s funding status has dropped below 60 percent.”
In a similar letter, Bristol Town Administrator Diane Mederos informed pension recipients that the town had also reduced its projected return on investment rate, which dropped the funding rate below 50 percent. The town takes very seriously the responsibility of this liability to our pension plan recipients,” Mederos said. “We are funding the plan at 100 percent of the amount recommended each year by our actuaries, and will continue to review the plan to ensure that it is sustainable in the long-term.”
Warwick Councilor: “Time is Running Out”
In Warwick, three of Mayor Scott Avedisan’s plans are among the best funded in the state. For police and fire 1, which is only 22.3 percent funded, Avedisian says the city is on year 18 of a 40-year effort to fund the struggling pension plan. “The truth of the matter is that of the city of Warwick’s four plans, three are in good shape,” Avedisian wrote in a letter to Treasurer Raimondo in April. “The city has already accomplished the second component of pension reform (coming up with a funding formula for a poorly funded plan). The city has embarked on a 40-year plan to be fully funded and is currently in year 18 of that plan.” Still, the worst pension plan in the city is also the largest, which has led City Councilman Joseph Solomon to question whether Avedisian is being honest about the city’s financial security. For Solomon, Avedisian’s argument that the majority of the plans are well-funded is tantamount to a person saying he is not in debt because three of his credit cards are paid off when the fourth carries a $50,000 tab. “Like many of our neighbors, we in the city of Warwick face some serious liabilities,” Solomon said last week. “Time is running out. Warwick city leaders need to stop downplaying our significant financial challenges and start getting behind solutions.”
Decisions loom for Chafee’s relief plan
Legislative officials divided on governor’s ‘municipal reform and relief’ package, seven bills that could help cities and towns cut costs
By RANDAL EDGAR JOURNAL STATE HOUSE BUREAU
PROVIDENCE — Governor Chafee says the financial health of cities and towns is the biggest issue facing the state, but with legislative leaders putting the final touches on next year’s budget, the question remains: Will 2012 be the year that brings relief? Legislative leaders are hinting that some pieces of Chafee’s “municipal reform and relief” package will emerge, but they’ve been mum about the more controversial measures, such as a bill that would let cities and towns suspend cost-of-living increases to retirees. The seven bills Chafee proposes would give communities — those that choose to take advantage — new powers to cut costs, change working conditions and curtail pension expenses. They would also require more state oversight of school budgets and speed up school aid payments from the state.
Some legislators question why state laws are needed when communities are taking their own cost-saving steps.
In Providence, officials have approved ordinances to suspend retiree cost-of-living increases and move retirees ages 65 and older into Medicare. In Johnston, officials are considering proposals to suspend COLAs and cap pensions. In West Warwick, officials plan to meet with union leaders to seek concessions that would let the town put more money into its underfunded pension plan. “Maybe some of these things are best handled by local ordinance,” said House Speaker Gordon D. Fox. “And then there’s some questions about what you can attain legislatively, and what’s fair.” Likewise, Senate Finance Committee Chairman Daniel DaPonte said cities and towns already have the ability to seek relief. He noted that doing away with school bus monitors — one of many options for “highly distressed” communities under a controversial bill in Chafee’s relief package — is a possibility because cities and towns can request waivers from the state Department of Elementary and Secondary Education. He also said many of the issues for which cities and towns are seeking help can be addressed during contract negotiations.
“There are avenues right now,” he said. The sense of urgency that cities and towns need help has never been higher. Providence Mayor Angel Taveras has said his city’s fate is the hands of the courts, where local unions are challenging the move of hundreds of retirees from the city’s health insurance into Medicare . City leaders anticipate a legal challenge to cuts in COLAs, which take effect July 1.
Woonsocket, which sought but has yet to receive Assembly permission for a 13-percent supplemental tax, may be headed for a state takeover. In a report issued last week, the Rhode Island League of Cities and Towns said the financial health of the state’s urban and urban ring communities “deteriorated further” last year, as evidenced by dwindling reserve fund balances. While suburban and rural communities had $528 “in the bank” for each of their residents, urban and urban ring communities had $38, the report said.
Chafee, pointing to annual state aid allotments that were cut by more than $250 million in the years before he took office, says the alternative to his package of seven bills is dramatic tax increases or more communities going the way of Central Falls and declaring bankruptcy. Local leaders, while conceding that cities and towns could take some steps now, say that having a state law acknowledging the financial strains on cities and towns would help in court challenges, such as the Medicare case in Providence. One consideration in these cases is that the community’s action served a “significant public purpose.” “I want to have the strongest argument available, and that additional state recognition will help,” said Cranston Mayor Allan W. Fung. Fung said he is interested in the COLA-suspension bill, which would help his city deal with a police and firefighter pension plan that has been closed since the mid-1990s. The plan has some 426 retirees and 57 active members and is about 16-percent funded, with an unfunded liability of $256 million, according to the latest actuarial report. Even if the city negotiates concessions with current workers, Fung said, they would not be enough to sustain the plan, which provides retirees with compounded
COLAs of at least 3 percent a year. Labor leaders have objected to Chafee’s legislative package, saying it raises a host of legal issues and should be rejected. Last week, George Nee, president of the Rhode Island AFL-CIO, also noted that while Chafee is pushing his bills and the pension components, cities and towns are being assisted by a study commission, created last year when state lawmakers overhauled the state pension system. “We have a commission that’s established by the statute, they haven’t issued a report, they’re still in the process of examining everything, and then these bills just get dropped in,” Nee said.
But Nee said the core objection centers on taking away benefits promised by contract. “What does a contract mean?” he said. “Somehow or other we have to get back to that. It should mean something. They wouldn’t start saying that your mortgages can be ripped up now because the worker had a bad year.” Chafee spokeswoman Christine Hunsinger said 36 of 39 cities and towns have signed on in support of the governor’s package. “The governor and the mayors have done their part, the town managers have done their part,” she said. “Now the ball is in the leadership’s court of the legislature, and they’re going to have to determine whether or not they’re going to allow a vote.”
Fox, when asked what might emerge in the coming days, said, “You might see all of it, you might see some of it.” Senate President M. Teresa Paiva Weed said she expects some of the proposals to emerge. She also said leaders are looking at whether some of the measures tailored to “highly distressed” communities should be made available to all
GoLocal Interview: Is Governor Chafee Gaining Momentum?
Dan McGowan, GoLocalProv News Editor
Governor Chafee entered office with more than a few opponents quick to remind him that 64 percent of voters did not support his candidacy and then proceeded to fuel his critics’ frustration with a shaky first year that mixed a proposal to raise taxes with a failure to improve one of the highest unemployment rates in the nation. By the end of the year, even the top labor unions—arguably his largest support base— were bailing on him thanks to his support for General Treasurer Gina Raimondo’s pension reform plan and his approval rating had dipped to just 27 percent. But after an inauspicious start that he believes all too often became personal, Chafee’s second year has been dedicated to building strong relationships with municipal leaders—34 city or town councils have passed resolutions supporting his municipal relief proposal—and he appears to be winning back his base support by standing up for progressive issues, most notably an executive order signed this week that recognizes same-sex marriages from out-of-state.
“We Hit Cities and Towns” Although he is quick to admit that he still needs to forge a better alliance with legislative leaders, Chafee believes that increased support mainly comes from his commitment to making 2012 “the year of the cities and towns.” “My concerns go back to the crash of 2008,” Chafee said during a wide-ranging interview Tuesday at the State House. “I knew then they could not take these kinds of hits. I knew that Providence with the children they have to educate and the mandates, the binding arbitration and the minimum manning, these communities couldn’t take that hit.” Chafee carries around a handout that breaks down four of the hardest hit communities (Providence, Pawtucket, Woonsocket and West Warwick) since the beginning of the recession. In total, state aid during that span was cut by more than $240 million. The result has been skyrocketing property taxes and growing deficits that have already forced one city to go bankrupt and others to take drastic measures to remain solvent. “Massachusetts raised the sales tax and Deval Patrick took a beating over it, but it stabilized Massachusetts,” Chafee said. “We did it differently. We hit the cities and towns. We just passed it down to the local levels. That’s what cost us.”
Communication with Legislature “Difficult” In the past, Chafee has placed much of the blame on former Governor Don Carcieri, but he also acknowledges that the majority of legislative leaders have very little experience when it comes to municipal finances. He said that has made communication with the General Assembly “difficult.” Chafee’s relief package is made up of seven pieces of legislation that includes allowing cities and towns to freeze cost-of-living adjustments, gives highly distressed communities mandate relief and binding arbitration reform and gives municipalities more control over school budgets.
Municipal leaders, like Mayor Angel Taveras in Providence, have offered praise for the package. “Governor Chafee’s municipal legislative package is a way forward for cities and towns that need the necessary tools to make structural reform. I support and applaud the Governor’s efforts and believe that cities and towns must make tough, structural changes to strengthen our entire state,” Taveras said in March. “I will continue to work with Governor Chafee to get Providence on firm financial ground, and I appreciate his determined efforts to strengthen Rhode Island.” But Chafee remains concerned that the key parts of the bill will not pass. He said he entered office understanding how much power the General Assembly has and noted that he did his best to make appointments that would serve as a signal that he wants to work in partnership with House and Senate leadership. He pointed to his decision to appoint former House finance chairman Steven Costantino as Secretary of Health and Human Services and former State Senator Charlie Fogarty as Director of DLT as examples of his willingness to work with the legislature.
Municipal Pension Reform Should Have Been Addressed Last Year
But if the animosity between the executive branch and the legislative branch reached a tipping point under Carcieri, Chafee’s success in bringing the two sides closer together has been marginal at best. Chafee’s relationship with Senate President M. Teresa Paiva Weed in particular has been fractured and likely took another hit this week after his executive order. That combined with election year politics has Chafee concerned that legislators will opt for an easy way out when it comes to helping cities and towns. He said the “scuttlebutt” around his municipal package is that lawmakers may support some of the bills, but the key provisions such as freezing COLAs could be left on the chopping block. Chafee said he still wishes municipalities were included last fall when the legislature passed Treasurer Raimondo’s reform plan. “That’s the question I can’t answer,” he said. “Why a smart Treasurer couldn’t see the magnitude of the local issues. I don’t have a good answer for that.”
An Optimistic View Still, Chafee said he will continue to fight for cities and towns moving forward. He remains proud that he was able to play peacemaker in a battle between Mayor Taveras and Brown University Ruth Simmons that resulted in the school agreeing to pay the city more than $31 million over the next 11 years. Taveras praised Chafee’s statesmanship after the Governor brought all sides to the table to broker an agreement.
“I told them, we can’t have a war between Brown and Providence,” Chafee said. And the Governor, who continues to raise money but hasn’t officially acknowledged that he’ll run for reelection, said he isn’t concerned with any of his potential opponents in 2014. “I’ve never had an easy race,” he said. For now, however, his focus remains on helping the cities and towns. And while he’s concerned that the General Assembly may not go to bat for local communities, he said he still has plenty of hope. “I’m an eternal optimist,” Chafee said.
Dan McGowan can be reached at email@example.com
Chafee Nominates Luis Matos for Judgeship
GoLocalProv News Team
Governor Lincoln D. Chafee today announced his nomination of Assistant U.S. Attorney Luis M. Matos for a position on the Rhode Island Superior Court.
“Luis Matos is eminently qualified, with decades of valuable legal experience and awards and accolades from every position he has held,” Governor Chafee said. “His story is a compelling one: emigrating from Portugal to Providence at a young age, Lu was the first member of his family to graduate from college. But even more impressive is what he has accomplished, most notably with the U.S. Attorney’s office, where he led a number of successful prosecutions in high-profile cases. He has earned an outstanding reputation in Rhode Island’s legal community, and has been described as a man of high character and integrity. Lu is a highly qualified candidate for an important position on the Superior Court bench.”
“After coming to Rhode Island from Portugal, my parents achieved the American Dream,” Matos said. “They have greatly shaped the person I am today. They have fostered my interest in working in the public interest, of giving back because I have been given such opportunity in this country. I recognize the unique and important role the Superior Court plays in the justice system in Rhode Island, and I appreciate the Governor’s confidence. I pledge to use my legal and life experience to apply the law fairly, evenly, and in the interest of justice.”
Since 2001, Matos has served as Assistant United States Attorney in the Office of the United States Attorney for the District of Rhode Island. With the U.S. Attorney’s Office, Matos has focused on criminal prosecution, primarily health care fraud, white collar fraud, and public corruption. He led successful prosecutions in such notable cases as U.S. v. Roger Williams Medical Center, Robert Uriuoli, et. al., U.S. v. Curran, and U.S. v. Gonsalves. Within the U.S. Attorney’s Office, Matos served as Civil Chief from 2005 – 2006, Criminal Chief in 2006, First Assistant U.S. Attorney from 2007 – 2009, and Acting U.S. Attorney in 2009. During his tenure with the Rhode Island District Office, Matos has received the Association of Certified Fraud Examiners’ Excellence Award, the HHS Inspector General’s Integrity Award (2001, 2005), and was honored by R.I. Lawyer’s Weekly as one of three “Lawyers of the Year” in 2006.
Prior to joining the U.S. Attorney’s Office for the District of Rhode Island, Matos served as Health Care Fraud Coordinator with the Office of Legal Programs within the Executive Office for U.S. Attorneys in Washington, D.C. He previously served as Assistant U.S. Attorney in the Office of the U.S. Attorney for the District of Delaware, where he was recognized with the Director’s Award for Superior Achievement and the HHS Inspector General’s Integrity Award (1999), and as trial attorney with the Commercial Litigation Section of the U.S. Department of Justice Civil Division, where he received the Meritorious Award and the Special Act or Service Award. After graduating from law school, Matos was an associate with the Washington, D.C. firm of Newman & Holtzinger, P.C. He graduated from Brown University, where he was the Class of 1986 Brown Club Scholar, and received his law degree, with honors, from the University of Connecticut School of Law. At law school, Matos served on the Moot Court Board and won the Polsky National Moot Court Competition Award for “Best Brief” and an American Jurisprudence Award.
Matos was born in Batalha, Portugal, and immigrated to Rhode Island with his family in 1969, settling in Fox Point, Providence. His father, who had a fourth-grade education, worked in factories, while his mother, who had no formal education, was a housekeeper at Rhode Island Hospital. He was the first person in his family to graduate from college.
DPW administrator fired after report
David Pontarelli terminated following hearing
PROVIDENCE, R.I. (WPRI) – A Providence Department of Public Works administrator who was the focus of a Target 12 investigation has been terminated by the city. David Pontarelli, of Cranston, was fired on May 17 after a termination hearing, a spokesman for Providence Mayor Angel Taveras said Wednesday. Pontarelli was the fiscal advisor for the DPW and a nine-year employee of the city government. “It’s embarrassing for our city workers who work very, very hard … and I won’t stand for it,” Taveras said. “I will not allow people to embarrass the city of Providence and continue working for the city.”
Taveras said the city is prepared to defend their actions even if Pontarelli decides to fight the termination in court. “People should know better,” Taveras said. “This is not even one of those things that are close to the line, this is actually well beyond the line.” The Target 12 investigation revealed Pontarelli was spending time checking in on his second job as marketing manager at a popular Providence nightclub, dining with friends and running errands during regular DPW hours.
The investigation found Pontarelli would come into work late after an event at the nightclub and leave early. On those days, undercover video shows him going into the club on DPW hours, then running errands at several banks and often heading back home early. Target 12 also discovered that Pontarelli – a high-ranking member of the DPW – used two traffic lights and several streets signs for decorations inside the nightclub. The equipment was returned to the DPW less than 24 hours after WPRI 12 tried to question Pontarelli.
Pontarelli’s lawyer, Michael Lepizzera, did not respond to a request for comment but had said earlier that a “complete picture of Mr. Pontarelli’s employment with the city demonstrates that he was and still is a very valuable asset for the city.” He said Pontarelli has “spent countless hours working for the city during off-hours,” and “fiscally managed the DPW budget in the black all five years.” The city also took action against former DPW Director Paul Thomas, who was terminated in the wake of the investigation. City officials said they fired Thomas over questions of leadership and accountability. In the meantime, Taveras said the city is moving forward with reshaping the beleaguered DPW. Chief Engineer William Bombard is acting as interim director.
A spokesman for the mayor said Pontarelli fell several months shy of being vested in the city pension plan. Pontarelli will be given a check for his contributions plus interest, for a total of approximately $43,000. Pontarelli will also receive money for unused vacation, holiday and longevity payments. City officials said they had not yet calculated that amount. “The bottom line is this: [if] you work for the city of Providence you have the responsibility to maintain the highest standard of performance and ethics,” Taveras said. “And if you do not do that you are not going to work for the city of Providence.”
RI taxpayers actually on the hook for $112.6M with 38 Studios
May 15th, 2012 at 10:01 am by Ted Nesi
It’s unclear right now exactly what’s going on with 38 Studios’ finances and how serious the problems there are. But considering the headlines, it’s worth taking a look at how the original $75 million deal was structured.
In November 2010, the EDC borrowed $75 million from private investors on behalf of 38 Studios. The quasi-public agency agreed to pay back the bondholders with money 38 Studios pledged to provide from sales of its games. The interest rates on the bonds range from 6% to 7.75%.
Because the EDC technically sold “moral obligation bonds,” the governor is required to ask the General Assembly to appropriate money to repay the bondholders if 38 Studios can’t pay up – but the lawmakers are not required to pony up the money. It’s assumed they probably wouldn’t default, however.
So how much money could taxpayers be looking at spending? When you add together principal and interest payments, the total cost of paying off the 38 Studios bonds is projected to be $112.6 million through 2020, according to bond documents reviewed by WPRI.com. Here’s how much the payments are annually: It’s worth noting that about $23.4 million from the original $75 million loan was set aside as a reserve to pay the bonds back, so there’s some money available in addition to whatever taxpayers fork over.
Standard & Poor’s affirmed its A rating on the 38 Studios bonds, with a stable outlook, on April 20. Asked about this week’s developments, a spokesman for the rating agency told WPRI.com its analysts do not comment on rumors. The bonds are insured by Assured Guaranty Ltd.
More 38 Studios coverage on WPRI.com:
- GOP’s Robitaille: 38 Studios lesson is don’t pick winners and losers (May 15)
- 38 Studios’ finances under scrutiny; RI taxpayers’ $75M at risk (May 14)
- 38 Studios debut ‘Reckoning’ sells 80,000 in March; out of top 10 (April 18)
- Schilling praises ‘pure motives’ of RI pols to Fox News’ Hannity (March 21)
- Schilling game backed by RI taxpayers is high-risk, high-reward (Aug. 3, 2010)
- Rhode Island EDC OK’d $75M Schilling deal without final rules (July 27, 2010)
Supplemental tax bill stalls in House Finance
By SANDY PHANEUF, Valley Breeze Staff Writer
PROVIDENCE – After hearing testimony from both residents and city officials, the state House Finance Committee postponed their decision on a bill which would have authorized Woonsocket to send out a supplemental tax bill.
The legislation, S 2872 Sub A, is aimed at resolving an emergency cash flow shortage that has threatened to interrupt services to the Woonsocket Education Department. With more than $6 million currently due to vendors, the department may have difficulty maintaining operations until June without additional aid. Officials on the municipal side of city government say that without the new tax on all residential, commercial and tangible property, they simply do not have the money to give.
The immediate debt, however, is just a fraction of the department’s problem. Between fiscal years 2011 and 2012, Woonsocket education has accrued a $10 million deficit.
“We are trying to come up with a plan that will solve this and when we look at the urgency and the timeliness that we need to do this, the supplemental bill became really the only thing that would get us to the point of being able to meet our current needs“ said Mayor Leo Fontaine.
City Council President John Ward testified that the council overwhelmingly supports the plan. “I believe they are in full support and they recognize that we have worked very closely with the state throughout this process,” said Ward. The council approved the 13 percent tax in April by a vote of 6 to 1.
Committee Chair Rep. Helio Melo asked if the bill had the same support from the city’s state delegation. “I think the state delegation has a few more reservations about it,” Ward replied. “They ask often what our plan is for the future and because of us being an urban, poorer community, we are significantly dependent on the state. Much of our success relies on things such as a state education funding formula that is being put in place incrementally.” Although the state’s education funding formula, passed in 2010, identified the need for additional funding for Woonsocket education, the money is scheduled to be disbursed gradually over a seven-year phase in period.
Fontaine pointed out that if that money was already in place, the city might not be in its current predicament. “If we were fully funded at the current level that was proposed in the school funding formula, the School Department would actually be OK,” Fontaine said. “But until we can get to that point we need to be able to absorb some of that structural deficit.”
The increase, the mayor explained, will form the basis of a higher tax rate in the city going forward. “We have to base our plan on what we can be certain of right now and that’s why the tax would be built into our structural base: to cover the shortage,” he said.
Auditor General Dennis Hoyle and a representatives from the department of revenue testified that they also support the tax. “The department is supporting the supplemental tax that is before you,” said Susan Greschner, chief of the municipal finance department of revenue, who testified on behalf of Director of Revenue Rosemary Booth Gallogly. “It is not an easy plan, but it is part of the solution as we see it.”
Objections to the bill, however, were provided by two residents who identified themselves as taxpayers: John J. McLaughlin and James Cournoyer.
“I don’t have any confidence in my local government at the city side,“ said McLaughlin. “The School Committee is in total disarray. They don’t even know what they’re spending the money on.” Cournoyer pointed out that the city is not currently meeting their obligation on a $90 million pension bond issued in 2003. A 2002 state law requires that the city meets the obligation, and the commitment to fund it was even a prerequisite for the revenue director’s approval of a $11 million deficit funding bond in 2011. The City Council also passed an ordinance, Cournoyer said, stating that the bond would be funded.
This year the required funding for the bond is $10.5 million, he said, but the city plans to allocate only $1 million towards repayment of the debt.
“We like to say that our problem is over at the School Department,” Cournoyer said. “If the School Department followed the municipal side’s lead and did not fund the pensions of their teachers, they too could have had a surplus.” The committee voted to hold the bill for further study on the recommendation of Rep. Raymond E. Gallison with a second from Rep. Agostinho F. Silva.
Providence plummets on latest ‘Best Cities for Job Growth’ list
by Ted Nesi
The Providence metropolitan area fell a jaw-dropping 124 spots on Forbes magazine’s annual list of the Best Cities for Job Growth, plunging from No. 256 in 2011 to No. 380, only 18 spots away from dead last.
Providence scored a 17.7 on Forbes’ weighed index of employment growth, which measures recent and longer-term trends. Odessa, Texas, was No. 1 with a 99.4 score, while Dalton, Ga., was last with a 0.5.
Providence fared even worse among other large-sized cities, coming in second to last out of 65 metropolitan areas; only Birmingham, Ala., fared worse. The Providence area’s unemployment rate was 10.8% in March, down from 11.1% a year earlier but up from 5.1% in March 2007, according to the U.S. Labor Department.
If there was any silver lining for Providence, it was in the accompanying article by Joel Kotkin, which suggested: “When it comes to growth, economic and demographic, opportunity increasingly is to be found in smaller, and often remote, places.” That wouldn’t include the Providence metropolitan area, but it could fit the capital city itself.
“Why are the stronger smaller cities growing faster than most larger ones?” Kotkin writes. “The keys may lie in many mundane factors that are often too prosaic for urban theorists. They include things such as strong community institutions like churches and shorter commutes …. Young families might be attracted to better schools … and the access to natural amenities common in many of these smaller communities.”
Grebien proposes 80-cent tax increase
By ETHAN SHOREY, Valley Breeze Staff Writer
PAWTUCKET – City leaders this week are searching for savings within a proposed Fiscal Year 2013 budget from Mayor Don Grebien that calls for a tax increase of 80 cents per $1,000 of assessed property value.
A hike of 80 cents, or whatever the final number the City Council ultimately approves by the end of the budgetary process, would be in addition to Pawtucket “equalizing” its tax rate to compensate for a decline of about 20 percent in property values.
The average Pawtucket homeowners will see their property taxes increase by about $109 a year, according to city finance officials, but some residential property owners are telling The Breeze they expect their taxes to go up by as much as $1,000 or more because the value of their homes didn’t drop.
By law, city officials are allowed to bring the current tax rate of $17.78 per $1,000 up to $22.26 to make up for the lost revenue of lower property values. They can then add a rate increase to support new spending as long as it remains under the FY 2013 state tax cap of a 4 percent increase.
The new residential tax rate, with the 80-cent increase included, would be $23.06 per $1,000 of value, while the commercial rate would go up from $24.54 to $30.88.
Grebien’s proposed 80-cent hike would bring total budgeted spending, including other funding sources, from $198 million in the current year to $208 million for the fiscal year that begins July 1.
On the general fund side, the budget would go up by $2.3 million, from $107 million to $109.3 million, or 2.16 percent.
The Pawtucket School Department would see an increase of $7.5 million, from $91.3 million to $98.8 million, though the increase to the schools by way of a city contribution would be less than $1 million of that. The rest comes from an increase in state aid.
The $7.5 million bump to the schools represents an increase of 8.25 percent.
City Council budget workshops were scheduled for Tuesday and Wednesday of this week, with council members hopeful that they might find ways to shave dollars in certain areas. Visit www.valleybreeze.com Thursday afternoon for an update on what happened at this week’s meetings.
Grebien last week said his budget proposal “reflects the needs” of the city in order to keep it solvent. There are no frills and excesses contained in it, he said.
“This budget is about our financial survival,” he said.
The increase in spending at a time of deep financial turmoil is troubling, said the mayor, but he feels it is necessary to keep Pawtucket operational.
“You and I still have a lot of difficult challenges ahead and difficult decisions to make,” he told the council.
The mayor’s budget was crafted without the benefit of possible relief from state mandates or on new revenue streams from the state. It is also leaves out money reflecting unrealized concessions from the police and fire unions, likely a wise move given the apparent gloomy prospects for a deal.
“There’s a better chance of Jesus Christ walking up those stairs right now,” said one local union leader last week.
According to Grebien, Pawtucket has faced a structural problem, or built-in deficits, of about $60 million over the past five years due in large part to cuts in financial aid from the state. Not coincidentally, the total property tax levy, or amount collected in local taxes, which was just over $81 million back in 2009, has ballooned to $95 million in 2012. It would increase to $98 million in 2013 if Grebien’s budget is approved.
It’s a hole the city has simply been unable to climb out of yet, said Grebien, despite some cuts in spending, like the freezing of non-essential spending and reductions in personnel, and new revenue sources like the privatization of the city’s waste transfer facility.
“Change doesn’t come easy, and one thing I’m learning, it doesn’t come quickly,” Grebien told the council last week.
Of the “many, many challenges that remain in front of us,” said Grebien, fixing the city’s pension problems is perhaps the most “daunting,” while the goal of building its commercial tax base is not far behind.
One area where the council declined to save big dollars last week was on Grebien’s proposal to contribute the city actuary’s recommended $11.3 million contribution to the police and fire pension fund.
Councilor members Chris O’Neill and Jean Philippe Barros were the only two to vote against the hike, with O’Neill saying the increase from this year’s pension payment of $10 million represents a “guaranteed tax increase.”
After hearing from Finance Director Joanna L’Heureux that state officials would not take kindly to ignoring the actuary’s recommendation, the majority of the council voted for the higher payment. Though they acknowledged the pending pain to taxpayers, other council members emphasized that failing to patch up Pawtucket’s struggling pension fund could sink the city into a worse financial state, perhaps sending it plummeting into bankruptcy.
Mixed Reaction on Chafee’s Same-Sex Marriage Executive Order
Dan McGowan, GoLocalProv News Editor
As he signed an executive order recognizing same-sex marriages from out-of-state, Governor Chafee on Monday again called on lawmakers to support full marriage equality in Rhode Island and said he would sign a gay marriage bill into law immediately if it were to pass in both General Assembly chambers.
“Let’s get full equality,” Chafee said. “It’s time to get on with it.”
Chafee became the first Governor in the countrty to sign an executive order recognizing our-of-state gay marriages. His order was met with loud applause from hundreds of supporters inside the State House and earned praise from national progressive groups throughout the day.
“Our members are thrilled that Gov. Chafee is stepping forward to help loving, committed same-sex couples gain the recognition and rights they deserve from Rhode Island,” said Adam Bink, director of online programs for the Courage Campaign. “His support and the unanimous support of Rhode Island’s congressional delegation for the Respect for Marriage Act speeds up the day when over 1,100 federal rights and benefits currently denied to legally married same-sex couples are granted alongside what they are getting today from Rhode Island.”
Chafee said the executive order reaffirms former Attorney General Patrick Lynch’s 2007 opinion stating that recognizing the valid marriages of same-sex couples does not violate Rhode Island public policy. The Governor said the state was “way overdue” for recognizing out-of-state gay marriages.
Joining Chafee for his announcement were Lt. Governor Elizabeth Roberts and several members of the legislature. House Speaker Gordon Fox and Senate President M. Teresa Paiva Weed, who have not indicated whether same-sex marriage will come to a vote this year, were not in attendance. Fox issued a statement of support Monday afternoon.
“This is another step that gets us further down the path toward same-sex marriage,” Fox said. “I personally appreciate Governor Chafee’s continued support of this issue and I look forward to reviewing the details of his executive order.”
Congressman David Cicilline also extended his support to Chafee.
“As a result of Governor Chafee’s leadership, our state has come another step closer to acknowledging that two adults in a loving and committed relationship should have their commitment to one another recognized as marriage,” Chafee said. “I applaud Governor Chafee for his courageous and bold action.”
Still, some lawmakers said they were unhappy with the Governor’s decision to sign an executive order and not receive approval from the General Assembly. State Rep. Doreen Costa said her frustration was not about whether or not she supports gay marriage, but rather that Chafee bypassed the legislature with his order.
The Governor was criticized last September when he signed an executive order establishing a healthcare exchange as well.
“Again the Governor decides to take matters into his own hands,” Costa said. “I think he forgets that there are 75 elected officials in the [House]. I am going to take a guess and say that when the Governor does not like what we do, then he can just do what he wants. I find this so disrespectful to the General Assembly and so should the other representatives.” But Chafee’s supporters, which included several top union officials, lawmakers and dozens of activists, called it a great day for equality in Rhode Island.
“We applaud Gov. Chafee for his bold leadership and commitment to the rights of all Rhode Islanders,” Ocean State Action executive director Kate Brock said. “Thousands of same-sex couples who have been married in other states can now rely on their home state of Rhode Island to recognize the legal rights and protections that only marriage can afford.”
Tiverton Democratic Party Chairman Rips Anthony Gemma
Dan McGowan, GoLocalProv News Editor
A member of the Executive Committee for the Democratic City and Town Committee Chairs Association is taking Congressional candidate Anthony Gemma to task after witnessing Gemma’s “arrogance and condescending attitude” during a presentation Monday evening.
Mike Burk, the chairman of the Tiverton Democratic Town Committee, claims Gemma sounded more like a Republican and questioned whether the candidate should even be running in the primary.
“I have to tell you that I was appalled by Mr. Gemma’s arrogance and condescending attitude,” Burk said. “While both Congressmen focused on their record and the importance of ensuring a Democratic majority is returned to the House, Mr. Gemma simply reiterated his platform from his first campaign which is better suited for a Gubernatorial campaign and focused on personally attacking Congressman Cicilline. I’ve done political work in several states throughout my life and met some arrogant and egotistical politicians. Gemma ranks at the top of the heap!”
Communities seek OK to use forfeiture
North Providence, East Providence need federal permission to earmark Google money
By MARK REYNOLDS JOURNAL STAFF WRITER
PROVIDENCE — The U.S. Department of Justice will consider waiving guidelines that restrain North Providence and East Providence officials from using a windfall in forfeiture money to bolster underfunded police pension programs in both communities, according to a spokesman for U.S. Attorney Peter F. Neronha. The spokesman clarified the department’s position on the pension proposal after North Providence Mayor Charles A. Lombardi met Tuesday morning with officials from the Asset Forfeiture and Money Laundering Section. “It’s not something that’s been done in the past, but the department is willing to review their request and consider it,” said the U.S. Attorney’s spokesman, James Martin, who conferred with Justice Department staff in Washing-ton, D.C., before issuing the statement.
East Providence officials, including Mayor Bruce Rogers, met with the department’s Asset Forfeiture staff on Tuesday afternoon. They, too, have expressed an interest in using a portion of the money forfeited by Google, and later earmarked to their city, to address a gaping shortfall in the money needed to fund police pensions. Each of the two communities received $60 million in forfeiture money after Google forfeited $500 million to the U.S., in response to a Rhode Island-based investigation. Google had improperly participated in, and profited from, advertising campaigns waged by Canadian pharmacies that encouraged the illegal sales of foreign drugs in the United States. East Providence and North Providence police participated in the federal task force that launched the probe, entitling their communities to a share of the forfeiture money.
The Justice Department’s guidelines do not list the rescue of an underfunded police pension plan as a permissible use for such forfeiture funds. It appears that such a use would violate guidelines that aim to enhance police resources.
The money is to be used by law enforcement agencies for law enforcement purposes, according to the guidelines.
Lombardi said that addressing North Providence’s police pension liability became his top priority as soon as he knew the Google forfeiture money totaled $60 million for his community. The liability has climbed to $17 million, he said Tuesday.
Last week, the director of the Rhode Island Department of Revenue, Rosemary Booth Gallogly, said that both she and Governor Chafee would support Lombardi’s request for waiving the guidelines. Martin said the Justice Department realizes that various Rhode Island officials have expressed an interest in using the forfeited money to address police pension liabilities in North Providence and East Providence. The staff from the department’s Asset Forfeiture section, who made a special visit to Rhode Island based on the scale of the forfeiture, went over the two communities’ plans for the money. Lombardi said he received a detailed explanation of how North Providence can apply for a waiver, which would be decided by a panel of justice officials. “We’ll just keep our fingers crossed,” he said. firstname.lastname@example.org
The Top 50 Stimulus Recipients in RI
Three years and well over a billion dollars later, the top recipients of federal economic stimulus funds in Rhode Island were largely state and local government entities, a GoLocalProv review of federal data shows.Of the top 50 recipients, at least 37 were state agencies, municipalities, school districts, or other government-affiliated organizations, such as the state Economic Development Corporation, or the Narragansett Bay Commission.
Those private-sector organizations that have received stimulus funds run the gamut from the Gilbane Building Company to Brown University and Rhode Island Hospital. (See below chart for list and information on how data was calculated.)In all, the top 50 recipients account for $897.8 million of the stimulus funds that flowed into the Ocean State.Some of the money went towards rebuilding bridges and repaving roads. Institutions like Brown University and the University of Rhode Island tapped stimulus funds for both research projects and campus construction. And in cities like Providence, stimulus funds were used to create new district-wide curriculum standards, pay for substitute teachers, and keep police officers from being laid off.
Economic Boost?….All of that money—not just what was pumped into the private sector—had a stimulating effect on the economy, according to Ed Mazze, business professor at the University of Rhode Island.All those teachers and police officers who did not lose their jobs used paychecks they otherwise would not on everything from grocery shopping to keeping up with car payments, Mazze said.That spending has a ripple effect throughout the economy, according to Mazze. “All of these stimulus funds do have an impact,” Mazze said. “All of these things generate dollars that immediately go back into the marketplace to purchase everyday items or [items] that have been postponed. ”He said the funds that came to Rhode Island, which are well in excess of a billion dollars, overall were more effective than the stimulus that went to higher population states, like California or New York. “The entire stimulus … was of real importance to Rhode Island because Rhode Island was having and continues to have a real problem getting out of the recession,” Mazze said.But some stimulus projects had more of an immediate impact than others. “Anything that has to do with construction—at least for the use of these stimulus funds—would have a much greater ability to create new jobs, even though they’re for a shorter period of time,” Mazze said.The benefit from funding that saved public-sector jobs, on the other hand, would have had more of a long-term benefit to the state economy, according to Mazze
.…or Government Bailout?
But, with an economy clearly still struggling, some wonder just how much help, if any, Rhode Island got from the stimulus.“[I]t hardly seems to have helped. Just look at our unemployment rate, our state’s structural deficit, our cities teetering on bankruptcy and legislators still intent on raising taxes. There aren’t enough local or federal taxpayers’ dollars to fix this mess,” said Lisa Blais, spokesperson for the Ocean State Tea Party in Action. “No, the program certainly has not produced enough new jobs in Rhode Island to justify the cost.”The funds may have staved off layoffs in police departments and schools, but Blais wonders what will happen when the grant funds fade away.Indeed, the steady stream of stimulus funds is already starting to slow to a trickle, as roughly half of the grants and contracts awarded in Rhode Island are now completed, while half of the remaining awards are more than 50 percent done. At the same time, many of the communities that happened to be in the top 50 list—Providence, West Warwick, Woonsocket, and Pawtucket—are in dire fiscal straits.“This program has not lifted Rhode Island out of our economic nightmare,” Blais concluded. “We need to reduce our overall tax burden and create business-friendly public policy in order to stimulate our economy through private enterprise and not more government spending.”Where did the money go?From curriculum development to economic development, the Quality Institute to the Quonset Development Corporation, here is a breakdown of how some of the top 50 stimulus recipients told GoLocalProv they used the funds.
■ Department of Transportation: With a $166 million-plus boost from the stimulus, DOT was able to initiate 73 transportation projects around the state. Of the total, 69 were highway-related, two were transit, and two were for high-speed rail. A number of these projects had been on hold for years, others were completed on a faster timelines that would otherwise have been possible, according to DOT spokeswoman, Heidi Gudmundson. (In all, the department received $171.4 million in stimulus funds, but some projects are not included in the $166 million figure used in this report because they were managed by other organizations.)
■ Providence Schools: Stimulus funds financed the implementation of district-wide curriculum standards and guidelines, known as the Aligned Instruction System. This system ensures that students in the same grades at different schools are learning the same materials—something that was not always the case beforehand, according to spokeswoman Christina O’Reilly. “As a for-instance—prior to the writing of the core curriculum, it was found that though magnetism and its properties were being tested in the fourth grade Science NECAP, most of our elementary schools were not doing a unit on magnetism until Grade 5,” O’Reilly said. “So, the teaching expectations have to be aligned with the testing expectations across the board.”Funds were specifically used for the following: outside vendors, like the Charles A. Dana Center; purchasing of instructional textbooks and electronic resources; salaries for substitute teachers (while regular teachers worked on the curriculum project); and professional development.
■ Pawtucket: In Pawtucket, as in many other communities, the lion’s share of the stimulus funds went to the schools. The funds helped the city improve its financial situation—but only to a point. “It lets us stretch out our own dollars,” said Director of Administration Tony Pires. “But the general nature of the grants is not to supplant existing resources but to supplement them.” In other words, the stimulus could pay for education services that Pawtucket otherwise could not afford, but the city could not use them for things like paying down unfunded pension liabilities, according to city spokesman Doug Hadden.
■ Brown University: Approximately $40 million in stimulus funds went to Brown, enabling researchers to buy equipment, fund projects, and build the research infrastructure for the university and the broader research community in the state, according to spokeswoman Darlene Trew Crist. “For example, Brown received a grant for over a million dollars to fund the creation of high-capacity cyber connectivity between the Jewelry District and the main campus,” she said. “This will allow Brown and researchers from URI and other institutions to do genomic sequencing at a level that was completely unimaginable before; the connectivity could not have supported the massive amounts of data.”
■ University of Rhode Island: After Brown, URI was the second highest recipient that was a college or university. Some of the funding went towards research initiatives, but most of it was for construction projects around campus, according to Robert Weygand, the vice president of administration and finance. Examples: $12 million to make fire code improvements to campus buildings and $2.8 million to build a behavioral sciences lab.
■ Rhode Island Quality Institute: A nonprofit health care organization based in Providence, the Quality Institute was the only organization to receive three major health-care related stimulus awards in the country, according to communications director Lisa DiPrete. One award was used to create a statewide database of electronic medical records. A second award helped enroll medical practices in that database. The third was used to fund an analysis of statewide medical data on patients who have diabetes, suffer from depression, or are smokers.
■ Quonset Development Corporation: Close to $27 million in stimulus funds were used to improve the infrastructure at Quonset, according to spokesman David Preston, who said the benefits of those improvements will be long-lasting. Overall, Quonset has seen 2,700 additional jobs in the last seven years. Short term jobs gains include 35 construction, engineering, and inspection jobs over the past year and a half.In the medium term, Quonset is expecting 300 to 400 permanent jobs will be created thanks to the infrastructure upgrade at the Port of Davisville, funded through a $22.3 million TIGER grant. “This includes the approximately $10.4 million cost for the purchase and preparation of the facility for the mobile harbor crane,” Preston said. “It also includes upgrades to the piers and the rail tracks. These improvements will allow the Port to continue to move up the rankings as one of North America’s largest auto importers.” (The port currently ranks seventh, according to Preston.)Even more jobs are expected in the long-term: approximately 1,000 when the Romano Vineyard Way Bridge opens up an area south of Davisville Road that previously had been accessible only by two dangerous and outdated at-grade rail crossings, according to Preston. He concluded: “The stimulus projects at the Quonset Business Park will be paying dividends for the people of Rhode Island for years—even decades—to come. The improvements will allow us to expand the business capacity of Quonset Business Park and the Port of Davisville, and we will see more jobs and more revenues enter the state.”
W. Warwick pensions may run out by 2017
With $98M shortfall, Central Falls scenario looms
Is this town the next Central Falls?
The bankruptcy on the Blackstone hung over West Warwick High School’s auditorium Tuesday as town leaders got a dire warning from state officials: their pension fund for 654 active and retired police officers, firefighters and town workers is on track to run out of cash within five years.
Rosemary Booth Gallogly, the state’s director of revenue, made the comparison with Central Falls immediately. “I see many similarities,” she said. “I think you should all be concerned. I don’t want that to happen again. I had to negotiate with police and fire, and some of those pensions were reduced 55%.”
“I understand that you have many things on your plate right now, but the pension funding tends to be an issue that people think you can worry about later,” Gallogly said. “Well, the later is now. … You’re on the same track that Central Falls was.”
Town Council and School Committee members appeared dumbfounded at the size of the town’s problem. “This is unsustainable,” said Town Council President Angelo Padula Jr., a Democrat who owns a local auto-restoration shop. “We can’t even kid ourselves and say that we can give this kind of money.”
Accounting quirk masked problem
The shortfall in West Warwick’s pension fund totaled $98 million as of July 1, 2010, which made its funded level just 26%, according to the most recent study by Milliman Inc., the town’s actuary. That’s nearly as much as last year’s entire $107 million town budget.
West Warwick hasn’t been saving enough money for its workers’ pension benefits since at least the early 1990s. This fiscal year, for example, the town is supposed to put $7.9 million into the fund; it plans to deposit just $1 million. The town didn’t put a penny into the pension fund in 2004-05 even though its actuary called for a $2.6 million deposit, state documents show.
The underfunding happened despite promises by local leaders to shape up. In 2006, then-Council President John Flynn said the town had a five-year plan for increasing its pension contributions. “However, future state funding may cause future budget problems and require a different solution,” Flynn, who is now House Speaker Gordon Fox’s legal counsel, wrote in a letter to the auditor general.
It’s not clear that West Warwick was ever presenting a true picture of its pension promises. The town put its pension funding level at 96% a dozen years ago, a far cry from the 26% level now. But an actuarial footnote shows that the town froze its liability on paper until 2000, meaning it didn’t do an up-to-date accounting of its books as other places do.
Retirees may lose COLAs
Nicholas Denice, a law student who joined the town’s pension board last year, suggested West Warwick’s leaders have been kicking the can down the road. “There seem to be a lot of people that are just waiting for the state to come in and bail us out, and I just don’t think that’s going to happen,” he said.
Gallogly agreed. “I’m not trying to minimize to you how big this problem is,” she said. “It is huge. It is huge. But the people are counting on you to fix it.”
Auditor General Dennis Hoyle, who also attended the meeting, cautioned against the idea of forming a commission to study the size of the problem, saying local leaders “have a lot of information already” and should turn their attention to solutions.
Padula, the council president, told WPRI.com he hasn’t discussed potential cuts in pension benefits with retirees but said the town may need to freeze annual cost-of-living increases to shore up the pension fund. The state and the city of Providence have both taken the same action within the last year, but retirees say they’ll challenge the benefit cuts in court.
“We know we have a big responsibility,” Padula said. “We know how much trouble we’re in.” Denice said he thinks the pension fund could run out as soon as 2016.
Wealthier than Central Falls
West Warwick is a former mill town of 29,446 about 11 miles south of Providence whose population jumped after World War II. Local leaders have been warned before about their pension fund.
“We strongly recommend that the Town appropriate sufficient funds to the [pension] Plan to improve the funded status of the Plan and increase benefit security for the members,” Rebecca Sielman, Milliman’s actuary, wrote in a letter last June. “The longer action is delayed to address this funding shortfall, the higher the ultimate annual cost will be and the greater the risk of the Plan’s assets being exhausted.”
Last July, analysts at Fitch Ratings in New York said they were “concerned that the trend of reduced pension contributions from already inadequate levels will significantly increase financial pressure in the future.” A month later, analysts at Moody’s Investors Service said the town’s balanced budget was partly “the result of consistent underfunding of the town’s pension fund.”
The broader financial picture in West Warwick isn’t as grim as in Central Falls. The town’s per-capita income is $26,440, lower than the state average but much higher than the $14,991 per capita in Central Falls, U.S. Census figures show.
Council wary of tax hike
Failing to fund its pension plan has also helped West Warwick politicians avoid increasing taxes. Unlike other communities, West Warwick raised taxes by less than 1% over the last two years even though the statewide cap would have allowed increases of more than 4%, according to the Division of Municipal Finance.
“Quite frankly, throwing up your hands and saying, OK, well, the pension’s too big and the [retiree health liability] is too big … so we’re not going to have any tax increases and we’re not going to solve any of the problems – that’s not really a solution,” Gallogly said. “That’s just hoping that it’s going to go away. It’s not going to go away.”
Padula argued West Warwick taxpayers can’t afford any tax increases despite the pension shortfall, saying its taxes are already seventh-highest in Rhode Island. Fully funding its retirement benefits would consume 36% of the town’s annual tax revenue. “We can’t even generate taxes that high that could get us out of this situation,” he said.
Gallogly began to reply that part of why the problem grew was because previous councilmen failed to contribute to the pension fund, but Padula cut her off, saying: “Well, we’re not going to pay for the sins of what happened 20 years ago.”
Gallogly said West Warwick’s leaders need to bargain with workers and retirees to reduce benefits to a level the town can afford. “Just not doing anything isn’t the solution,” she said. “What’s going to happen when you have to make that $10 million pension payment and there’s no money in the fund? You’re just not going to pay retirees?”
‘You are their employer’
West Warwick had 654 people in its pension fund as of July 2010, with 289 of them collecting a pension and most of the other active workers contributing to it, according to Milliman. Retirees received $6.4 million in benefits in 2009-10, using up nearly the entire $7.1 million added to the fund that year by town and worker contributions plus investment earnings.
The average West Warwick pensioner is 65 years old and gets an annual benefit of $23,183, according to Milliman. Eight of the pensioners are over the age of 90.
“This is real,” Gallogly said. “There are people associated with it. It’s not just numbers on a page. All these people that are getting these benefit payments – police, fire, non-certified school – they’re all part of your pension plan, and you are their employer. I can’t stress enough how important it is for you to be the leaders that solve this problem.”
Police officers and firefighters in West Warwick can collect a pension after 20 years of work or once they reach age 62, whichever comes first. Other town workers can collect a pension after 25 years of work or at age 60 with 10 years on the job. Employees also stop contributing to the pension fund after 28 years even if they’re still earning credit toward their future pension. (Teachers are part of the state-run pension system, not the town one.)
One in three police and fire retirees in West Warwick receives a disability pension, which are tax-free and worth two-thirds of final salary if the retiree got disabled on the job. Vincent Marzullo, a member of the pension board, said the town doesn’t have the capacity to police whether those pensioners are fully and permanently disabled.
Health benefits costly, too
It’s unclear what will happen next in West Warwick. The state pension law passed last November requires the town to submit a plan for fixing the pension fund by November. Padula also expressed hope that the General Assembly will pass a package of municipal relief bills proposed by Governor Chafee, though its prospects are uncertain.
There will be another meeting of the Town Council, School Committee, pension board and state leaders at some point, Padula said. Chafee is also scheduled to visit the town next week to discuss its circumstances and his proposed bills to help municipal leaders.
The Town Council and the School Committee have strained relations and are waging a court battle over how much money the schools should get. The Securities and Exchange Commission is also investigating a $3 million investment the pension fund made in an Arizona real estate firm managed by Cole Capital.
Gallogly urged the councilors to take action soon, saying their current approach was tantamount to running a deficit. “When you don’t fund your annual required contribution, you’re really borrowing from the next 10 years, 15 years, and in some cases the next generation,” she said. “They will have to pay that off with the interest that wasn’t earned because the money wasn’t set aside for the fund.”
In addition to the pension shortfall, West Warwick also provides free health care to some retired workers and their dependents. The town’s unfunded liability for retiree health is estimated at $86 million. It pays those bills as they come in rather than setting money aside in a trust fund.
State law provides tuition for 91 on disability pensions
State spends more than a half-million dollars a year to educate disabled police officers, firefighters and their families
PROVIDENCE — State college and university lawyers say they are barred by state and federal law from identifying the 3,428 students who attended their schools tuition-free last year, but another branch of Rhode Island government has made public the names of several dozen former police officers and firefighters whose sons and daughters got a tuition break.
There were 91 sons and daughters of “permanently disabled” police officers and firefighters — or in some cases, the retired officers themselves — who went to college tuition-free in 2010-2011, at a cost to the state of $594,191, according to the state Department of Labor and Training.
The list includes the sons and daughter of some well-known people, including Jeffrey Scott Hornoff, the former Warwick police detective who spent six years in prison for a murder he didn’t commit. Hornoff won freedom when another man confessed to the crime, subsequently sued the city and reached a settlement that gave him $600,000 and a $52,084 work-related disability pension.
The state paid $12,775 to send one or more of his children to the University of Rhode Island and the Community College of Rhode Island during the 18-month period reflected in a labor department report, made public in response to a Journal inquiry.
Others who went to college tuition-free included the children of Denis Larocque, the former West Warwick fire inspector who inspected The Station nightclub several times before the calamitous 2003 fire took 100 lives; a dependent of Barbara Sherman, a Providence patrolwoman who left with a disability pension after one day on the job in 1987; and former state police Trooper Dennis Spicuzza, whose case sparked passage of a law providing recruits with lifetime benefits for injuries received during their training.
Larocque retired from the West Warwick Fire Department in March 2008 as a battalion chief with a disability pension that pays $41,772.96 a year, according to town lawyer Jeffrey Kasle. The state made at least $7,951 in tuition payments for Larocque’s dependents in 2010-2011.
Sherman has a $69,854 accidental disability pension. The state paid at least $1,678 in tuition payments for her dependent.
Spicuzza, who left the state police with a $42,757 accidental disability pension, graduated from Rhode Island College with a bachelor’s degree in May 2011, according to state records. The state paid at least $1,000 in tuition for him.
Asked why the DLT released the names of former public employees receiving tuition breaks for themselves or their families, spokeswoman Laura Hart said: “We are not an educational institution, so we are not bound” by the federal law that, the colleges say, bars them from disclosing student records. But “we are also within our rights as an agency to weigh the public right to know against the individual’s right to privacy. This is why we gave you the names of the officers and firefighters who were public servants, but not the dependents — who are not public servants.”
State law provides an array of benefits to the families of police officers, firefighters and prison guards who die or are injured on the job.
One provision says: “If a police officer, correctional officer or member of the state police is killed, dies from a heart condition or becomes totally and permanently disabled, the Police Officers’ Relief Fund offers tuition payment for his or her dependents at any Rhode Island College or university for four consecutive years to earn a baccalaureate or lesser degree.”
Another says: “If an active or retired firefighter, crash rescue person, or an auxiliary or volunteer firefighter is killed; dies from hypertension, heart condition, cancer or respiratory ailment; or becomes disabled, the Firefighters’ Relief Fund offers tuition payments to dependents or to the disabled firefighter for four consecutive years in order to earn a baccalaureate or lesser degree.”
Spicuzza sought a disability pension for injuries he sustained boxing during his training at the Rhode Island State Police Academy, including double vision that made driving difficult. He was denied. He appealed, and while his appeal was pending in Superior Court, state lawmakers passed a bill that allowed the payment of disability pensions to recruits injured in the course of their training. It applied to all pending legal actions.
In an unrelated case, the Johnston Town Council, in 2006, publicly lamented the size of the disability pension paid former police officer David C. Tocco, without its approval.
Tocco — the son of a former Johnston police chief, the late William P. Tocco Jr. — retired in 1985 after about eight years on the force, with what town officials have described as a stress-related illness. His pension pays $80,473.92 annually, according to the mayor’s office. The state paid $6,590 in tuition for a dependent.
Decisions on who qualifies are made by two state boards within the Department of Labor and Training: the Board of Police Officers Relief, chaired by Pawtucket Police Sgt. Mark Boisclair, and the Board of Firefighters Relief, chaired by retired Cranston Fire Department Capt. Theodore Scripsack, according to the DLT.
Unlike the firefighters relief board, the police officers relief board requires applicants for the tuition benefit to prove “they can hold no gainful employment,” said Boisclair, who is also president of the Pawtucket Fraternal Order of Police Lodge 4, in a telephone interview.
Asked the rationale for paying their children’s tuition, Boisclair said: “These people hurt themselves while serving their communities…. These are people who can no longer be police officers and can’t work right now … so I think it is a good thing for them and their families to see the people of Rhode Island care for them.”
Governor Chafee has proposed capping overall spending by the police and fire relief boards, which includes annuity payments to widows, at current-year levels and creating a new five-member panel, appointed by the director of the DLT, to handle these decisions in the future