Is bankruptcy really the answer for Providence?

Providence, RI – Should Providence city government address its deficit mess by declaring bankruptcy? Rhode Island Public Radio political analyst Scott MacKay says this is no panacea for the red ink in the city budget.

As Providence staggers under the weight of crushing pension and health care liabilities for retirees, the temptation for Mayor Angel Taveras and the embattled city council is simply to declare bankruptcy. Blow up city government and start fresh, goes this theory. Bankruptcy would give the city the right to break union contracts and put its finances in order for the long slog toward a balanced budget.

Those supporting the bankruptcy option point to Central Falls, which has been in receivership since last year and is shuffling its way to solvency under the direction of receiver Robert Flanders.

Yet, no matter how high Taveras waves the bloody shirt of bankruptcy, Providence is not Central Falls. Central Falls is Rhode Island's Third World country, a place that has long been a ward of the state. Its schools were taken over by the state years ago. There isn't much of a commercial tax foundation in the Central Falls, a once-proud industrial center that time long ago passed by.

Providence is not only Rhode Island's capital. It is a storied New England port, one of America's oldest cities, steeped in our nation's history and an industrial and intellectual powerhouse. Nearly 400 years old, Providence a century ago was the Silicon Valley of its time, awash in such iconic companies as Brown and Sharpe Manufacturing, the machine tool innovator.

While the recession has taken its toll on Providence, our largest city is still home to Citizens Bank, Textron, GTECH, our region's top law firms and restaurants and such non-profit job generators as Rhode Island and Miriam hospitals and Brown University and Providence College. And one of the state's wealthiest zip codes, 02906, is on the city's East Side.

We can't sugar coat the city's challenges, particularly the pension liabilities and the reality that Providence's grand non-profit colleges and hospitals cannot be tapped for taxes. The cause of the city's financial problems was diagnosed in the 19th century by French writer Alexis de Tocqueville, who said that the "American Republic will endure until politicians realize they can bribe people with their own money."

For too many years, Providence politicians traded generous pensions and cost of living allowances for support on election day. To the point that Gilbert McLaughlin, the fire chief who retired in the early 1990s with a salary of about $60,000 is now collecting a pension of nearly $200,000.

Bankruptcy carries a cost, says John Simmons, executive director of the Rhode Island Public Expenditure Council, the government-research group. "It has ramifications for the entire state and a serious long-term impact," he says.

What business would want to invest in a bankrupt city? Why would anyone want to move here? Who would want to lend the city money at reasonable interest rates? The national and even international media attention a bankrupt Providence would attract would be an eternal black eye upon our city and state.

Rhode Islanders seem to get this. A recent public opinion survey by WPRI Channel 12 television showed that 71 percent of registered voters are against bankruptcy. (The poll carried an error margin of about 5 percent.)

There is a way out for Providence. Governor Lincoln Chafee is poised to help; State House sources say he will soon propose measures to help the city. And the General Assembly can approve legislation to help the city control its soaring pension and health care costs. By slashing millions in state aid to Providence and other cities and towns, the Assembly became a big part of this problem. Now is the time for the State House crowd to stand up and be part of the solution. Or the proud city founded by Roger Williams in 1636 will celebrate its fourth century under the grim cloud of bankruptcy.

Scott MacKay's commentary can be heard every Monday on Morning edition at 6:40 and 8:40. You can also follow his political analysis on RIPR's On Politics blog.

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