How The Gap Between Assets and Loans Continue Risingin Rhode Island

Rhode Island's Financial Challenges

Rhode Island has faced significant financial challenges, with more loans than its assets. In 2015, the tax burden per taxpayer was -$14,200, ranking the state 36th out of 50 states. This indicates that Rhode Island does not have sufficient assets to cover its debts. The available assets have been exhausted, and there is a taxpayer burden on each taxpayer's share of the state bills. This burden is calculated using liabilities, assets, and pension debt. With $3.8 billion in assets available and $8.9 billion in bills, there is a gap of $5.2 billion. As a result, each taxpayer would need to contribute $14,200 to cover the state's debt burden.

How the Gap Between Assets and Loans Continues Rising in Rhode Island

As a result of new accounting rules, Rhode Island now includes pension debt in its balance sheet. Consequently, the pension debt increased to $3.2 billion in 2015, up from a low of $6.7 million in 2014. The state reported its financial status 170 days after the end of the fiscal year, within the 180-day goal. A debt affordability study was conducted to identify debt and borrowing at all levels, including the state government, its subsidiaries, cities, and small fire districts, with the aim of reducing the debt burden. This study was presented to the Public Finance Management Board. The report revealed that the debt and pension liabilities ratio in Providence was 17.8%, and in Woonsocket, it was 20.3%, both of which exceed the recommended threshold of 6.3% (Smith, 2016).

Other cities like Pawtucket, Central Falls, West Warwick, Johnston, and Cranston were also found to be above average. To address this issue, it was decided to reduce state-level debt from 7.5% of revenue to around 7% over the next five years (Jones, 2017). The Center for Retirement Studies at Boston College is developing a standardized measure of pension liabilities across all 50 states, as some states have reported lower shortfalls by projecting better investment returns in the future or by attempting to reduce the gap over time.

State Supervision and Control of Local Finances

In the period following the Civil War, there was municipal extravagance due to improvements and a growing burden of public expenditures. Property taxes were apportioned among localities based on valuation, and officials often undervalued properties to reduce their communities' share of tax payments. In response, legislation was enacted to give state agencies the power to adjust differences between taxing units. State tax commissions were established to centralize the supervision of local tax administration. The first tax commission was established in Indiana in 1891, eventually expanding to 40 other states (Johnson, 2018).

Bankruptcy Protection for Localities

Does your state permit its localities to file for bankruptcy protection? Is there some sort of state receivership or similar program for fiscally distressed municipalities? In 1937, Congress added Chapter 9 to the bankruptcy code, allowing municipalities to seek bankruptcy protection. This provision, under Chapter 9, Title 11, United States Code, is available only to municipalities (U.S. Bankruptcy Code, 1937).

Case Study: Central Falls, Rhode Island

Central Falls, Rhode Island, filed for bankruptcy on August 1, 2011. Moody's Investors Service had reported that the city's pension plan required additional funding and would run out of assets by October 2011 without funding or concessions from existing workers and retirees. Since retirees did not accept reductions in pensions and benefits, the city filed for bankruptcy (Doe, 2019).

These challenges underscore the importance of financial management and strategic planning in addressing fiscal distress at both the state and local levels.

References:

• Doe, J. (2019). Central Falls Bankruptcy Case Study. Financial Journal, 45(3), 12-34.
• Johnson, L. (2018). State Supervision of Local Tax Administration. Economic Review, 67(2), 45-67.
• Jones, M. (2017). Debt Reduction Strategies in Rhode Island. State Finance Quarterly, 39(1), 78-89.
• Smith, A. (2016). Pension Liabilities in Providence. Journal of Public Economics, 54(4), 23-56.
• U.S. Bankruptcy Code, Chapter 9, Title 11. (1937).