Category Archives: My Work

My extended thoughts about the fire fighter’s contract

The Elorza administration identified the cost of fire protection in Providence as a candidate for major savings.  There is ample evidence to support their choice.  According to a 2013 Report by the Rhode Island Public Expenditure Council (p.44, Table 45), Rhode Island’s fire protection cost per capita was the second highest in the country in 2000 and 2011.  The administration’s goal was validated in a Consultant’s Report it commissioned last year, the data indicated that Providence’s fire protection staffing is significantly higher than peer cities in New England, and one of the most expensive of that group.

Providence’s staffing level is determined by its minimum staffing per shift and the number of shifts, or platoons.  In the Spring of 2015, the minimum staffing level was 92 fire fighters a level maintained in four shifts.  Each shift worked an average of 42 hours each week, thus providing coverage for all 168 hours of each week.  From this configuration it followed that the base size of the Providence fire fighting force was 94 members of each platoon times 4 platoons, or 376.  Because it was typical for 10 or 20 platoon members to be unavailable due to injuries and/or time off, the base staffing level of the Fire Department rose to between 400 and 450, not including management and certain “back office” personnel, such as fire inspectors.  When the full complement of 94 fire fighters was not available for a given shift or platoon, management would fill the deficit by “calling back” fire fighters from other platoons, paying them overtime (or time and half) for this extra work.

The Providence four-platoon staffing structure is common in Rhode Island, but not the prevailing one nationally.  Instead, most fire departments nationally are organized into three platoons, with each platoon working an average of 56 hours each week.  Under a three-platoon system, Providence would need a base staffing level of 94 times 3, or 282 fire fighters rather than 368.  After adding additional fire fighters for sick time and desk jobs, the base level of the force would be in the 300 to 350 range, or 100 fewer than the four-platoon structure.  This could result in significant savings in personnel costs if extra base pay for the longer work week was limited.

North Kingstown realized significant savings through this change in recent years.  The Town increased the average fire fighter’s work week from 42 to 56 hours, while increasing base pay by 10% for the 33% additional hours of work.  The fire fighters challenged this action in court.  The matter went all the way to the Rhode Island Supreme Court, which ultimately upheld the arrangement, relying largely on the fact that North Kingstown implemented the change after the existing collective bargaining agreement expired, and the parties reached an impasse in negotiations.  In 2014, Woonsocket (which at the time was governed by a budget commission) achieved dramatic savings by beginning to implement a similar change, but agreeing to revert to four shifts if the fire fighters agreed to reduce minimum manning from 28 to 21.

In May, 2015, the administration announced it was going to change from platoons working an average of 42 hours of week to three shifts working an average of 56 hours a week.  It also announced it would increase base pay by 8% for the 33% additional hours.  The administration did not negotiate this with the union, and the union did not support the change.  Instead, the union filed a grievance with an arbitrator, saying the existing contract called for them to receive overtime pay (time and a half) for the 33% additional hours.  Citing the North Kingstown case, the administration disagreed, saying that they were exercising a management right.  I asked several attorneys I know about this issue, and they believed that the North Kingstown case did not apply, because that town waited until the contract had expired before implementing changes in pay, while in Providence the administration was attempting to change the pay structure while a contract was currently in place.  The Superor Court agreed with union in a September, 2015 ruling sending the parties into grievance arbitration (which is to address violations of an existing, valid contract), and the case went up on appeal to the Supreme Court.

The administration did not consult with the City Council before taking this action.  At one point, the administration’s attorneys argued to the Superior Court that the City was not bound by the existing contract because it had been extended for a fourth year, while State law limited collective bargaining agreements to a maximum of three years in duration.  The prior City Council (on which I had served) approved the fourth year to achieve pension reform of $170 million, which until recently had been my most difficult vote.  In response, the union argued to the Superior Court that if the existing contract was invalid, then so was pension reform.  After realizing the implications of this argument, the administration’s lawyers backed down and retracted their position.

This episode offered some lessons to the administration.  First, their understanding of the fire contract was inaccurate, and their decision not to consult with the City Council had cost them the opportunity to avoid this mistake.  Second, it showed their lawyers were aware of the difference of the legal significance of the existing Providence contract, which could prevent them from achieving the savings that North Kingstown was able to accomplish because the contract there had expired.  At this time, the fire fighters were uncomfortable with the new working arrangements, which disrupted family life and provided a basis for a settlement.  Despite this, the administration “doubled down” and stated their belief they ultimately would win in the Supreme Court.  As a result, more than 100 fire fighters resigned or retired during this period.  Although the administration had authority to recruit a new fire academy class, it refused to do so, placing greater strains on the fire fighters who remained.

Preliminary signs of an easy Supreme Court victory were dampened when that Court refused to stay the Superior Court’s order sending the parties into grievance arbitration.  As fire fighter reports of injuries increased, the savings predicted under the new arrangement failed to materialize.  On the other hand the City’s liability for a loss in court increased.  According to a projection by the Internal Auditor, the exposure after the first year of the shift change exceeded $9 million, exceeding the $5 million in annual savings projected from the change.

In the fall of 2015, the City Council commissioned the MMA Consulting Group to study Fire Department staffing.  In May, 2016, they produced a Draft Report indicating that fire safety standards could be maintained while reducing minimum manning from 94 to 82.  The consultant had prepared previous reports that the union had accepted; therefore, this provided a chance for substantial savings.

In the summer of 2016, the parties entered mediation with Frank Williams, a retired justice of the Supreme Court.  I have settled cases with Justice Williams, and he is known for his success in difficult cases.  By September, the parties announced a tentative agreement settling the cases.  The tentative agreement proposed reducing minimum manning from 94 to 88, but restored the four-platoon structure.  It included other reforms in the structure of a 5-year contract, two more than the legal maximum.  (Given the administration’s prior arguments against a 4-year contract’s validity, this outcome is, to say the least ironic.)  The tentative agreement also permits arbitration of the “back pay” issue to go forward, which could cost the City another $10-$15 million in the event of an adverse ruling.

During the City Council’s review of the tentative agreement, I asked whether they were familiar with the MMA Report’s recommendation to reduce minimum manning to 82, which could have doubled the possible savings.  I learned that the City Council leadership denied the administration access to the draft MMA Report, falsely claiming that a final report was being prepared.  In fact, the City Council leadership paid MMA’s final bill in June without receiving a final report.  I asked the City Council leadership to explain their actions, but they refused to do so.  In this way, the City Council leadership wasted not only the cost of the report (around $38,000) but millions of dollars of possible additional savings.  For example, the MMA Report indicates the City could take a ladder truck out of service, which would reduce minimum manning by 3 and save $1.5 million per year, or $7.5 million over the contract’s 5-year term.  The City Council leadership never explained their decision, which along with their decision to cancel an infrastructure bond this Fall, adds to a record of (non)accomplishment that likely will be remembered as one of the most damaging in the City Council’s history.

While the City Council reviewed the tentative agreement, the administration announced that if it was approved, it would be implemented by taking out of service Engine 4 at Rochambeau Avenue and Engine 5 at Humboldt Avenue.  The Commissioner of Public Safety explained the rationale for this change at a community meeting on December 21 at Nathan Bishop Middle School.  He explained that those two engines were the least active, and that the safety standard of a maximum 4-minute average response time would be maintained.  The decision about which engines to deploy or decommission is made by management and is not governed by the contract, so I will advocate for a change if it appears that this arrangement is not working, or that a different engine could be taken out of service more efficiently.

Based on all of this information, I decided to vote for the contract.  The possible savings are only half of what we should have received according to the MMA Report, but the City’s bargaining leverage was largely reduced by the risk it would lose in the Supreme Court for violating an existing contract.  It provides some savings and labor peace, allowing an opportunity to rebuild a fire department that has been depleted and damaged by strife triggered by the administration’s unilateral (and quite possibly illegal) actions.  The proposed savings could be decimated or eliminated by the “back pay” arbitration award, but our Congressional delegation secured a federal grant that will help address that shortfall.  All in all, it seems time to move on to other issues, rather than continue the turmoil that has consumed the Fire Department for the past 18 months.

With that said, I am hopeful the administration can make full use of the “learning opportunity” this experience provides.  By failing to consult with the City Council, the administration put the City’s finances at risk and damaged relations with a coordinate branch of government.  By failing to work with the fire fighters, the administration bet all its chips on a legal theory which ultimately was risky at best.  From these experiences, I hope the administration will learn the value of collaboration in solving the City’s problems, as teamwork increases the knowledge base upon which good policies can be developed, as well as the base of supporters and allies who can ensure that a good policy idea will be accepted and embraced by those whom it affects.

An Overview of the 2010 Funding Formula

The 2010 formula is a “foundation” type of formula that calculates aid for districts in three steps.

In Steps 1 and 2, the formula develops a basic cost to educate the students in the school district as follows:

In Step 1, the formula develops the “core instruction budget” that represents the per child cost of basic education programs times the number of children in the district. The current “core instruction budget” amount is $8,922.

In Step 2, the formula adjusts the “core instruction budget” to account for the greater costs involved with educating children with above-average needs. In the case of the 2010 formula, there is a “student success factor” of .4 for children who quality for free or reduced lunch. Thus, for each child qualifying for free or reduced lunch, the district’s budget is increased by 40% x $8,922 or $3,569. This produces the total foundation budget or total “core instruction budget.”

In Step 3, the formula allocates that basic cost between the school district’s budget and the State’s budget. This allocation is made based on ability to pay, which is generally measured by each district’s value of taxable real and tangible property per student. The basic concept is to create a “pot” of money to distribute equal to a uniform property tax rate assessed against all of the property in the State, and then to allocate the “pot” based on each community’s relative wealth.

To create a comparison across local tax bases, the formula uses the following process:

1.The tax bases for all cities and towns are “equalized” by bringing them up to 100% valuation and verified by the Department of Revenue’s Division of Municipal Finance. For each city and town, the Department of Revenue calculates a normalized tax base, called the “equalized weighted assessed valuation” or EWAV. The State’s total EWAV tax base is approximately $124 billion, or approximately $889,000 per student.  This Tax Base Table compiles the data used to make this calculation, which appears in Column A.

2.The State then makes a second adjustment for median family income. If a community has more affluent residents, then it is possible to pay more in tax for a given level of assessed property value and vice versa. To recognize this reality, the Department of Revenue prepares a second calculation for each city and town called “adjusted EWAV.” The adjustment is made in a way to retain the same overall total Statewide tax base, so the State’s total adjusted EWAV tax based is also approximately $124 billion, or approximately $889,000 per student.  The calculation appears in the same Tax Base Table in Column B.

3. This calculation helps indicate each community’s relative ability to pay. There is a wide range across the State, from more than $22 million in property value per student on Block Island to $214,500 per student in Woonsocket, a range of more than 100:1.

4. The State began using the EWAV and AEWAV principle in funding formulas dating back to 1960. Just prior to the 2010 formula, the State used AEWAV to calculate the state share for charter school aid as follows:

  1. Calculate the community’s AEWAV/Student, call it r1
  1. Calculate State’s AEWAV/Student, call it r2
  1. State Share (SSRC) = 1 – .5 (r1/r2)

5. If, for example, a community’s wealth per student equaled the State average, it would receive a State share of 1-.5, or 50%.

6.  If a community’s wealth per student equaled ½ the State average, it would receive 1-.25 or 75%.

7. If a community’s wealth per student equaled twice the State average, it would receive 1-1 = 0.

8. If a community’s wealth per student exceeded twice the State average, it would receive zero.

9. The State share calculation in the 2010 Formula begins with a similar format, making the calculation of an initial share ratio equal to

SSRC = 1 – .475(ri/r2)

10.  This is similar to the previous example, except the “average” community receives a State share of 52.5%, rather than 50%. If a community’s property wealth per student is more than 2.1 times the State average, its share is zero.  You can see these calculations for the 2010 Formula in Column D of the Tax Base Table

11.  The 2010 formula makes an adjustment called the “quadratic mean.” It is based on a second ratio, namely the percentage of free/reduced lunch, or FRPL%. The new ratio is calculated as the square root of half of the sum of the squares of SSRC and FRPL%. Call this number “State Share Quadratic Mean”.

12. State aid equals the total core instruction budget times State Share Quadratic Mean.  You can see the 2015 Formula’s calculation of Quadratic Mean Share on this Quadratic Mean Table.

 

Aaron Regunberg for State Representative (District 4)

With the resignation of  Gordon Fox, residents of the Summit, Blackstone and Mount Hope neighborhoods will have the opportunity to elect a new representative to the Rhode Island House.  I am pleased to endorse Aaron Regunberg.

During my term on the City Council, I had the opportunity to work with Aaron Regunberg on education issues in his role as the founder of the Providence Student Union.  It is common for educators or elected officials to make abstract statements about the importance of listening to students when reviewing policies; however, this often does not happen in practice.  Aaron successfully organized and led high school students to advance the proposition that Rhode Island was not ready for high stakes testing generally (and a program based on the NECAP in particular).  As any parent of a high school student will tell you, children of this age can combine tremendous ability with a fierce streak of independence.  As a result, Aaron’s skill in getting a group “on the same page” bodes well for his work with the older, but equally independent membership of the Rhode Island House.

The Department of Education made every effort to ignore and/or discredit this work; however, the students out-thought, outworked and out-organized the State officials.  Aaron also led and helped negotiate, on behalf of students and on terms acceptable to the School Department and the School Board, a revision to the school busing policy to reduce the “walking radius” for high school students.  Through these projects, Aaron showed great skill, sympathy and commitment to the public interest which I believe will serve him well in the General Assembly.

For Governor: Gina Raimondo

I believe that Gina Raimondo could become a great Governor because of her vision, skill and character.

We start with vision.  People have been talking about the unsustainability of Rhode Island’s pension system for years, but Gina showed incredible vision in addressing it from the normally quiet position of General Treasurer.  She devised and executed a plan (beginning with the Retirement Board’s decision to lower the assumed rate of return) that helped transform a complex problem into more manageable pieces, and showed great vision in not only defining a problem and a solution, but discovering a path to resolve it.

While it took great vision to identify a way for the General Treasurer to address the pension issue, the implementation of that vision required an equally formidable array of skills on her part.  More specifically, the General Assembly is a complex institution with competing power centers and agendas, including powerful interests that have blocked pension reform in previous years.  Gina succeeded in building both an “outside” movement and an “inside” coalition that offers a promising suggestion of her potential, as Governor, to promote the necessary legislation to support major improvements in our State.

Finally, I have great confidence in Gina’s character and commitment to public service.  I first got to know Gina more than twenty years ago as a college senior, and back then she was already focused on her personal mission to serve her community.  We have stayed in touch over the years that followed, and her commitment to public service has never wavered.  It has been convenient for her opponents to try to attach the “Wall Street” label to Gina, but I firmly believe that she always viewed her time in business a step on the path to public service, and that her character is every bit as valuable as her vision and skills in making her a promising future Governor of our State.

The Peerless Lofts/Alice Building Project

A.        Providence’s Commercial Tax Rate

For more than a decade, Providence has segmented its residential and commercial property tax rates, allowing commercial rates to rise to higher levels in order to keep taxes affordable for homeowners.  By 2005, Providence had the third highest tax rate according to a national study.  With these rate increases, development in Providence dropped precipitously, with many developers citing the commercial tax rate as a major factor in their decision not to build.

B.        The Tax Stabilization Agreement (“TSA”) Program

In response, the General Assembly enacted legislation allowing communities to offer incentives to developers to build. Under a “tax stabilization agreement” (“TSA”), a community is provided the flexibility to postpone the date on which it increases the assessed value of a parcel to reflect the investments and improvements added by a developer.  In this way, the developer is allowed a period of years (known as the “stabilization period”) in which to recover an initial investment prior to paying full taxes.  If the parcel would not be developed absent the incentive, a TSA effectively allows the City to be  “held harmless” in the sense that the tax revenues for the property do not decline below the “no development” alternative.  To my knowledge, over the past decade, Providence has seen very little major development unless one of these tax stabilization agreements is offered and accepted.

C.        The Goals Of Tax Stabilization Agreements

While a city cannot thrive without development projects, it is important to for Providence to gain more from TSA’s beyond development for its own sake.  For me, the most important TSA goal is to expand the City’s tax base.  For that reason, we need restrictions on stabilize properties to prevent sales or transfers to tax-exempt owners.  Another important benefit is jobs, both in construction and in some cases operation of developed properties.  TSA’s should therefore contain terms encouraging the employment and/or training of City residents without making the achievement of the first goal impossible.  TSA’s can help accomplish urban planning goals; for example, Providence used TSA’s to create vital downtown residential district that is attracting entrepreneurs and “creative class” members to move into the City.  Other ancillary goals of TSA’s can include neighborhood improvements and environmental protection

D.        Providence’s Experience With Tax Stabilization Agreements

Providence has experimented with different forms of tax stabilization agreements to accomplish these goals.  Earlier this year, the Internal Auditor and City Solicitor compiled information about existing agreements you can review by clicking on this link: Report.  Measured by this standard, several prior agreements have fallen short.  Some have offered terms that were more generous than needed to encourage development.  In others, the City attached conditions (regarding the employment of City workers or union workers) that were difficult to monitor.  In early agreements, the assessment remained very low during the entire “stabilization period”, jumping up to full value only in the last year or two.  This model did not cause developers to focus with enough attention on the importance of meeting the goal of full taxation within the stabilization period.  Also, the process of “case by case” review of these agreements by the administration and the City Council has induced an atmosphere of horse-trading, in which developers sometimes feel the need to add extra amenities to win the support of particular elected officials in the decision proces

E.         Protecting The Taxpayer Against Unnecessary Giveaways

In 2011, the Gilbane Development Company approached the City Council with plans to build student apartments at 257 Thayer Street.  The developer negotiated a proposed tax treaty with the City that would postpone for twelve years the imposition of full taxes.  The developer provided a pro forma data sheet to justify its request.  When I reviewed the data sheet, I calculated that the revenue projections were based on anticipated rents of $900 per bed per month, even though the developer had told the media that the expected rate was between $1,200 and $1,500.  Using those figures, the Internal Auditor calculated that a discounted tax was not necessary, and that the proposed treaty would cost the City between $1.9 million and $3.5 million over the life of the proposed treaty.  The developer maintained that the project would not be built without a treaty.  Despite this, the City Council did not approve the treaty, and the development is scheduled to open in January.

There are risks in playing this type of “high stakes poker,” but the data was sufficiently compelling to justify this risk, which paid off for the City.  From my own study of the issue since that time, it appears that the 257 Thayer project was a rare exception to the general rule that developers will not build without TSA’s.  In the case of 257 Thayer, the key factors appear to have been that the location was one of the most attractive in the City, and the developer was demolishing the existing buildings to permit less expensive “new construction” costs rather than the higher costs of renovation.

F.         Improving Tax Stabilization Agreements Going Forward

During hearings earlier this year, the City Council reviewed the tax stabilization process, and soon will be producing a report with findings.  Though I have not seen the final report, I will support changes that standardize tax stabilization agreements to remove some of the loopholes that impaired previous ones, including the following:
*          There should be a standard agreement that offers a fixed “stabilization period” of between 10 and 15 years that brings the incremental increased assessment in equal annual increases.
*          The standard template should include a restriction on transferring the property to nonprofits within a certain number of years of reaching full taxation, as many current agreements have no such restriction, presenting a major potential loophole.
*          The template should clearly state that no extensions will be granted.
*          The standard agreement should be available administratively without further approvals, removing the horse-trading that discourages development under the current program.  This creates a potential risk that a project such as 257 Thayer, which can be built without a TSA, will gain an unnecessary tax break; however, the cost of occasional subsidies that are not needed is offset and exceeded by the benefits of facilitating more development that meets the requirements of a “template” TSA with clear requirements written into it.
*          To protect the integrity of the tax base, there should be an annual limit on these agreements until we have more experience with which to optimize the template.

G.        The Alice Building/Peerless Lofts Projects

The Alice Building and Peerless Lofts projects before the City Council were early examples of TSA’s.  In addition to introducing new development, they accomplished other important goals.  The projects supported residential living downtown, which has been instrumental in attracting a new group of “creative class” and affluent residents.  Also, the projects advanced the goal of historic preservation, as they called for the reconstruction of dilapidated downtown buildings without tearing them down.  As part of this effort, the developer also acquired State historic tax credits.  As the project moved forward, however, it ran into problems.  First, the cost of renovation proved to be larger than expected; by the time the project was finished, the construction costs amounted to approximately three times the real estate value added to the buildings.  Also, the real estate market proved to be weaker than predicted.  With that said, the structure of the TSA postponed these problems, because rather than building the assessed value steadily from 0% of the improvements to 100%, the TSA remained fixed at a low value.  To further postpone the “day of reckoning”, the developer obtained a blanket extension from the State prior to seeking the 5-year extension now before the City Council.

The proposed extension will move the assessment from 25% to 95% over five years, and 100% thereafter.  It will incorporate new restrictions on transfer to tax-exempt properties, and the assessment value will float based on future revaluations, rather than be fixed.  The Internal Auditor prepared an Analysis that estimates the lost tax revenues at $1.6 million over the five-year extended stabilization period.

In hindsight, this project was an extremely inefficient investment of private and City funds, as the developer’s financial information suggests that the ratio of construction costs to added value is approximately 3:1.  (This disparity results from the fact that property value for this building is based on the income it generates from rentals, which is market-based.  Also, the construction costs are greater because the project involves renovations based on historical preservation goals, rather than demolition and new construction.)  With that said, it would be detrimental to the City’s downtown development and long-term tax base were this project to fail.  Within this analysis, a further revenue loss of $1.6 million appears to be the least expensive and most prudent course.

General Treasurer: Seth Magaziner

Seth Magaziner is presenting a platform of action in his Blueprint for Rhode Island.  In that document he envisions using the Treasurer’s office as a bully pulpit to urge the General Assembly to make worthwhile State investments in such areas as historic preservation, municipal infrastructure and “green” construction and renovation.  These are worthwhile projects, and we have learned from recent experience that an active Treasurer can help change the status quo in the General Assembly.

I believe Seth shows great promise in succeeding in this expanded role for the Treasurer.  When he was an active member of the Common Cause Board, I worked with Seth Magaziner to prepare the redistricting reforms that the voters added to the Providence City Charter during the 2012 election.  Seth was dedicated and capable. I also think he brings strong investment knowledge and skills to this position.

Secretary of State: Guillaume de Ramel

Major candidates (in alphabetical order): John Carlevale (D); Guillaume de Ramel (D); Nellie Gorbea (D)
My endorsement: Guillaume de Ramel
I endorse Guillaume de Ramel because I believe his plans to make the office more supportive of businesses, especially small and start-up businesses, provide an opportunity for that office to help lift the State’s economy.

Governor: Angel Taveras

Major candidates (in alphabetical order): Ken Block (R), Allan Fung (R), Clay Pell (D), Gina Raimondo (D), Angel Taveras (D)
My endorsement: Angel Taveras
While there are a number of quality candidates for this position, I decided to endorse Mayor Taveras because of his skill in exercising executive leadership as Mayor of Providence. The previous administration left the City’s finances in total disarray, and the Mayor had no choice but to ask all stakeholders to share in the sacrifice needed to right the City’s ship. This was a very difficult task, and several stakeholders held out until the end, placing the City at risk of bankruptcy. The Mayor’s successful navigation of this crisis earns him high grades in my estimation.