Reductions in Local Aid Will Require Structural Change for Local Governments and School Districts

Recently, discussions have focused upon the Governor’s proposed reductions in local aid and their impact on municipalities. To put the discussion in context, RIPEC compiled estimated savings for the budget articles that the Governor proposed as offsets to cuts in local aid.

Between the FY 2009 enacted budget and the FY 2011 budget as proposed by the Governor, the state experienced a reduction in general revenues of $420.0 million or 12.5 percent. This has required the state to reduce its expenditures and a major part of the reductions in state expenditures has been attributable to cuts in local aid.

The FY 2010 supplemental budget and the FY 2011 proposed budget also include various budget articles which would provide structural change and fiscal relief for local governments by altering the way local governments operate. These budget articles, or “municipal tools”, range from changes to municipal pensions and minimum manning provisions, to municipal health insurance cost-sharing and a uniform public school employee health care benefits program. Additional savings could be achieved through budget articles and modifying mandates as proposed by the Governor in his FY 2009 supplemental budget; for example, the provision to eliminate mandates for school bus monitors and the requirement that school nurses be certified teachers. Combined, savings of approximately $83.0 million could be achieved, based on data provided by the Rhode Island Division of Municipal Finance, the Rhode Island Department of Education and the Rhode Island League of Cities and Towns.

Policymakers should keep in mind the following when discussing the proposed budget articles:

  • The timing of implementing these budget articles and modifying the mandates is crucial.  If the General Assembly enacts the budget articles and modifies mandates, how soon the effects of the proposed changes can be implemented will be a significant factor in determining to what extent they will affect FY 2010 municipal budgets, as well as the FY 2011 budgets and beyond. For example, for those municipalities that are currently in collective bargaining negotiations, implementation of the budget article relating to pension changes could have a potential for savings in the current year.
  • In addition, implementing these budget articles will provide for structural changes on the local level for years to come. For example, reductions in local pension and health care costs will not only impact the fiscal year in which the change is implemented, but also each year thereafter. Therefore, the sooner the changes can be implemented through contract negotiations, the sooner municipalities will experience fiscal relief.
  • The savings of approximately $83.0 million do not include all the savings that might be achievable through implementation of the budget articles and modifying state mandates. For example, no estimated savings were available for changes to locally-administered pension plans (Article 13), permitting public schools to join cooperatives for purchasing goods, supplies and services (Article 18), minimum manning (Article 21), suspending Caruolo actions (Article 9), and creating a new uniform public school employee health care benefit program (Article 23).
  • There is a question of how much the proposed changes will be able to offset the reduction of state aid in the near term, given the short time frame in which municipalities will have to respond to the changes. In addition, municipalities will be impacted differently by the reductions in state aid depending on the degree to which they rely on state support and the implementation of the budget articles.

The state faces out-year deficits ranging from $362.2 million in FY 2012 to $535.7 million in FY 2015, based on State Budget Office projections. With no end in sight to the fiscal problems facing governments, Rhode Island state and local administrations must continue to focus on solutions that will not only address the immediate short-falls, but will also lead to long-term stability and structural reform.  Without substantive restructuring, local governments, in particular, will not be able to support the current levels of services. Restructuring government will require flexibility with, and modifications to, mandates and collective bargaining requirements.

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