State Money for Cities and Towns: Who Are the Winners + Losers?

State Money for Cities and Towns: Who Are the Winners + Losers?

 The state is distributing $73.1 million in municipal aid to cities and towns in the upcoming fiscal year—about $5 million more than last year—according to a system that some critics say unfairly punishes some communities and rewards others, all the while failing to fully make up for deep cuts during the recession.

Data for municipal aid in the new state budget that takes effect next week shows a range in how much each community is receiving. In order to provide a fair and meaningful basis for comparing one city or town to another, GoLocalProv has totaled four of the main categories of municipal aid and divided by population to provide a per capita measure.

The resulting calculation shows that, on a per capita basis, the city of Newport tops the list, with $79 in state aid per capita (when New Shoreham isn’t counted). That’s far above the next highest community, North Providence which is receiving $51 in state aid for every resident.

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The top five communities include those that have been fiscally struggling—like Providence and West Warwick—as well as one that hasn’t: Barrington. The three communities received $49, $44, and $40, per capita in state aid, respectively. (See below slides for a breakdown for all cities and towns.) The figures do not include state education aid or revenue sharing between cities and towns from the hotel tax and the meals and beverage tax.

Still underfunded and unfair

Cumberland Mayor Dan McKee praised the state for accelerating a year’s worth of education aid as it phases in the new school funding formula (though he says the state should increase the ratio of state funding to local funding for education).

 However, on the municipal side, McKee said how state authorities calculate municipal aid still has an element of unfairness.

In particular, he takes issue with how state authorities reimburse cities and towns for money they lose from exemptions for car taxes. The current method, according to McKee, is based on tax rates, meaning that communities with higher taxes are effectively rewarded with more money from the state. “The distribution is not equitable,” McKee said. “It has never been equitable.”

McKee, now a candidate for Lieutenant Governor, said the state reimbursement should be the same for a $10,000 car, whether it’s in Bristol or Barrington.

It’s not just about being fair for McKee. “I think the equitable allocation of funds is really important in terms of the economy,” McKee said.

He worries that the rising property tax burden is driving residents out of some communities and, ultimately, the state. Those residents who have the ability to pick up and leave are exactly the ones state and local officials need to work harder to retain in the state so they can contribute to the economy here, McKee said. A fairer distribution of state aid, he added, will help alleviate the local property tax burden.

A lack of fairness is not the only issue, however. Communities are still reeling from the deep cuts made in state municipal aid during the recession, McKee said. At one time, he said Cumberland was receiving $4 million in annual state aid. Today, it is receiving $654,328.

 Although Governor Lincoln Chafee has made efforts to boost municipal aid, the state still has a long ways to go to get back to where it was, McKee said. “When you take millions of dollars and replace it with thousands of dollars, it’s still not bringing communities back to where they were before,” McKee said.

Gary Sasse, the former administration director under Gov. Don Carcieri, said that state aid was “decimated” during the recession and has yet to return to pre-recession levels, putting increased pressure on local property taxes.

But there’s another way for the state to help cities and towns alleviate the burden of property taxes—and that is by finding ways of encouraging them to cut their own costs, Sasse added.

A spokesperson for a state taxpayer group agreed: “The question has to be asked: to what extent does a substantial amount of aid facilitate bad budgeting practices, such as raises and other expenditures, that local officials could not otherwise afford to implement?” said Monique Chartier, spokesperson for the Rhode Island Taxpayers.

Sasse also defended the state’s decision to cut state aid, saying that the recession had caused state revenues to dramatically decline. State officials had one of three ways to make up the difference: lay off state workers, raise taxes, or cut discretionary spending. “It was the least bad of bad choices,” Sasse said. “That was one of the casualties of the recession.”

Urban clout?

 Though the state has set methods and formulas for how it allocates state aid, one policy analyst says that politics inevitably plays a role.

“It’s no surprise, though, that Rhode Island’s allocation of state aid favors certain communities, particularly urban ones with greater representation in the General Assembly. It’s integral to the progressive plan to ensure that people outside of urban areas are made to subsidize those within them,” said Justin Katz, the director of research at the Rhode Island Center for Freedom and Prosperity.

If elected as Lieutenant Governor, McKee said he wants to be a voice for those cities and towns that are underrepresented at the Statehouse, suggesting that no one in the state leadership or general offices spoke up for communities when deep cuts were made to municipal aid. “I’ll fill a pretty large void,” McKee said. “It is something I will not be silent about.”

“You can’t have enough advocacy for the local taxpayers and communities,” he added.

(McKee also added that he does not necessarily see a disparity between urban centers and outlying communities, noting that both urban and suburban communities united to fight for the new state education funding formula.)

Providence: winner or loser?

 At first glance, it might appear that Rhode Island’s largest city is also its biggest winner in terms of municipal aid from the state. Out of $73.1 million in state aid, a total of $35.8 million—just under half—is going to Providence, according to official state figures.

But the bulk of the state municipal aid to Providence—about $27.1 million—consists of payments in lieu of taxes (PILOT) that the city is losing out from tax-exempt colleges, universities, and hospitals—not to mention state-owned properties in the capital city.

If anything, one progressive policy analyst says the capital city does not receive as much from the state as it should. “[T]he truth is that the rest of the state owes the capital city a lot more than it will ever pay,” said Tom Sgouros. 

“The state takes responsibility for Route 2 as it goes through North Kingstown, Warwick, Cranston, but not in Providence. Similarly, the state makes Providence subsidize the water supply for half the rest of the state, it forces Providence (and Providence alone) to extend tax breaks for favored developers. The state occupies a ton of prime, taxable, land in the city, and it has, for 50 years, subsidized the flight from the city with tax policy, transportation policy, housing policy, building codes, and more,” Sgouros said.

When PILOT payments are excluded, Providence still has the most in municipal aid—a total of $8.7 million, but it drops to the third spot on a per capita basis, after Newport and North Providence.