Lawrence — non-bail-out bill

Tomorrow, I will be asked to vote on a proposal to assist the City of Lawrence.

Lawrence faces a current year financial deficit of approximately $20 million — something under ten percent of its budget. The city has exhausted its current financial reserves and needs a source of funds to be able to get through the current year.

The bill does NOT give any state money to the City of Lawrence and it does NOT position the state as guarantor of any debt of the City of Lawrence.

What it does do is allow the City to go to the credit markets and borrow to cover its current year gap. Additionally, it allows the City to participate in an existing program called the Qualified Bond Program under which the state will send the City’s local aid directly to the bondholders. Section 12 of the Qualified Bond act, G.L. Chapter 44A is clear, however, that the state is not actually guaranteeing any payments.

The act puts in place a financial overseer for the City who will have the authority to review the city’s financial condition and make recommendatiions to the city. If by January 31, 2011, the overseer finds that the City’s finances have not fully stabilized, then, without further legislative action, a control board will be appointed to take over the City’s finances.

In my view, the approach in this bill is reasonable. It does not put the state on the hook for any additional payments to the City. It does give the newly elected mayor (and the new majority of the City council) some time to put the affairs of the City in order. It does put in place a hard deadline to get everything under control.

The real risk to the state in the proposal is that nothing changes over the next ten months in the City and the City opens up a larger budget gap, which in some political sense the state will ultimately be obliged to cover. We have not been presented with a real review of the city’s finances, but the most likely squeeze on the City would come from unreasonable labor contracts. However, all of the City’s contracts will be up for renegotiation in June. This will allow the mayor and the financial overseer (who will be carrying the threat of a control board being put in place) to force significant change as necessary. Additionally, the overseer has the unique power to force the City to move its employees into the Group Insurance Commission health care plan if that would save money. That move would occur this fiscal year — health care care changes are usually the greatest savings opportunities available.

Lastly, it is worth noting that the Mayor has resigned as a member of the legislature and the controversy about his dual paychecks has abated.

As of now, I am planning to vote for the bill, but I am still listening — it is a close call. Your thoughts are appreciated.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

27 replies on “Lawrence — non-bail-out bill”

  1. Hi Will,

    As you present the issue, it sounds like a yes vote is a reasonable one. I’m no great student of the city, but it’s always seemed to me that Lawrence’s problems stem mostly from being Lawrence, and not from unusually feckless government. So it’s not a reward for bad behavior, and if buys some time and applies pressure for real solutions, it sounds OK to me.


  2. We should implement what the bill provides to help this city. The risk to the state is suficiently minimized if the financial overseer acts pro-actively pursuant to his powers as stated. A favorable vote should be contingent upon the receipt of a real review of the city’s finances.

  3. I would for the bill so long as this is the line in the sand so no more fiscal irresponsibility be rewarded. At some point the bill for all the spending and inefficiencies will come do, in Lawrence as will as in Belmont and the state and heaven help us if we follow done the road seen in CA, NY, NJ, NV et al. I note the state is going to the federal government to balance the health connector budget, as a parent who hopes their children will be able to afford to stay close, the living beyond our means worries me greatly. Government has a role but not to be the engine of our economy.
    Thanks for your consideration.

    1. By the way, I do agree Jim, that government should not be thought of as the engine of the economy. But it does provide basic services which the economy depends on. I favor focusing on providing those core services cost-effectively rather than dabbling as we often do in the support of particular businesses with tax credits etc.

  4. I agree with the commenters above. This sounds like a reasonable and well-reasoned approach. As I understand the situation in Lawrence, doing nothing is not an option.

    Dana Bonstrom

  5. I would be in favor of the assistance that you have outlined above, and I would imagine that Lawrence could benefit from some oversight. That said, I was really dismayed with the actions of the control board that was put in place in Springfield under the Romney administration. Their heavy-handed approach with the city teachers in particular will take decades to recover from. I personally know a lot of teachers who abandoned the Springfield school system when the control board froze pay, sought cuts in their benefits and neglected their collective bargaining rights.

    Appointment of a control board sounds like a nice clinical way to address what may be mismanagement or corruption in government. But as TomElliott points out, Lawrence might simply suffer from “being Lawerence” or maybe just from our current economy…either way, the kids in Lawrence should not pay a price exacted by a control board.

  6. I preface my comment by saying that I have not been following this issue closely. However, I do believe that we cannot allow a city to fail. The bill as you presented it above seems like a reasonable approach at this time.

  7. Looks like a very sensible plan that other towns might need to consider. Could become a model and we should follow its development. Vote yes! Ali Harris

  8. I agree with this strategy. The only serious alternative would be to impose a control board now, instead of giving the new mayor and council 10 months to improve the situation. It may well be that after 10 months, the improvements will be inadequate, but it seems worth giving them a shot to make some of the necessary changes themselves. I doubt they’ll make no changes; they might well not make enough, however.

  9. I believe a “yes” vote is reasonable, probably even necessary. I especially like the idea of requiring “the City to move its employees into the Group Insurance Commission health care plan if that would save money.” I have long thought requiring all public employees in the state to get their health and dental insurance through the state GIC program would allow cities and towns to spend taxpayer dollars where the need is greatest. It would also give GIC more clout when it bargains with the health insurance companies.

    I would be in favor of allowing all Massachusetts employers and residents who now have to buy individual health plans access to the GIC group plans.

  10. I agree that a yes vote is a reasonable position. This will give the city a year to renegotiate contracts and reign in costs. Other towns experiencing deficits may be able to learn one way or another from the experience of Lawrence.

  11. It’s hard to tell without knowing the alternative. What actually happens if a city fails to pay debts? Has that happened before? Do assets get divided up among the creditors the way it would in a business? That seems strange in the context of a city government.

    1. Basically, the truth is that the state cannot afford to let a municipality go bankrupt — it would drive up the costs of borrowing for all other communities in the state. So, we always step in eventually — the delicate judgments are when and just how.

  12. Municipalities are the creation of the Commonwealth. It is up to the Commonwealth to provide the fiscal structure required to succeed in the mission of providing the services that must be provided at the local level.

    The Lawrence bill seems like a reasonable means for keeping Lawrence functioning without putting the rest of us on the hook.

  13. At first glance it seems reasonable and altruistic to vote for the bill. Upon further review it raises questions and calls for leadership to make difficult choices:

    How and why have further cuts not been made to date? A 20 million dollar shortfall at this point seems irresponsible. I’m well aware Lawrence has unique challenges but serious and hard cuts should have been made already. Waiting another year simply puts off the inevitable. Salaries and benefits do have to be cut. It’s necessary in the private sector and must be faced at the local public level(s). Without a control board in place in June when the contract re-negotiations take place nothing of substance will be done, securing contracts for a longer time that will be difficult for the control board to affect later.

    There is no guarantee that future local aid payments will be sufficient or will even remain at current levels, putting the city further in debt with an ever increasing deficit.

    Wage & benefit freezes of municipal employees is not enough. Unfortunately pay increases in many instances continue to be allowed. I’m aware these increases were part of existing contracts but the system can no longer support rising wages, the increasing health insurance costs which also apply to retirees of the system along with under-funded retirement plans. At some point the backs of the taxpayers will give way. I understand the state will not be guaranteeing any payments now but we all know that the 20 million will not go away and will only grow causing the state to step in and ultimately cover the debt with taxpayers money along with the cost of a control board and other related costs. If cities and towns are allowed to continue to operate at deficits that are ultimately covered by the state/taxpayers, the state will fail!

    I say move now to take action by installing the control board which must balance the budget not hope that the city can do it for itself when it has proven that it cannot. Our legislators have a fiduciary duty to all taxpayers to protect our interests. It calls for very difficult decisions to be made. The easy thing is to put it off until tomorrow, something our parents told us never to do growing up.

    1. Thanks, Michael.

      Your point is a fair one that we will end up paying the costs somehow if they dig a deeper hole.

      I think what we are doing is not, in practice, very different from an immediate control board creation. I’ll post at more length on this shortly.

  14. What would happen if the city were to go into bankruptcy and in the long view, would that be all that bad? I am not unopposed to using those proceedings to allow breathing room and reorganization. If contracts the city cannot afford are broken by that move, then fine.

    Could the state tie the passage of this bill to giving the financial overseer immediate authority to control spending? Waiting 10 months to determine whether the city gets its act together seems Pollyannaish.

    1. It’s bad for all the communities in the state if we actually let a city go bankrupt. That would set an expectation in the markets that other MA communities would belly up and that would drive up everyone’s borrowing costs. We always step in. See my further post (shortly to appear) regarding just when we intervene.

  15. I think the time for the control board is already here. A substantial portion of Lawrence’s revenue flow have been coming from state aid for quite some time. Their local tax base has been seriously eroded and they do need additional revenue. However due to the unending spigot of state aid the city has not seriously tried to develop a long term plan for financial health. If we vote the 20 Million today with no controls, they will be back in July with their hand out once again.

  16. I work with many people in Lawrence, some of whom work for the City. This is a city transitioning in leadership to the Latinos who make up at least 2/3rds of the residents. It is a vibrant community of people who care very much for each other.

    Any support that the state can give is needed. However, going forward the state, and any “controllers”, must be careful about maintaining and improving the structures in place. For example, think well about cutting pay for municipal workers, you get what you pay for!! Same with teachers, etc. Do we really want city workers to become an underclass, where talented people will go elsewhere to work?

    I think every city and town should be in the GIC. It just makes sense.

    The problems that have brought Lawrence into this situation are very variable and some have come over a long period of time. They will not be solved quickly with cut and slash economics.

  17. Lawrence’s elected officials need the support and framework of this bill to try to address a gap that comes from being an urban area of just six square miles with a very limited tax base. Only recently in my 25 years at Lawrence General Hospital have the Hospital and a few developers been able to make major financial investments in the future of Lawrence. There is growing local commitment to seeing those pay off.

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