Projo 7 to 7 News Blog

Text of the Governor's speech

PROVIDENCE - A cigarette tax hike, more than $74 million in municipal and education aid cuts and a rollback in pension benefits for state workers and teachers who wait until after April 1 to retire are key pieces in Governor Carcieri's proposal for averting a potential $357.4 million current-year deficit.

The deficit-avoidance plan he unveiled during a televised address from his office tonight was a patchwork of tax and fee increases, state-spending cuts and one-time revenue boosters, such as the sale of three state-owned pieces of land - including a Cranston parcel eyed as the new home of the state motor-vehicle registry - to Rhode Island Housing for a quick infusion of cash. He is also banking on $27.5 million in Medicaid bonus money from the Obama administration.

"Tonight, I've taken the unprecedented step of speaking to you directly, because we are facing extraordinary circumstances,'' Carcieri said in a speech he prepared for a 7 p.m. address from his office, broadcast live on local television and radio.

"How we decide to cure this deficit will have long-lasting consequences for Rhode Island's future. We can avoid the tough decisions and drift into more troubled waters, or we can set a new course that leads to sustainable spending and a brighter, more prosperous future for us all,'' he said.

"I know there are some out there who believe we need to increase taxes to solve this budget problem. I am firmly convinced that raising broad-based sales or income taxes would be disastrous for our state's future -- it will merely prolong the economic decline, hasten job losses, and hurt more of our families.''

-- Katherine Gregg

>> Continue reading: Carcieri outlines plan to plug $357 million deficit

Journal photo / Connie Grosch
State Sen. M. Teresa Paiva Weed, D-Newport, is sworn in today as the first female Senate president in Rhode Island history. Acting Chief Justice of the R.I. Supreme Court Maureen McKenna Goldberg, right, administed the oath in the Senate Chamber.

By Katherine Gregg
Journal State House bureau

PROVIDENCE -- West Warwick Democrat William J. Murphy sailed to a fourth term as House Speaker and Newport Democrat M. Teresa Paiva Weed became the Rhode Island legislature's first female Senate president as state lawmakers opened their 2009 session this afternoon under a dark financial cloud.

Murphy got the loyal backing of his party, with 67 of 69 fellow Democrats voting for him.

His only opposition came in the form by a bid by House Minority Leader Robert Watson, R-East Greenwich. Watson, too, was backed by his party. The tiny six-member GOP block gave him his only votes.

"We have our work cut out for us,'' Democrat Paiva Weed, 49, told her colleagues on the day before Republican Governor Carcieri is expected to unveil his plan for plugging a $357 million current-year deficit, during an uninterrupted 15- to 20-minute block of radio talk show and network TV time.

"Our state and our nation are in the midst of an economic crisis,'' Paiva Weed said in an advance text of her speech. "Job losses, layoffs, company closings, foreclosures and rising rents have left many facing decisions they never thought they would have to make.
Can we afford our prescription drugs? Can we afford to fix the car? Which bills do we pay and when.''

At the state level, "significant changes must be made and proactive policies implemented to address these complex conditions,'' she said, and "we are ready to act.''

Paiva Weed did not lay out an action plan. At this point, no one in state government has. But she promised "a forward looking approach to developing long-term strategies to secure a stronger economic future.''

For example, she said: "we will work to create business-friendly policies to attract new companies to the state, but our MAIN priority will be growing the businesses that are already here in Rhode Island,'' and "support proper workforce training [and] retraining for experienced workers laid off in this economy.''

With all of the state's health and welfare programs on the potential chopping block, and hearings set to start later this week on a Medicaid waiver aimed at shaving millions of dollars off the cost of what is now -- but would no longer be -- a guaranteed government-paid health insurance program, she promised to "remain committed to addressing the needs of our most vulnerable populations -- particularly our elderly, our disabled and our children.''

Noting that she is the first woman to win the Senate presidency -- and top legislative rank in Rhode Island, she said: "Young women should know, anything is possible.''

Paiva Weed, 49, has served in the Senate since 1993.

>> Continue reading: Update: Murphy, Paiva Weed chosen to lead R.I. House

PROVIDENCE - Former Supreme Court Justice Robert G. Flanders confirmed today that he is seriously thinking about making a bid to return to the state's highest court as the successor to departing Chief Justice Frank Williams.

"I am very happy doing what I am doing,'' said Flanders, 59, a partner in the law firm of Hinckley Allen & Snyder, and chairman of the state Board of Regents for elementary and secondary education. But, "sure I am thinking of it,'' he said. "It's a critical position for the state, and it's obviously something that I know something about from having served up there and I am getting asked a lot of questions about it, so I can't help but think about it.''

Flanders said he had not yet spoken to Governor Carcieri, a fellow Republican, about his potential chances should he apply, and be chosen by the state's judicial nominating commission as one of the three-to-five candidates recommended to the governor.
"You don't do something like that lightly," he said.

Flanders, who had become known for his keen intellect, sharp writing and frequent dissents during eight years on the state's high court, stunned the legal community in January 2004 when he announced, at the age of 54, his intent to resign. Supreme Court justices have lifetime tenure, and it was unprecedented, in recent memory, for a justice to leave at such a young age without a hint of scandal or illness.

"We hope to live many lives and do many things," Flanders said at the time. "As great a job as this is, I feel I have other things to give, other things to do." He noted that eight years is equivalent to two four-year terms for a governor, saying, "I'm ready to try something different."

Asked today what would make him consider returning, he said: "Being a chief justice is a different type of challenge than being an associate justice because of all of the administrative responsibilities that [the job] entails, plus the leadership of the judiciary as well as the Supreme Court. There's a lot more to it.''

Asked where he stood on one of Williams' pet projects: the construction of a brand new $88 million courthouse in Blackstone Valley, Flanders said: "I don't know enough about it yet to comment, but I certainly think that given the times we are in that I would say there are a lot of priorities we ought to look at first before we pursue an $88 million courthouse.''

Flanders graduated from Brown University in 1971 and Harvard Law School in 1974. He became a law partner at Edwards & Angell and was elected as a Republican to the Barrington Town Council in 1982. Before making his leap to the court, he founded his own litigation firm, Flanders & Medeiros, in 1987.

PROVIDENCE - Despite a massive deficit, the Carcieri administration is looking to buy some real estate.

In an ad running in today's Providence Journal, the Department of Administration is seeking proposals from property owners interested in selling a 50,000 to 70,000 square foot commercial building "in the greater metropolitan area'' to the state to be used as a new computer center. Responses are due back by December 22.

Asked the rationale for seeking to buy a new building when the state is struggling to pay its bills, Governor Carcieri's spokeswoman Amy Kempe said: "the current [information-technology] center is a former used car lot building that is in poor shape and has more value to the surrounding businesses in the area. By relocating the IT department, the building and land can be sold at the appropriate time.''

While some of the high-level state employees and consultants who do computer work for the state are currently located in the main state administration building on Smith Hill, others work out the former automobile dealership in Johnston already owned by the state that currently serves as the state's centralized data center.

Specifically, the state is seeking a handicapped accessible building within 15 miles of a power source, that has 250 dedicated parking spaces, a security system that is already equipped with "multi-layer entry, card access, camera active surveillance,'' a rooftop gas-fired HVAC heating, cooling and ventilation system that meets these requirements, according to a document on the State Properties Committee Web page.

The drive to relocate the computer center was one of the first assignments the new governor gave his first information-technology chief in 2003. By then, the state had already passed on a proposal to buy a building on the East Side.

Two years ago, Carcieri proposed a $20-million renovation of the old Varley Building at the John O. Pastore Center to house the state's E-911 system, the state computer center and a full emergency-operations center. Voters had rejected a bond issue only two years earlier that included $14.5 million for a less expensive renovation of the Varley building.

Asked why the price had gone up so dramatically in the intervening two years, Robert Brunelle, then-associate director for the division of capital development and property management at the state Department of Administration, said the 2004 proposal was simply to renovate the old hospital building into a conventional office building.

New regulations required E-911 to be housed in a building that can withstand a seismic event, meaning the building would need additional upgrades. The specialized high-tech equipment used by E-911 and the state computer center would also require more expensive modifications. Instead of sprinklers, the building would need a dry fire-prevention system, which is more expensive but necessary to protect the equipment, he said.

But that proposal too fell by the wayside.

Asked today where the state planned to find money now to buy a commercial building, Kempe said the state's capital plan includes $8.9 million to "renovate one of [the] soon to be vacated Training School buildings for a consolidated IT center. With the softness in the commercial real estate market DOA wanted to solicit opportunities to save money by purchasing a building that could suit our needs instead of renovating a former training school.

"At times it is more expensive to try and convert a building into something that it was not intended to be. There appears to be buildings for far less money than the $8.9 million that was appropriated. For example, if the State can save $1.0 million the savings can either be banked or used for some other capital project.''

>> Continue reading: Rhode Island in market for commercial real estate

PROVIDENCE - With the state headed to the bond market early next week to raise more than $107.3 million for past and future education, housing and transportation initiatives, Gen. Treas. Frank Caprio announced today that the three major rating agencies have "affirmed'' the state's current credit rating -- despite high unemployment and sinking state revenues.

In a brief statement earlier today, the treasurer's office said Fitch has affirmed the State's AA- rating and Stable outlook; Moody's has affirmed the State's Aa3 rating and Negative outlook and Standard & Poor's Ratings Services affirmed the state's AA rating and Stable outlook.

According to Caprio spokesman Tim Gray, the treasurer, the governor's office and House Finance Committee chairman Steven Costantino had invited Moody's representatives here on Nov.18 "to make the case that our rating should not be downgraded.''

"They all met for several hours and put on one heck of a presentation, ... and let's face it,'' Gray said, "the way Rhode Island's economy is and the unemployment rate being what it is, it was a difficult sales job, but they pulled it off.''

While not all of the ratings reports were available today, the treasurer's office released the S&P report which said the rating reflects "average wealth indicators with median household effective buying income at 101% of the national level; recently improved, though above-average, debt burden; and historically adequate financial position'' even though state officials "intend to draw down the stabilization fund for fiscal 2008 due to a budget deficit...Offsetting factors include the state's large projected budget gaps for fiscals 2009 and 2010 and potential continued budget pressure.''

"While the outlook remains stable,'' S&P said, "the state faces significant near-term fiscal pressure that will require substantial adjustments to bring the fiscals 2009 and 2010 budgets into structural balance.

"In our opinion, a continued economic slowdown beyond projections will further pressure revenues; and it could hamper the state's progress toward restoring structural budget balance. The state's failure to address its structural imbalance successfully would lead to negative credit implications given the revenue shortfall's growing size.''

PROVIDENCE -- The state Department of Environmental Management is asking a state committee for permission to begin seeking proposals for new "public-private'' activities at Haines Park in Barrington, Salty Acres in Narragansett, World War II Memorial Park in Woonsocket, Beach Pond in Exeter, Goddard State Park golf course in Warwick and Jerusalem in Narragansett.

The proposal will be considered by the State Properties Committee on Tuesday at 10 a.m. in a second-floor Department of Administration conference room.

According to a letter that DEM director W. Michael Sullivan sent the committee, "The department envisions a sustainable parks and recreation system that will rely on both public and private funding and partnerships. Partnerships will allow for some relief to the public dollars needed to finance infrastructure and at the same time will open up opportunities for creative businesses to flourish within our parks systems.''

He said there is precedent.

The state currently allows for privately operated concessions stands and for the imposition of user fees at parks and beaches, such as the current user fee for what Sullivan called "the Equestrian Facilities in Lincoln Woods and Goddard Park, the public golf course at Goddard Park, camping in Fisherman's Memorial Park, Burlingame, and George Washington Management Area.''

In his letter, he also cited the role of nonprofits, such as "Sail Newport with its public sailing program, Fort Adams Trust, which operates the fort structure at the park, Buttonhole Golf Course operated by the Golf Foundation of Rhode Island, and the Coggeshall Farm Museum at Colt State Park.''

Not all such proposals have been greeted warmly in the past. In Barrington, for example, a push by youth sports leagues to transfer ownership of 85 acres from the DEM to the town to make way for more athletic fields ran into opposition from residents anxious to keep the park open for walking and other passive recreational pursuits, and those worried about flood lights shining into their houses at night from new ballfields.

By Katherine Gregg
Journal State House Bureau

In her first act since fellow Democrats endorsed her for Senate president, Senate Majority Leader M. Teresa Paiva Weed today announced that she has chosen Sen. Daniel DaPonte to be the new Senate Finance chairman and will be calling an "informational caucus'' early next month on the state's massive financial problems.

The caucus has been scheduled for Dec. 4. The announcement comes a day after the Carcieri administration released a quarterly spending report that serves notice the state is headed for a potential $357.4-million deficit this year, as a result of a revenue shortfall, tens of millions of dollars in unbudgetted spending and overly optimistic budget cuts.

Her choice of DaPonte, a deputy majority whip, to replace the defeated Sen. Stephen Alves, D-West Warwick, as Senate finance chairman is likely to be controversial. DaPonte's name is mentioned in every news story about Operation Dollar Bill, the wide-ranging probe of influence peddling at the State House.

The apparent focus is a $100,000 commission that Alves and DaPonte split in 2004 while they were both still financial advisers at UBS Financial Services, for their role in "introducing" Prudential Financial to the annuity fund of Local 99 of the International Brotherhood of Electrical Workers.

Prudential called the payment "a one-time finders fee," but the financial consultant who oversaw the process in which Prudential was chosen to manage the fund said that neither DaPonte, nor Alves had anything to do with Prudential's hiring, which was done through a competitive bidding process.

Asked about all this last week after DaPonte's name surfaced as a candidate for Senate finance chairman, Paiva Weed said her chosen replacement as majority leader, Sen. Daniel Connors, recommended DaPonte, who now heads his own brokerage firm, Axis Financial Group. Connors is a lawyer in defeated Senate President Joseph Montalbano's law firm.

Today she issued a statement in which she called DaPonte an insightful and valued member of this chamber since 1999...[who] brings a unique skill set and considerable financial credentials to this position. He has the respect of his colleagues in this chamber, and I have every confidence that the people of Rhode Island will come to appreciate his leadership as they get to know him better."

Without addressing his role in the Prudential-IBEW controversy, she said: "He is the right person for the job during these difficult times.''

>> Continue reading: New R.I. Senate leadership team taking shape

The Carcieri administration is refusing to disclose the number of unused vacation and sick days it awarded recent state retirees who, in some cases, walked out the door with severance checks averaging $10,500.

In total, taxpayers paid $16.5 million in severance payments to the 1,521 state workers and college employees who retired in the five months before the price of health coverage for new state retirees went up on Oct. 1.

While the average payout was a reported $10,500, former Rhode Island College president John Nazarian got a check for $129,158.

If all of the jobs were left vacant, the state would presumably save tens of millions of dollars in salaries and benefits. But first the taxpayers have to pay the retirees for unused vacation and sick days, the deferred pay they were promised as a concession for taking a pay cut during the financial crisis of 1991 and, in some cases, the early-retirement bonuses of $7,000 to $20,000 offered to state college employees.

In a series of back-and-forth emails over the last week, Carcieri spokeswoman Amy Kempe said the Department of Administration had decided that it was barred from releasing any further details about these severance payments by the state's Access to Public Records Act, under an exemption for personally-identifiable information.

Past administrations detailed the severance pay given, for example, to former Lottery director John Hawkins, former court administrator Matthew Smith and Richard Mumford, a one-time associate commissioner of education.

In 2001, when Mumford, the husband of a Republican lawmaker, retired two months shy of his 59th birthday, he left with a $50,427 retirement incentive and another $81,964 in state payments that reflected for 494.5 hours of unused vacation, 303.8 hours of unused sick time and the deferred payment of wages sliced from every state employees' paycheck during the 1991 fiscal crisis. In total, the state disclosed at that time that Mumford left with a $132,392 in severance payments on top of his $5,554 a month pension.

When asked yesterday why the Carcieri administration had shutoff access to details of this nature, Kempe said: " I cannot answer as to why past Administrations chose to not follow APRA.''

She said someone she would not identify in "legal'' had responded in this way to The Journal's request for information about more recent retirees: "She is not entitled to be provided with employee information she seeks consisting of hours of unused sick time, vacation days, Sundlun deferral days, etc. That is because information that is not specifically exempted ... is exempt from disclosure.''

By Katherine Gregg and Cynthia Needham
Journal State House Bureau

The president of the largest state employees union, J. Michael Downey, confirmed today that his union's executive board voted unanimously last night to place executive director Dennis Grilli on paid administrative leave from his $105,000 job.

Asked the reason for the move, Downey said: "To move Council 94 in a new direction.''

In the absence of a full-time executive director, Downey, a plumber at the University of Rhode Island, said he intends to be more "involved with the daily operations of the council...and try to get more involvement from the members....(which is) difficult to do with people who have been there all this time.''

He anticipated the union would also rely more on its deputy director, Joseph Peckham.

Grilli confirmed this morning that he is "on paid leave'' from his post as the executive director of Council 94, American Federation of State, County & Municipal Employees.
Grilli was one of the parties to the negotiations with the Carcieri administration that produced a proposed new contract that was rejected by Council 94 members this summer. A slightly retooled version has since been approved.

Grilli said he will be on paid administrative leave until January. He has been executive director of the union since fall 2005.

An attendant and mental-health worker at the state hospital from 1976-198787, Grilli of Smithfield, worked his way up the union ladder. Among his promises heading into his new union job: "building stronger lines of communication to Council 94's members . . . providing excellent representation . . . aggressively organizing new members and enhancing our lobbying and political action programs."

Council 94 represents an estimated 3,500 municipal employees and a third of the state's 13,000 workers.

PROVIDENCE -- The Carcieri administration has given its chief of legal services, Louis DeQuattro, a new title and a $33,183 raise.

In response to inquiries, the state personnel office acknowledged DeQuattro's promotion to associate director of administration / purchasing agent, with a raise that takes his salary from $95,215 annually as chief of legal services to $128,398 a year.

The last person to hold this job full-time was Peter Corr, who left state government in January 2005 after a public falling out with then-director of administration Beverly Najarian.

In recent years, the job has been performed on an "acting'' basis by Lorraine Hynes, but she was "not one of the applicants'' when the job was posted a few months ago, according to Governor Carcieri's spokeswoman Amy Kempe.

Kempe said the Department of Administration is combining DeQuattro's job as chief of legal services with Corr's former job as head of purchasing, and Hynes will return to the job as assistant director for special projects, which she held before she was thrust into the limelight last year during the Senate Government Oversight Committee's hearings into the state's purchasing practices.

Kempe said that while it might appear that DeQuattro is getting a 35-percent raise for working the same five-day state week, the administration says the state is saving $68,000 a year by consolidating the jobs, instead of hiring a new full-time purchasing chief.

Kempe was unable to say how many others applied for the state's top purchasing job, but said DeQuattro was chosen because he is "extremely qualified.''

While not exactly a household name, DeQuattro emerged in a lead role in the administration's hiring of Smart Staffing Services to provide "temporary'' state workers under emergency terms and conditions that were the focus of months of Senate investigatory hearings.

DeQuattro was one of two state lawyers who negotiated the emergency Smart Staffing contract, according to the Senate Committee's report.

The firm was subsequently replaced by a less expensive competitor, and the Department of Administration has since removed from its Website the name, job titles and biweekly pay rates that enabled the public -- and lawmakers -- to track how heavily the Carcieri administration was relying on hundreds of temporary employees.These employees are hired outside the civil-service testing and hiring system for what, in many cases, were long-term jobs. One was serving as the CFO of a state agency, another as the press secretary for the state's Office of Health & Human Services.

Asked why this information was removed from the controller's Web page, a spokesman for the Department of Adminstration, said months ago the information was being compiled from Adil Business Systems, the company that replaced Smart Staffing. As of today, however, the information is still missing.

As a side note, Kempe said the recent rush of retirements has left the department with 122 fewer employees than authorized by the budget. She said leaving all of these jobs empty would save the state an annualized $5.4 million in salaries. The state has not yet released a list of the vacant jobs, but the Department of Administration "does not have plans to fill [its] vacant positions,'' said Kempe.

PROVIDENCE -- At the rate recession-wary Rhode Islanders are buying Lottery tickets and playing their favorite video slot machines, the state's gambling receipts will fall $11.1 million behind estimates for the year.

State Lottery officials delivered the grim news this morning at a State House meeting of the second and last of this year's official Revenue & Caseload Estimating Conferences.
At their last meeting in May, the revenue estimators -- who include the state budget director and top fiscal advisers to the House and Senate -- anticipated an overall $365.5 million from the sale of traditional Lottery tickets and video-slot play at Twin River and Newport Grand.

But Rhode Island is now seeing the downturn that is playing out nationwide in the gambling industry. The state's Daily Numbers game was down 2.69 percent during the first three months of the year that began on July 1, compared to the same three-month stretch a year ago; Keno sales were down 7.06 percent; Powerball sales, down 15.14 percent.

There were bright spots, including a 4.96-percent in instant ticket sales, but the video slots at Twin River and Newport Grand that have been the big-moneymakers also trailed last year's collections during a comparable period by 0.19 percent. While recent renovations moved players from one location to another at Newport Grand, they said the investments have not boosted business.

Were these trends to continue, Lottery director Gerald Aubin and CFO Dan Sarro said the Lottery's contribution to state coffers would be closer to $354.4 million, than the projected $365.5 million.

In most years, the Lottery has been a reliable and growing contributor to the state treasury. State gambling revenue from the Lottery has increased steadily from $249 million in 2003, to $281.1 million in 2004, to $307.6 million in 2005, to $323.9 million in 2006, to $320.9 million in 2007 to $354.3 million in the 2008 budget year, which ended on June 30. The exception in 2007 was due to major construction and renovations that disrupted business at the former Lincoln Park as its new owners created Twin River, which is now struggling financially.

The revenue estimators have several more days of meetings before they try to reach a consensus on this latest run of grim financial news means for the state's bottom line. The state started the year with $33.6 million deficit, attributed to over-spending the prior year. Overall, revenue fell another $25 million to $33 million short of expectations during the first quarter of this fiscal year. State officials have not yet said how they expect to pay the state's potential $10 million share of a settlement with Station Fire victims.

The governor's office suggested recently that the state might be $100 million or more in the hole only three months into the new budget year.

Gary Alexander, the director of the state's Department of Human Services, is no longer is charge of the day-to-day operations of the agency, according to a memo obtained by The Providence Journal that says he has been reassigned so that he can "focus all of his efforts'' on "reforming the Medicaid Program and achieving Medicaid budget savings.''

While Alexander will be allowed to keep his title -- and cabinet-level salary -- William Camara, the former administrator of the Rhode Island Veterans Home in Bristol, has been temporarily assigned a new job as "acting deputy director'' of the Department of Human Services "to take on the leadership and day to day operations of all other Department of Human Services divisions and programs.''

"Bill will report directly to me so that Gary can dedicate all of his attention to Medicaid,'' wrote Adelita Orefice, the deputy secretary in charge of the state's Office of Health & Human Services, in the e-mail that went out last week. For reasons that are not yet clear, the move went unannounced by the governor's office.

Driving the move is the state's slow-moving effort to win a "global'' Medicaid waiver aimed at saving up to $67 million in the current budget year. The waiver request has now been submitted to the federal government. But as the Fitch Rating Service noted earlier this week when it downgraded the credit rating on $1 billion in Rhode Island debt, the state's chances of achieving those savings get slimmer with each passing month.

Coincidentally, a legislative commission is holding a hearing tonight on a report critical of past operations of the Veterans Home.

Orefice said Camara was not in charge during the period in question, the management team that was is largely gone, and the current administrator was moved over from a top position in another state agency -- the Department of Mental Health, Retardation and Hospitals -- to fill Camara's slot.

By Katherine Gregg
Journal State House Bureau

The contract dispute between the Carcieri administration and the largest state employees union is headed for arbitration starting Friday.

Union leaders confirmed today that both sides had agreed on the Newton, Mass.-based Lawrence Katz to serve as the arbitrator. A Harvard law school graduate, Katz is no newcomer to the labor relations arena in Rhode Island. In a brief interview today, he recalled the "pleasure of serving,'' for example, as the arbitrator on a 17-day interest arbitration involving Warwick teachers.

The outcome will have substantial bearing on the state budget and could jeopardize upwards of $10 million in projected budget savings, while affecting the paychecks of more than one-third of the state government work force. Efforts at mediation ended in a stalemate last month.

Decisions of arbitrators are nonbinding in cases involving wage disputes. That means that even if arbitration produces a speedy resolution, either side could, and likely will, appeal the outcome to the Superior Court, extending the battle for many months.

As they head toward arbitration, the two sides also remain locked in a related legal battle over Carcieri's attempt to make all of the state's unionized state workers pay a larger share of the premium cost of their health insurance, even those who rejected the contract proposal.

In late summer, Supreme Court Chief Justice Frank J. Williams ordered the Republican administration and Council 94, the American Federation of State, County and Municipal Employees, to settle their dispute first through mediation -- essentially a discussion between the two parties mediated by a neutral person -- and if that were to fail, through arbitration -- a more formalized trial-like process in which both sides present witnesses and evidence.

Williams' order was the last in a string of court proceedings that began after Council 94 members overwhelmingly rejected a new four-year contract in July.

The state is taking steps to try to recover $62 million in state-owned assets from a money-market fund frozen by the Securities & Exchange Commission in late September, the state's Gen. Treas. Frank Caprio said today.

"The issue the state has is when the funds will become available, not the value of the state's investment," said Caprio in a statement issued by his office.

At this point, "we have money to cover the state's [current] operating needs through the next pay period,'' said Caprio's deputy chief of staff Xaykham Khamsyvoravong said.

The background: Rhode Island invested $62 million in a $7 billion government-insured, but privately held "Reserve U.S. Government Fund.'' Investors are entitled to redemption within seven days.

On Sept. 22, however, the SEC issued an order permitting the fund to postpone payment of shares that had been submitted for redemption after one of the member funds (and not the one in which Rhode Island had its money) started trading below the money-fund industry's $1-a-share standard.

According to the treasurer's office, the SEC order "temporarily placed the redemption timeline in limbo to permit the Reserve Fund to liquidate that fund in an orderly manner as market conditions allow.''

The SEC has not set a liquidation timeline yet and they are overseeing the liquidation of the fund.

Working in concert with an unofficial state "financial SWAT team,'' Caprio is moving on two fronts. He has asked the Reserve Management Co. to return the assets so the state's traders can try to market them on their own, a move that would require SEC approval. He is also seeking additional government backing for the money. According to the statement issued by his office:

"On Monday, after weeks of negotiation by phone, [Caprio] traveled to New York to speak directly with Reserve Management Co. Founder and Chairman Bruce R. Bent about the state's need to access the $62 million in Rhode Island money held with the fund.''

After consulting with the state's trading desk, consultants at Russell Investments and money managers Brown Brothers Harriman, "Caprio determined that the State and its money managers would be capable of selling, at no loss to the state, the securities currently held by the Reserve,'' according to his office.

"At the request of Caprio and other institutional investors, Bent has agreed to request permission from the SEC to transfer securities, equal in value to the state's investment, directly to the state. The move allows the state to then liquidate those funds using its own trading desk and money managers, allowing immediate access to the cash.''

"The liquidity crisis in the financial markets has temporarily suspended our access to these government-backed investments, but we are taking all necessary steps to insure a full recovery as soon as possible,'' Caprio said today after briefing the governor and key lawmakers. "I have full faith in the guarantee of the U.S. government and in our ability to receive full value for these funds," he said.

In the interim, the state will manage its cash and remain current on its obligations by "using consistent cash management practices."

Other members of the state's "SWAT team'' include: state budget officer Rosemary Gallogly, Department of Administration director Jerome Williams, House and Senate leaders and their fiscal advisers.

In a related consequence of the current national financial crisis, the treasurer's office acknowledged that the state's pension fund has lost 25 percent of its value since the beginning of the year, dropping from $8.4 billion to $6.3 billion. By way of comparison, the S&P 500 index is down 38 percent year-to-date.

As the financial markets have dropped, so has the value of the state-run pension fund for Rhode Island's public employees, including state workers and teachers.

The pension fund has dropped by approximately 25 percent since the beginning of the year, from $8.4 billion to $6.3 billion, according to the state treasurer's office.

By comparison, the S&P 500 is down 38 percent, year-to-date.

Massachusetts reported that since January, its fund has tumbled more than 15 percent, from $53.7 billion to $45.7 billion.

PROVIDENCE - State revenues lagged projections by $33.1 million during the three-month stretch that ended September 30, compounding a growing financial problem in a budget year that began with an unprecedented deficit.

"This should be cause for concern,'' said a report issued this morning by the House Fiscal Advisory Staff. "The preliminary closing for FY 2008 indicates a $33.7 million starting FY 2009 deficit, which combined with revenues through the first quarter, appears to indicate a difficult coming budget.''

The state derives its revenues from taxes and myriad of other sources, including federal aid, licensing fees and departmental revenues which include the state Lottery.

According to today's revenue report, tax revenues alone trailed the projections on which this year's $6.9 billion budget was based by $24.4 million. Income taxes are off by $16.6 million, "with particular weakness in estimated payments.''

Noting that income tax withholding, along with sales taxes, "generally reflect current economic activity,'' the report says that sales taxes overall ran a total of 2.8 percent behind the first quarter of last year. That includes an 18.4 percent drop in sales taxes paid at the registry on new cars.

Another "potential harbinger of bad times'' is the state's insurance tax receipts, which are $1.7 million below estimates resulting from a filer claiming a long standing refund. "There are generally refunds carried forward by business entities from year to year to offset future liability. It may be that the tightening economy may lead to additional refunds being taken,'' the report says.

The third largest source of state revenue - the Lottery - is also trailing estimates by $2.3 million for July and August, "consisting of lags of $1.4 million for games and Keno and $0.9 million for VLTs.''

The official state-revenue estimating conference - which meets twice a year to assess how the state is faring financially - begins its next series of meetings Oct. 22, with economists giving their forecasts of where Rhode Island stands and where it is heading.

PROVIDENCE -- Governor Carcieri today said he would not support any financial bailout for the owners of the Twin River greyhound track-and-slot parlor that involved lowering the state's share of the revenue.

The state's share of the take is high compared with other states - slightly more than 61 cents of every $1 lost in the 4,751 machines housed at the sprawling gambling emporium in Lincoln.

At the tail end of an unrelated news conference, Carcieri was asked about yesterday's news that Moody's Investors Services had downgraded the credit rating for Twin River's owner, saying there was a "high probability" that the company would seek bankruptcy protection in the near term.

Carcieri told reporters: "This is a problem between BLB and their lenders. They borrowed too much money, like you and I buying a house with less down but you can't afford the payment(s). That's what we've got here. They just didn't put down enough equity. Now that is their problem as far as I am concerned, not ours.''

Carcieri also said he'd support ending greyhound racing at the track, although no one had proposed it to him. State law currently requires the operation of greyhound racing as a condition for Twin River to remain open; the racing reportedly costs Twin River upward of $10 million in annual subsidies.

PROVIDENCE -- A second major credit rating agency has downgraded theTwin River greyhound track and slot parlor, citing an increased probability of default on loans.

Last Friday, the Standard & Poor's rating service lowered the company to "D,'' noting the company missed a Sept. 2 loan payment to its second-lien holders.

Today, Moody's took a similiar action.

In a statement issued today, Moody's said: "A negative rating outlook was assigned to reflect the high probability that the company may be forced to seek bankruptcy protection
in the near term. This rating action concludes the review for possible downgrade that commenced March 10, 2008.''

PROVIDENCE - The prospect of paying more for health insurance in their retirement years has led more than 1,000 state workers to serve notice they want out now before the new and more-expensive rules take effect.

Simply put, the state currently pays between 50 percent and 100 percent of the health insurance premiums for many of its retirees, depending on how long they worked for state government.

So when the General Assembly enacted a new law requiring state retirees to pay more -- in many cases, a lot more -- for their medical coverage if they wait until after Sept. 30 to retire, many faced a difficult choice.

Since May, there have been 1,129 state retirements, according to state retirement office.
More are expected in the week and a half before the deadline hits. It remains unclear how many of these workers the state will be able to replace.

Initially, Governor Carcieri said he planned to fill all but 400 of the vacancies, but it's unclear how long that process will take. But a leftover $33.6 million deficit, a rejected labor contract, and the uncertainty surrounding Rhode Island's bid for a first-of-its kind Medicaid waiver have compromised -- or at the very least delayed -- other budget savings that could impact the number of replaced workers.
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By Katherine Gregg
Journal State House Bureau

PROVIDENCE -- A collapse of American International Group, Inc. could leave the state Department of Transportation and at least one other state agency scrambling to recover more than $130 million they invested with the global insurance giant, according to state Treasurer Frank Caprio.

"In a worst-case scenario, the meltdown of some of the financial giants of our country will cause strain on Rhode Island's budget and every other state budget in this land," Caprio said. "It may require, in a worst case scenario, action from Congress and assistance from the federal government and after that it may require additional resources from state and local governments."

But, he added, "we're dealing with, as Alan Greenspan said, a once in a century type of financial event. And from Rhode Island's standpoint, our review at this point, it's a manageable issue. We'll get through it.''

In an interview today, Caprio acknowledged the value of the state-run pension fund -- which dropped from $8.4 billion at the beginning of this year to $7.725 billion on Aug. 31 - was down to $7.38 billion yesterday as Wall Street reacted to a convulsions in the marketplace. Today, the value of the fund went up by an as-yet-undetermined amount, according to the state treasurer's office.

But Caprio said the most pressing issue for Rhode Island is the potential failure of AIG, which has been described as the largest corporate insurer in the United States. It sells protection against some of the biggest risks, insuring planes and commercial shipping and providing coverage against terrorist attacks.

In Rhode Island, agencies such as DOT and the Rhode Island Clean Water Finance Agency parked tens of millions of dollars raised for major projects, such as the relocation of Interstate 195, known as the Iway, and the Narragansett Bay Commission's underground tunnel project, in AIG investment accounts known as Guaranteed Investment Contracts. The notion: The money would earn money until it was needed for whichever project it was raised.

DOT has approximately $91 million in one of these AIG accounts; the clean-water finance agency, another $40 million. Caprio said it is possible a number of cities and towns also have money invested this way.

DOT spokeswoman Dana Nolfe referred questions to the governor's office on the potential impact on DOT operations if the agency is unable to access the $91 million invested. There has not yet been a response.

But Anthony Simeone, executive director of the clean-water finance agency, said his agency's financial advisors contacted AIG today to ask for the return their money, "because the word on the street was ...(that) if something significant did not happen with regard to an infusion of cash, they might consider gong into bankruptcy.''

As of late this afternoon, Simeone said his agency had not gotten a response.

>> Continue reading: Caprio: AIG struggle may put $130M in R.I. funds at risk