The Power of Words. The bill for fiscal mismanagement has come due for Johnston

3/29/98
The bill for fiscal mismanagement has come due for Johnston
Deep in debt, the town may face a state takeover of its finances if it can't solve its financial problems.

By By David Herzog, Celeste Katz, Eliot Krieger and Brian D. Mockenhaupt
Journal-Bulletin staff writers

        JOHNSTON -- On the barren moonscape of the state Central Landfill, as paper and plastic tumbleweeds roll past seagulls picking at morsels of trash, giant tractors work over the tons of garbage delivered daily from across Rhode Island.
        Since its inception, the landfill has grown into a 250-foot high pile of decomposing garbage. In the minds of Rhode Islanders, it is the best-known 154 acres in Johnston, distinguishing the town as the destination of trash placed at curbside every week.
        Spread below this pseudo-mountain are the 24 square miles of a town plagued by years offiscal problems and public corruption. Look around from the summit, and you will see scars and eyesores, the damage and wreckage created by a municipal government in trouble.
        Near the Providence line is Ruth Street, where, when it rains too hard, the storm drains overflow, flooding people's houses. In other neighborhoods, heavy rains turn streets into ponds 3 feet deep.
        On the west side of town, residents have put up with rusty well water for years, as they wait to be connected to the town's water system.
        Then there are the schools. On Plainfield Pike, where garbage trucks roar past on their way to the landfill, is the Thornton Elementary School. The library there was turned into a classroom; the school's books are stored in lockers in the hallways. When U.S. Sen. Jack Reed wanted to tour decrepit suburban schools, he came to Thornton.
        Across town at the Brown Avenue Elementary School, heat was shut off earlier this month when the heating-oil vendor refused to make a delivery until he was paid.
        To the northwest, near North Providence on the Woonasquatucket River, a 58-foot smokestack marks the asphalt plant built in the middle of a residential neighborhood. Neighbors say the air is fouled and their houses are covered with an oily black film. Anthony Izzo, the former building official who signed a permit less than a day after the Granite Asphalt Corp. applied for it, served time in federal prison on unrelated tax-evasion charges.
        Izzo also signed the permits for the housing development on Janet Drive, where homeowners were stranded without access to running water. Other town officials and local builders have also been sent to prison. This town is dotted with crooked land deals and developments, their legacy of corruption.
        And in the middle of it all, at the intersection of Hartford and Atwood Avenues, where 30,000 cars zip past each day, is the Town Hall.
        The gold-domed Georgian structure sits incongruously among the coffee shops, fast-food joints and gas stations at one of the state's busiest intersections. Residents unable to find one of the scarce visitor spaces must park behind an adjacent strip mall, between the dumpsters, facing a bramble-filled lot littered with garbage.
        Inside the threadbare Town Hall, a warren of narrow hallways and oddly angled staircases, Mayor Louis A. Perrotta tries to run a town with deficit estimates that grow larger by the day, a decaying infrastructure and vendors who constantly threaten to cut off services because they have not been paid in months.
        LAST WEEK, as the town's financial crisis came to full boil, the School Department appeared before a state Education Department hearing officer, hoping to get the state to step in and pay the outstanding bills.
        Without state action, interim School Supt. Robert Ricci said, school-bus service would halt on April 13.
        On Friday, Governor Almond agreed to advance $1.4 million in emergency aid to Johnston, and the schools may get the emergency funds as early as tomorrow.
        Almond said that he is "very optimistic that a local solution can be found to put Johnston's finances back on track."
        If not, however, Almond said that the state would step in and take over administration of the town's finances.
        That's what happened in West Warwick in summer 1993, when the General Assembly exercised its powers under state law and appointed a budget commission to pull that town from the brink of bankruptcy.
        Robert L. Carl Jr., director of the state Department of Administration, said Friday that a "voluntary task force" composed of town and state officials and outside financial consultants should be formed to resolve the town's financial problems.
        If the town doesn't want to join such a task force, Carl said: "We could probably be forced to take action predicated on statute -- which would be an involuntary kind of activity."
        POLITICS IN JOHNSON is personal, with politicians plotting over chicken, ziti and gravy at the 1025 Club, a banquet hall on Plainfield Street, about how to provide voters with something they might remember favorably at election time.
        For more than two decades, the town's undisputed political leader was Mayor Ralph R. aRusso, who ruled the town from 1971 to 1994.
        Early in his career, aRusso, who changed his name from Russo in order to appear at the top of the alphabetically arranged ballot, learned how politicians use the power of office. When he joined insurgent Democrats in a fight against Town Hall, the streetlight was taken down from in front of his house on Edna Street. When aRusso came into office, he made sure the light was replaced.
        For two decades, that light burned -- and no rival politician could defeat aRusso.
        The Central Landfill defeated him.
        He knew that the dearest wish of the people of Johnston was to be known as anything but the home of the state dump. So aRusso built his career by trying to close the Central Landfill, even though the state was paying the town about $1.4 million a year for the right to dump trash at the site.
        Under a deal worked out in 1989 between aRusso and then-Gov. Edward D. DiPrete, the landfill was to close in five years.
        In 1991, during the Sundlun administration, the state sidestepped that deal. The town sued the state, and the payments to the town stopped in 1993. But the town continued to plan its budgets as if that money were arriving in regular quarterly installments.
        With the payments from the Solid Waste Management Corporation (now called the Rhode Island Resource Recovery Corporation), which runs the landfill, at a halt, the town began to run out of cash. By summer 1994, aRusso was asking the Town Council to issue nearly $1 million worth of "tax-anticipation notes," a kind of IOU that would allow the town to borrow money in anticipation of taxes that had not yet been collected.
        For months, aRusso pushed the council to let him borrow -- while the bills mounted. The School Department was unable to pay its insurance and utility bills. Payments to the state retirement system stopped. By the end of the year, the town stopped its own health-insurance payments, jeopardizing the coverage of town employees.
        But as the bills mounted, aRusso insisted that the town faced only a "cash-flow problem." He believed that the town was financially stable.
        In fact, the town's auditor, John A. Parmelee, who had been keeping the books for 15 years, issued a report during aRusso's final days in office, showing that aRusso was leaving the town with a surplus of $66,000.
        How could that be?
        Parmelee's audits followed an accounting procedure that included among the town's assets revenue that the town was owed but had not collected.
        That is, the 1994 audit listed as revenue some $2.5 million the Solid Waste Mangement Corporation owed the town for the landfill, plus some uncollected property taxes.
        Later in the year, the Town Council demanded that Parmelee resign, and a new auditor was hired.
        Taxpayers soon learned that their town was floating on a sea of red ink.
        His position weakened by the failure of the landfill deal, aRusso lost control of his party. Town Council President Louis Perrotta and other insurgent Democrats saw the chance of a lifetime to unseat aRusso.
        Perrotta's allies wrested control of the Democratic Town Committee from the aRusso forces, and Perrotta won the committee's endorsement in his bid for mayor -- an endorsement of more than a little significance in a town where Democracts outnumber Republicans by 20 to 1.
        WHEN PERROTTA took office in 1995, he immediately cast a pall over the aRusso years, announcing that the town faced a deficit of $5.3 million. He cited a number of causes - no money from the landfill, of course, but other problems as well.
        The town's Water and Sewer Department, which was supposed to generate revenue for the town, was running a $1.7-million deficit instead. Tax collections were behind by more than $1 million. The School Department had overspent its budget by more than $1 million. In fact, it turned out that virtually every department in town had overspent its budget.
        Perrotta's solution: borrow more money.
        Though Johnston had, and still has, among the lowest property-tax rates in the state, Perrotta pledged he would not raise taxes.
        "We don't want to go out and borrow," he said. "But we have a responsibility to pay our bills."
        In the first month of his term, he estimated those unpaid bills at $3.8 million -- a huge sum for a town in which the entire tax levy was about $30 million.
        Over the next three years, the same script played itself out repeatedly. Unpaid bills would accrue, and the town would pay off some of the bills with borrowed money: $2.9 million borrowed in 1995, $2.6 million in January 1996, another $2.2 million in December 1996, $4.5 million last June and another $5.9 million last October.
        Meanwhile, tax revenues dropped to $28.2 million, as collections fell. And the Water Department's deficit climbed to $1.9 million.
        Still, Perrotta held the line on taxes.
        Johnston residents lived with ever-deteriorating conditions in town, but their taxes didn't rise for three years, making Johnston one of only three municipalities in the state that have not raised taxes in the past three years.
        But the town's finances were a wreck.
        In 1996, some good news arrived: the Solid Waste Management Corporation agreed to pay the town $3.1 million in back payments for hosting the landfill, and about $77 million in quarterly payments over the next 20 years.
        But even with the landfill issue settled, the bills continued to pile up.
        At the end of 1996, just after Perrotta won reelection by a slim margin of 300 votes, the town stopped making contributions to the state retirement system for municipal workers - although it continued to withhold 7 percent for that purpose from workers' paychecks.
        By last month, the School Department teetered "on the brink of disaster," as the department's lawyer put it in his plea for immediate state aid. The department faced $2.7 million in unpaid bills for everything from office supplies to sports uniforms to school-bus service.
        And then, two weeks ago, when it looked as if things could get no worse, the mayor's chief of staff, Leo Tomasetti, carried more bad news to the Town Council. That long-standing deficit, which at one point the mayor had said would be erased by June 1998, now stood at $7 million to $10 million -- far higher than when Perrotta had taken office.
        The Town of Johnston holds the dubious distinction of having the lowest municipal-bond rating in New England.
        For more than a decade, the town's bonds had been rated at Baa - investment grade. But in April 1995, the rating was lowered to Ba. That means the bonds have speculative elements, raising the risk to investors.
        The bonds' ratings were lowered because of the town's financial problems and because of the ongoing dispute about the landfill.
        Last week, Moody's Investor Services refined the rating to Ba-3, which is at the lowest end of the Ba category. The refinement is not a downgrade, but a clarification of Johnston's financial position.
        Based on economic numbers and demographics, Johnston should have a better bond rating, according to Gary Mescher, assistant vice president for Moody's municipal-finance section.
        Johnston's tax base has been growing steadily over the past five years, according to the state Department of Administration. So has private sector employment, said a Fleet Securities Inc. report from earlier this year.
        Johnston's population has climbed from about 26,500 in 1990 to about 27,700 last year.
        Despite the town's shaky finances and its crumbling infrastructure, the residents of Johnston are loyal to their town, praising it as a friendly community where neighbors know and help one another.
        They point with pride to the town's excellent recreational facilities, its thriving churches, its safe schools and safe streets. Johnston, they say, is a great place to raise children, a great place for families.
        "There's nothing wrong with this place except for financial management," Gary Mescher, of Moody's, said. "What this whole thing is, is a lack of political consensus between the administration and the council."
        JUST HOW DEEP has Johnston fallen into the hole?
        No one knows for sure. The audit of last year's financial statements is months late, and town officials won't venture a guess as to what it portends.
        But it's a safe bet that the deficit has grown since the end offiscal 1996.
        "It's clear the results are not great" forfiscal 1997, which ended last June 30, said Mescher.
        On Friday afternoon, Joseph R. Ballirano, president of the Town Council, released his own estimate of the town's deficit -- a whopping $23.5 million, which he based on what he said were figures provided to him by the mayor's office.
        Ballirano accused Perrotta of withholding information from the Town Council about the town's financial condition.
        He called for a state takeover of the town's finances.
        "The control of the town finances must be taken away from the mayor," Ballirano said. He said the council has cooperated with the mayor, but "the time of that cooperation is over. I have fiduciary duty to the people of this town to set financial matters on course. I need to make the state put in place the people who are going to do it."
        EVERY TIME it rains hard, the phone starts ringing at the Johnston Highway Department, with homeowners reporting flooded basements and streets made nearly impassable by overburdened storm drains. The guy who takes the calls is Frederick Iafrate, the department director who is also the chairman of the Democratic Town Committee.
        "It's a tough thing, especially when you can only put a Band-Aid on this," he said. "Some of the asphalt I'm holding back on because we're running out of money. Right now all we're doing is patching potholes. I'm stalling for time."
        Iafrate four years ago unseated aRusso's man on the Town Committee, paving the way for Perrotta's rise to the mayoralty.
        Shortly after he was elected, Perrotta tapped Iafrate to head the Highway Department.
        Sometimes it's a frustrating job. Iafrate said that his department doesn't have the money to replace equipment as it wears out. The department cannot continue like this, he said.
        Along with the Democratic Town Committee, Iafrate backed Perrotta's platform of not raising taxes in 1994, and he continues to be one of the mayor's strong supporters. But like many other town officials and politicians, Iafrate is confronted with an uncomfortable possibility in this election year.
        The adjusted tax rate is $17.22 for every $1,000 in property value, the 10th lowest of the state's 39 cities and owns.
        "I think you need a tax increase," he said. "But if everyone in town had worked together, I don't think it would have gotten to this point."
        RUMORS SPREAD through town last week that the state will take over the Town of Johnston.
        Some said it could happen in Johnston by next week and would last two or three years. A group of men standing in a cigar shop on Atwood Avenue stated it as fact, based on what they had heard.
        "We never knew. We were never advised," said one man, a lifelong resident of Johnston. "As a taxpayer, you have a right to know what the financial status of the town is." (The man asked that his name not be used because he works for the state. "I'm close to my pension and I don't need the aggravation," he said.)
        "Where's the money going? Nobody wants to answer those questions. Where are we going to come up with all this money? People are tired of paying and getting nothing for their tax dollars," he said, attributing the town's problems to mismanagement and political favoritism. "Nothing is for the good of the town. Nothing. It's for the good of the individual in power. It's a mess."
        "There's a lot of disappointed people in town, I'll tell you that," said Ernie Stevens as he sat in a lawn chair Friday afternoon at the home of his neighbor, Alex Morelli. The two were watching traffic fly past on Cherry Hill Road.
        "Where the money went, this is the part I don't understand," Stevens said. "Where does it go? You've got to put the credit cards away."
        They, too, have heard the rumors that the state will take over the town. Stevens thinks this would be bad for the town, but Morelli disagrees.
        "Somebody's got to take over. It can't go on like this," he said. "I'm 88 years old. I can't go make money to pay more taxes. When the old mayor was there, you never see anything like this. . . . If Ralph aRusso ever wanted to run again, I'd give him my vote."
        "I feel sorry for the young people," Stevens said. "If you live in this town, you're going to take the brunt of it. And we don't have enough young people in this town who want to become leaders."
        BY LAST FRIDAY, the folks in Town Hall decided that they might have to take drastic measures if they are to solve the town's problems without state intervention.
        "Let's face it," said the mayor's chief of staff, Leo Tomasetti. "The mayor's going to take a big hit."
        "We want to solve the problem," Perrotta said. "I'm putting politics at a low level."
        Perrotta and his aides will go before the council Tuesday night to ask for their support in joining the voluntary budget task force proposed by the Almond administration. The mayor said he is fervently hoping for that support.
        And then Tomasetti uttered words that, in the past, would have been almost unthinkable in an election year: "There's no doubt there is going to have to be a tax increase."
        The alternative, he said, would be a state takeover of the Town of Johnston.
        "Then it's basically this nameless, faceless person that says: You will do it," Tomasetti said.
        And that's the last thing they want in this town where the politics is always personal.

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