Recalling Sundlun’s handling of ’91-92 fiscal crisis

A look back at how Gov. Bruce Sundlun helped the state recover from the credit union debacle may offer insights as the state navigates its current budget crisis amid the coronavirus outbreak.

PROVIDENCE — Is Rhode Island attempting to “borrow’’ its way out of a financial crisis exacerbated by the virtual shutdown of the state’s pandemic-rattled economy?

Taking office at the start of Rhode Island’s incapacitating 1991-92 financial crisis, then-Gov. Bruce Sundlun took dramatic steps to both raise revenue and reduce state spending.

He ordered — or negotiated — layoffs, no-pay “furlough” days for non-essential state employees, deferred pay, a “temporary” sales tax hike that never went away, and an income tax surcharge that didn’t go away for years.

On Friday, the day after an emergency funding board approved up to $300 million in borrowing at her request to pay the state’s bills and make payroll, Gov. Gina Raimondo said no to layoffs or furlough-days to reduce state spending.

Why not?

She asked her director of administration, Brett Smiley, to address the question during her televised COVID-19 update on Friday and, without making any distinctions, he said: “We are providing essential services.”

He then listed, as examples, the “Department of Human Services, coverage at our prisons, our congregate-care settings. … State workers who come to work every day are doing a great job.”

“Furloughs are the last thing that we want to do, and we have been taking aggressive steps to aggressively manage the budget, such as a spending freeze and a hiring freeze on non-essential state workers,’’ he said.

He alluded to the directive dated March 18 that Jonathan Womer, director of the state’s Office of Management and Budget (OMB), sent to agency heads.

The memo asked the directors “to refrain from any spending that is not directly tied to the COVID-19 emergency″ or vital to health and safety.

It also served notice that “OMB will be rejecting any position or procurement requests that do not address immediate health and safety needs and/or are not deemed to be critical to agency operations.”

With no end in sight to the crises Rhode Island currently faces, including a potential tsunami of red ink, The Journal asked some key players in the state’s 1991-92 financial rescue for their recollections of what Sundlun did in that crisis.

“Keep in mind that when Sundlun took office, he had to confront two emergencies simultaneously,’’ recalled Gary Sasse, who took a leave from his job then as director of the Rhode Island Public Expenditure Council to serve as a fiscal adviser to the governor.

“One was the credit union crisis, where he closed 45 credit unions, freezing assets of one-third of the state’s population, thus cutting them off from about $1.7 billion,” he said.

“The second was a budget/fiscal crisis where … he faced a budget with no controls on spending and state revenue collections hemorrhaging millions of dollars monthly.”

“If memory serves, the governor inherited a shortfall of $230 million to $250 million on the state portion of the budget, which at the time was approximately $1.3 billion for [the fiscal year ending in] ’91,’’ added Sundun’s one-time communications director David Preston.

“On a percentage basis, it was the largest deficit in the country at the time.”

“One of the keys to his success was that he was very transparent about the problem and what would be required to solve it. He was very candid: ’There are no good options,’” Preston said. “Only bad ones.”

Sasse recalls: “The toughest sell and moment was when I told Governor Sundlun that we could not balance the budget without an income tax increase.

“He was not pleased. He opposed any tax increase. … [But] at the end of the day, he did what was fiscally responsible … and one was part of the fiscal get-well plan,’’ Sasse said.

Without drawing any comparisons to then and now, Sasse said: “Consensus can happen if the governor is an effective communicator, is responsive and accessible to the General Assembly … operates with unquestioned credibility … and conveys a sense of urgency.

“If we were not moving fast enough, he would ask, ’What would you do if the Russians were in Attleboro?’ (Remember the Cold War.)”

Rosemary Gallogly’s most vivid memory of the 1991-1992 budget crisis “relates to cash flow … and the anxiety surrounding our ability to meet our obligations.”

“This was before the state’s accounts-payable process was online, and we had stacks of paper vouchers submitted by agencies for payment. They were piled in cubicles (by date and batch amount) in the controller’s office, stalled because we had no cash,’’ remembers Gallogly, then the supervising budget analyst and future budget director.

“I recall working with a colleague in the state controller’s office in order to prioritize the vendor payments that we could afford to make, based on the cash that had come in that day.

“We also had to take into account what was coming up … general obligation debt service, payroll, local aid …This was all done through phone conversations, since there was no email.

“We were not going to have enough money to meet our obligations, and we needed [to] act quickly.

“The governor proposed 10 shutdown days where non-essential employees would not work one day during each two-week period, from March to June. I remember having to meet with out-of-town representatives from the state’s unions because they didn’t believe it was as bad as we were saying it was.

“We met for a few hours. I explained the basis for our estimates, showed them our spreadsheets, answered all their questions, and then I walked them down the hall to the Controller’s Office.

“I’m not sure if it was the desperation in my voice, or the ocean of unpaid vouchers piled in the cubicles, but [then-Administration Director Harry Baird] said that negotiations changed after the unions had a better understanding of the depth of our problems. ”

Looking back to his days as Sundlun’s legal counsel, U.S. Sen. Sheldon Whitehouse recalled: “Bruce acted quickly and boldly to close down the failed banks and credit unions, and we all worked like maniacs on getting funds back to 300,000 Rhode Islanders who’d lost money.

“One lesson is that we had to explore dead ends along the road to success; it was not all obvious at the outset. Second, he stood by his young staff and empowered us in remarkable ways, even when we made mistakes. (I made a few beauties.)

“Bruce was also very transparent and available; he was never in hiding politically. In the face of our current crisis, Governor Raimondo has been similarly decisive and available as she tries to protect Rhode Islanders and get us back to normal life as quickly as possible,’’ Whitehouse said.

— kgregg@providencejournal.com

(401) 277-7078

On Twitter: @kathyprojo

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