By PHILIP MARCELO
Journal State House Bureau

PROVIDENCE, R.I. -- A proposal by Governor Chafee's administration to require cities and towns to guarantee lenders first rights to their property taxes and general revenue is up for a vote of the full state Senate Thursday afternoon.

The Chafee administration argues that the proposal will improve the credit quality for all cities and towns, but the Rhode Island League of Cities and Towns, which advocates on behalf of the state's 39 municipalities, is not convinced.

Peder A. Schaefer, associate director of the League, on Thursday called the bill "overkill," saying that the current state law on municipal borrowing is sufficient.

He maintained that no other state required cities and towns to adhere to such a requirement, with the exception of some school districts in the financially-troubled state of California.

"There is a real question mark as to whether this is really necessary," Schaefer said.

The proposal would require that cities and towns pledge their "ad valorem taxes and general fund revenues" to the payment of "the principal of, premium and the interest on" all general obligation bonds and notes.

Ad valorem taxes are defined in the proposal as all taxes on property levied by a city or town, including the motor vehicle excise tax. General revenue is anything that a city or town receives from taxes, fees, charges, or other sources, including its surplus or rainy day accounts.

"The main concern here is the reliance on a lien on ad valorem taxes rather than the full faith and credit of a city or town, which we have lived by for the past 50 years," says Schaefer. "If cites or towns don't pay their bonds, the bond holders have a lien on the taxes of first recourse. So whether it's bankruptcy or the city or town refused to pay its debt service on its bonds, for whatever reason, there would be this secured lien on the taxes for the bond holders."

Chafee's proposal is part of a broader package of legislation that the independent governor has submitted this year aimed at strengthening the state's financial provisions dealing with cites and towns.

It comes partly in a response to the fiscal crises facing Central Falls (now under the administration of a court-appointed receiver) and Providence.

The bill up for a full Senate vote Thursday afternoon has been introduced on Chafee's behalf by Senate Finance Committee Chairman Daniel DaPonte, D-East Providence.

A version of the proposal was also heard earlier Thursday by the House Finance Committee, which held the bill for further study.