Providence ends 'Category 5' year only $11M in the red

PROVIDENCE, R.I. (WPRI) - The city of Providence closed the books on its 2011-12 fiscal year with an $11.4 million budget deficit, but city officials say that's actually cause for relief since the shortfall was originally pegged at $110 million.

The $11.4 million deficit will be paid off over the next five years, as required by state law. The deficit was confirmed in the city's official audit, which was released this week. The 2011-12 fiscal year ended on June 30, 2012.

The actual operating deficit - the amount of overspending compared with revenue - was about $15 million, but the city used other money to reduce the final shortfall to $11.4 million. 

Providence's structural deficit - the shortfall projected to happen every year because expected expenses will outpace expected revenue - is down to $4 million, officials said, though the final 2011-12 shortfall was higher because of unexpected costs and timing.

• Chart: How the city closed the deficit
• PDF: Read Providence's 2011-12 audit

Providence Mayor Angel Taveras, a first-term Democrat and potential candidate for governor in 2014, said the numbers should be put in a larger perspective. "Last year we were able to put Providence on a sustainable path by coming together and setting aside politics for the greater good," he said in a statement.

"When FY12 began, Providence was in the midst of a Category 5 fiscal hurricane and on course to run of cash," Taveras said, referring to the 2011-12 fiscal year. "Today we have all but eliminated a $110 million structural deficit. Working together, we accomplished what few believed possible."

Less than a year ago, Taveras warned publicly that Providence could be forced to file for Chapter 9 bankruptcy protection after R.I. Superior Court Judge Sarah Taft-Carter refused to allow him to move city retirees onto the federal Medicare program to save money.

A new breakdown provided by the city showed the biggest components of the deficit reduction were $36.5 million from union and retiree concessions, $30 million from education cuts and $23 million in tax increases.

Providence officials remain cautious about the city's financial condition, however, because its reserve accounts remain depleted after being spent down by former Mayor David Cicilline's administration to balance the budget during and after the recession.

Alluding to the mayor's famous "Category 5" metaphor, Taveras spokesman David Ortiz said the city had survived the hurricane but won't have a hurricane barrier in place until its reserves are replenished.

It's unclear how Providence will close the $4 million structural deficit that still remains, particularly since City Council leaders are strongly resistant to another increase in taxes. One option may be seeking more state aid, particularly since House Speaker Gordon Fox, a Providence Democrat, won re-election in part by highlighting his strong support for the city.

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi's Notes blog. Follow him on Twitter: @tednesi