Audit confirms Providence ran deficit in 2015

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PROVIDENCE, R.I. (WPRI) – An independent audit of Providence’s finances released Wednesday shows the capital city is now facing a $13.4-million cumulative deficit, a shortfall that can only be reduced by running a series of surpluses in the coming years.

The audit, conducted annually by New York-based accounting firm Marcum LLP, confirmed what city officials has previously reported: Providence ran a $5-million operating deficit for the fiscal year that started June 30, 2014 and ended July 1, 2015, a budget that was adopted under former Mayor Angel Taveras but managed for six months by current Mayor Jorge Elorza.

When the budget shortfall for 2015 is added to deficits incurred during the 2011 and 2012 fiscal years, the audit shows the city’s cumulative deficit is $13.4 million. (The city benefited from about $300,000 in non-general-fund revenues to slightly lower the long-term deficit, according to the audit.)

State law requires municipalities to pay cumulative deficits down over the course of five years. Paying down the deficit doesn’t mean that money is actually transferred to the state; the city is simply expected to run an operating surplus each year to offset the earlier red ink.

But until the $13.4 million shortfall is erased, Providence will continue to operate without any reserves in its general fund, a safeguard commonly known as a rainy day fund. The city had $22 million in reserves in 2008, but those funds were rapidly drawn down after massive cuts in state aid and the economic downturn.

As for the $678-million budget that was audited by Marcum, Providence took in about $334 million in tax revenue, a figure that was up 22% since 2006 but $1.2 million short of what the Taveras administration predicted. The city also received about $2.6 million less in state aid and $1.8 million less than anticipated in fines, according to the audit.

When it comes to expenditures, the city’s law department ($1.5 million), police department ($978,000), fire department ($2.3 million) and public works department ($2.3 million) were among the major offices to end the year over budget. The city also spent $4.8 million more than expected on active employee and retiree medical benefits, according to the audit.

In a letter attached to the audit, Brett Smiley, the city’s chief operating officer, said the Elorza administration inherited “approximately $20 million in budget risk for the fiscal year,” but said officials were able to chip away at the bulk of that potential shortfall thanks to a significant bond refinancing and various cost-cutting measures.

Marcum also reported the city’s unfunded pension liability grew to $900 million in 2015. The fund paid out $97.6 million to retirees, about $6.6 million more than it took in from employee contributions and investment income. A full accounting of the city’s pension system from The Segal Group Inc., Providence’s actuarial firm, is expected to be released later this year.

As for some of Providence’s vital statistics, population held steady at 178,432 in 2015, a figure that has barely budged since 2008. The average age of city residents was 28.7 and per capita income was $21,512. The unemployment rate fell to 7.1%, the lowest rate since 2007. Public school enrollment fell slightly to 23,765.

The total number of city employees – counting the school department – was 5,022, one short of the 2011 total. Calls to the city’s police department grew by 7,000 to 122,000, while the total number for fire/rescue service calls dipped to 40,000.

Now that the audit has been released, Providence officials must submit a plan for eliminating the city’s $13.4-million cumulative deficit to the state auditor general’s office in the coming weeks.

The Elorza administration maintains that it expects to end the current 12-month fiscal year – which ends June 30 – with a balanced budget, but officials will likely have a clearer picture of the city’s finances by April when the mayor proposes his budget for the 2016-17 fiscal year.

Continue the discussion on FacebookDan McGowan ( dmcgowan@wpri.com ) covers politics, education and the city of Providence for WPRI.com. Follow him on Facebook and Twitter: @danmcgowan

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