Dan McGowan

Audit: Providence ran $9.2M surplus; retiree obligations top $2B

PROVIDENCE, R.I. (WPRI) – Providence ended the 2017-18 fiscal year with a $9.2-million surplus, marking the first time in a decade the city has finished in the black for three consecutive years.

An independent audit of the city’s finances released Wednesday shows the Elorza administration spent $9.2 million less than it brought in – creating what's known as an operating surplus – during the 12-month fiscal year that ended June 30. (The city reported 14 consecutive surpluses between 1995 and 2008, although officials repeatedly shorted the annual payment to Providence’s pension fund during that period.)

The audit, prepared by BlumShapiro, shows Providence now has $11.5 million in general fund reserves, a safeguard commonly referred to as a rainy day fund. The city had $22 million in reserves in 2008, but the funds were drawn down to deal with massive cuts in state aid and the economic downturn.

"This surplus was achieved primarily through realistic budgeting practices, a steady increase in tax collections, a hiring freeze on non-essential employees, better departmental revenue and reduced operational expenses,” Nicole Pollock, the mayor’s chief of staff, wrote in a letter to the City Council.

When it comes to the $736.7-million budget audited by BlumShapiro, the city collected $273 million in real estate taxes, $50 million in tangible taxes and $24 million in car taxes for a total of $347.5 million during the fiscal year.

The city’s total tax collection has increased 25% since 2009, according to the audit.

The audit shows Providence abated $12.2 million in property taxes during the fiscal year through various tax stabilization agreements approved over the last 20 years.

On the spending side, the city’s law department reported spending $12 million, twice the amount that was budgeted. The police department overspent its $77 million budget by $1.3 million and the City Council spent $811,000 above its $1.2 million budget. The $69.2-million fire department, a target for cost savings throughout Elorza’s first term, came in under budget by $1.4 million.

Pensions and health care for retirees remain Providence’s largest outstanding liabilities, totaling more than $2 billion. There are 6,541 active employees or retirees that are considered part of the city’s retirement fund.

Providence’s unfunded pension liability was $1 billion with a funding level of 25.28% as of June 30, according to the audit. The fund paid out $103.8 million in 2018, about $10 million less than it took in from employee contributions and investment income. This marked the second straight year the fund earned more than it paid out.

The pension fund reported a 7.3% return during the fiscal year, slightly less than the 8% average return it projects each year. Returns have plummeted in recent months due to volatility in the stock market – the fund reported a 6.3% loss in 2018 as of Dec. 21 – but those numbers won’t be reflected until the city’s 2018-19 audit is released next January.

The city’s liability for other post-employment benefits (OPEB) – which is largely retiree health care – was $1 billion as of June 30, 2017, according to the audit. The city pays for retirees largely on a pay-as-you-go basis, totaling more than $40 million a year.

When it comes to Providence's vital statistics, the city's population is down 1,000 residents since 2016, totaling 178,042. The unemployment rate was 4.1% in 2018, a slight reduction from the previous year.

The total number of city employees - counting the school department - was 5,111, the most in more than a decade. There were 44,000 calls for fire and rescue services during the fiscal year, while the number of police calls rose for the sixth straight year, to 131,000.

Correction: This report has been updated to reflect that tax abatements were a result of tax stabilization agreements approved by the city.

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Dan 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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