Providence faces $4M shortfall if state aid is cut

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PROVIDENCE, R.I. (WPRI) – If Rhode Island Gov. Gina Raimondo’s proposal to cut the state’s payment-in-lieu-of-taxes program is approved by lawmakers later this year, Providence officials say they would have little time to close a $4-million hole in the current city budget.

That’s because a little-known policy allows municipalities to count state PILOT funding toward their previous fiscal year’s budget even though the money is distributed in July, after the new fiscal year begins. In its current budget, Providence is projecting it will receive $33.5 million in PILOT aid.

But Raimondo’s proposed budget for the 2019-20 fiscal year cuts overall PILOT funding for cities and towns by more than $5 million, the bulk of which – $4 million – comes from the capital city. That would leave the city with a shortfall in the 2018-19 budget.

“As part of our budget review this is obviously something we’re paying close attention to and we will ultimately have to make a decision whether or not action will be needed in this fiscal year,” Emily Crowell, a spokesperson for Mayor Jorge Elorza, said. “That decision has not been made at this time.”

The Elorza administration told the City Council in December it is projecting to end the current fiscal year with a balanced budget, but that would depend on the city getting the entire $33.5 million it expects to receive in PILOT aid. The budget includes a built-in $3.6-million surplus that is supposed to be designated for the city’ rainy day fund, so that could cushion the blow to the city’s coffers.

Crowell said the city is hopeful state lawmakers will fully restore PILOT funding.

The PILOT program is designed to help communities where nonprofit institutions like colleges and hospitals don’t always pay taxes on properties they own. The state paid cities and towns $46 million through PILOT in the current fiscal year.

Raimondo has proposed legislation that would allow cities and towns to tax non-mission essential properties owned by nonprofits to offset the cuts in PILOT funding. Elorza has supported similar legislation in the past, but city officials say they haven’t determined how they would decide which properties to tax.

Brenna McCabe, a spokesperson for the R.I. Department of Administration, acknowledged municipalities have the right to account for PILOT funding any way they deem fit that is within the law, but she said the money is “never a guranteed outcome.”

“Total state aid to Providence – which includes distressed communities, education and PILOT aid – increases with this budget proposal,” McCabe said. “Additionally, it presents a revenue option to levy property tax on non-mission properties of hospitals and institutions of higher education.”

Even if Providence is given the ability to tax certain nonprofit properties, Crowell acknowledged it is unlikely the city would be allowed to apply new tax revenue to the previous year’s budget.

Larry Mancini, the city’s finance director, said the city has treated state PILOT money as a “prior year receivable” for many years. He said the decision stems from the state choosing to delay PILOT payments until July when cities and towns expected the money to come in before the previous fiscal year ends June 30.

Brian Daniels, the executive director of the R.I. League of Cities and Towns, said other cities facing PILOT cuts have the same problem as Providence. He said the league also plans to ask lawmakers to fully fund the PILOT program.

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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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