PROVIDENCE, R.I. (WPRI) – Providence officials say the city will eliminate a $13.4-million cumulative deficit by 2021, nearly a decade after the city exhausted all of its cash reserves.
In a letter to the Rhode Island auditor general’s office Jan. 26, the Elorza administration outlined a plan to reduce the city’s long-term shortfall that has been on the books since the 2011-12 fiscal year by setting aside $9.6 million over the next two fiscal years followed by about $1 million a year between 2018 and 2021.
“The city has consistently identified its primary budgetary risks as self-insured medical funding and public safety overtime and call-back on the expenditure side of the budget and instances of non-re-occurring items (one-timers) usually on the revenue side,” Lawrence Mancini, the city’s finance director, wrote in the letter.
On Jan. 29, Auditor General Dennis Hoyle sent the city a letter saying he finds the plan “generally acceptable and consistent” with state law, but suggested Providence should commit to dedicating “all new incremental general revenues” that exceed 104% of the previous year’s budget to reduce the deficit and restore the city’s depleted reserves.
Unlike an operating deficit, which only accounts for a shortfall that occurs within any one fiscal year, a cumulative deficit includes all deficits incurred in previous years. In Providence’s case, that means shortfalls during the 2011, 2012 and 2015 fiscal years.
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.
Providence started to chip away at the long-term deficit in 2013 and 2014 by posting tiny surpluses, but it took a step backward during the 2014-15 fiscal year with a new $5-million shortfall.
Until the $13.4-million cumulative deficit 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.
The city is required to front-load the bulk of the repayment from the cumulative deficit over the next two fiscal years because it is nearing the five-year term on the combination of shortfalls incurred in 2011 and 2012. The rest can be paid off by 2021.
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In the letter, Mancini said the city included $4.3 million for deficit reduction in its current budget. He said the city has already set aside about $2.1 million in a separate account and will add the rest by the time the fiscal year ends on June 30, 2016. The challenge for the city will be to not use that $4.3 million to cover any possible operating shortfalls, as it has done in the past. But Mancini maintains the city is on track to finish the current year with a balanced budget.
“We are committed to utilizing any newly identified and/or non-reoccurring revenues or revenue-enhancements, along with any spending-reduction or savings programs, to further ease the cumulative deficit,” Mancini wrote.
He said the city is “continuing to explore other alternatives to tax increases” in the next budget, a possibility City Council President Luis Aponte has already indicated he is considering. Mancini said the city is currently conducting its state-mandated property revaluation. Results of the assessment are expected to be released in March, but city officials have indicated they believe property values – and the tax revenue that comes from those properties – will increase.
Mancini also highlighted a recent decision to purchase all of the city’s streetlights from National Grid and convert them to light-emitting diode fixtures, or LED lights. That plan is expected to save the city $24 million over the next 11 years.
As for the rest of the city’s plan, Mancini said the city continues to “exercise prudent fiscal controls, including reductions in non-contractual spending.”
Although the city has already exhausted the $5 million it budgeted for firefighter callback overtime in the current fiscal year, Mancini suggested the city is “currently experiencing favorable results” when it comes to saving money in the fire department. Matt Clarkin, the city’s internal auditor, has said he expects the department to finish the fiscal year about $1.8 million in the red.
Mancini also said the city is currently considering a possible hiring freeze and is closely scrutinizing all discretionary spending,
“Although we have taken a major step in the right direction to improve upon these perennial budget shortfalls, we are cognizant of other budgetary challenges that require continuous monitoring and strong budgetary controls, which have always been in place and will continue to be exercised proficiently and prudently,” Mancini wrote.
On the revenue side, Mancini said new construction and development tax-stabilization agreements are expected to generate around $9 million in building inspection fees over the next three years while also growing the city’s tax base by up to $880 million by 2020. He said the city believes it could generate between $8 million and $32 million in new tax revenue over the next decade.
At the same time, Mancini said the city is also considering expanding the port of Providence, but did not specify any details on the plan. He also said one “significant standalone tax-stabilization agreement” – a parking garage – is set to expire in the current fiscal year, which should generate additional revenue.
The City Council Finance Committee is expected to review the plan as soon as next week.