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Auditor: ‘There’s no question the city will run out of money’

Saturday, October 23, 2010

 

The city of Providence is running out of money and is behind on its payments to the pension system, Internal Auditor James Lombardi warned in a report released this week.

“Based on the current situation and the information in my report … there’s no question we will run out of money,” Lombardi told GoLocalProv.

Lombardi said the city’s cash reserves had dwindled down to $4.6 million, from $36.6 million at the beginning of the 2010 fiscal year. In addition, he said the city did make the required monthly contributions to the retirement system during the year. He said the city owed $38 million to its pension system but had paid only $20 million—$10 million earlier in the year and another $10 million this week after the city learned of his pending report.

He also revealed that the $49 million the city borrowed to cover deficits last year and in the current fiscal year appears to no longer be available. The contingency funds the city maintains have also gone from $14.4 million in July 2009 to negative $187,736 in June 2010, according to Lombardi.

In a best case scenario, he said the city could run out of cash between April and September 2011, in between tax collections. The worst case scenario: the cash runs out even earlier.

“Based on the current cash positions, I do not believe that the City can complete the fiscal year without a supplemental tax increase, severe budget cuts that will affect services, and/or borrowing funds to balance the budget,” Lombardi concluded.

Councilmen blast report

Yesterday, the mayor’s office disputed Lombardi’s characterization of the state of the city’s finances. Even some members of the city council spoke out against it, questioning his findings and timing of the report.

“We have worked hard with the Administration to make responsible decisions and navigate through very difficult times. I am deeply disappointed that the Internal Auditor would choose to make reckless and irresponsible statements about the City for blatantly political reasons,” said Council President Peter Mancini.

Four other city councilmen - Luis Aponte, Kevin Jackson, Michael Solomon, and Clifford Wood - criticized Lombardi, saying he is “compromising the integrity” of the city council and has exhibited a “‘reckless pattern’ of using his office for political purposes,” according to a press release.

The report comes less than two weeks before the November election, in which Mayor David Cicilline, a Democrat, is running for the First Congressional District seat.

‘It has nothing to do with politics’

Lombardi denied that there were any political motives behind his report. “It has nothing to do with politics,” he told GoLocalProv.

Councilman John Igliozzi, the finance chairman, also rejected the charge. “This is about the people of Providence. They have a right to know this information and understand where there money is going, especially in these extreme financial times,” Igliozzi said.

Lombardi said he had been requesting documents from the city since April and even had to submit public records requests for the information, which he did not receive until two weeks ago.

“What the internal auditor was asking for was that city staff do was his work. He has electronic access to the City’s financial records 24/7," responded Karen Watts, a spokeswoman for the mayor’s office. “It is within his powers and capability to get whatever information he needs. Some of his requests were for information and reports that did not exist and are inconsistent with the scope of his authority to request.”

Mayor disputes report

The mayor’s office picked apart the findings of Lombardi’s report, denying that the city was about to go broke. “Over the last five years, the State has reduced payments due to the City of Providence by $42.5 million, which created an extraordinary challenge but we managed through it and the City is on solid ground,” the mayor’s office said in a statement released to GoLocalProv. “The City’s reserves are currently at about $30 million.”

Cicilline’s office also said that some of the borrowed $49 million would not close before the fall. One loan of $19.5 million, from the Providence Public Building Authority, will not close until mid-November, which is why it has not showed up in the city’s books, according to Watts.

She also said he was “incorrect” that the city will not be able to make its pension payments for fiscal years 2010 and 2011. She said the 2010 payments would be made by December 31, 2010.

The city is on time for its payments on teacher pensions, according to Frank Karpinski, executive director for the state retirement city, which does not manage the pensions for police, fire, and other non-school employees in Providence. He said the city is required to make monthly payments, based on a percentage of payroll. He said the city was on time with a $2.8 million payment for the month of September, which was due October 15.

Independent auditor: many communities in dire straits

The city’s independent auditor, James Wilkinson, of Braver PC, Accountants and Advisors, told GoLocalProv he was not in a position to weigh in on Lombardi’s report. He did note that the city is several weeks late in turning over the documents needed to complete the annual audit—for the first time in four years. He said his firm would take Lombardi's report into account as it prepares its audit for 2010, which is due December 31.

While he could not comment on the specifics of the report, Wilkinson said it did not come as much of a surprise. He said many of the 14 communities his firm works with in Rhode Island are in a similar situation. “They are facing the same challenges as the city of Providence,” Wilkinson said. “I think you could probably write that same type of report for many communities in the state.”

He pointed to the mounting pressure of a recession that just won’t go away. “I think it’s been mounting and I think a lot of people expected the economy to pick up,” Wilkinson said. “There are only so many rabbits you can pull out of your hat to continue to balance the budget.”

As communities run out of creative ways to balance the budget, he said many are “facing dire options.”

 

 

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