Bombshell Report Reveals Extent of City Deficit

Thursday, March 03, 2011


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Chronic overspending, payments on debt, and an unfunded pension liability are driving Providence into an estimated $110 million deficit next year, according to a report the city released this morning.

UPDATE: Mayor Angel Taveras releases a budget rescue plan this morning. Click here for more.

The report, produced by the Municipal Finance Review Panel, exposes in detail exactly how the city got into such a deep financial hole—from spending $500,000 to dispose of dumped mattresses to compounded COLAs that are doubling the pay of nearly a third of city retirees roughly every 15 years.

From pension liabilities to city cell phones, the panel combed through city financial records, uncovering exactly where the overspending is happening and making a series of recommendations on how to fix it:

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Pension plan ‘severely underfunded’ The city is facing an unfunded liability of as much as $2.3 billion for retiree benefits, when health care costs are included. In 2012, pension costs are expected to contribute $2.5 million to the deficit. According to the report, just 34 percent of the pension plan is funded—not counting the health care benefits. A major factor in pension costs are the annual compounded cost of living adjustments, or COLAs. Nearly a third of retirees are receiving COLAs of 5 or 6 percent, allowing them to double their pay every 15 or so years. The panel recommends the following solutions:

■ Consider merging the city pension system with the state system.
■ Failing that, move to a hybrid between traditional pensions and 401(k)-style plans.
■ Eliminate the second pension for members of Local 1033—which would save an estimated $3.1 million annually.
■ Increase the retirement age, increase employee contributions, and cap retirement pay.

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Suggests city could have trouble making payroll “The City has a structural deficit due to its reliance on significant one-time revenue sources in an attempt to balance budgets,” the report states. “Further, reserves have been depleted which undermines the fiscal stability of the City’s finances. … Due to the use of reserves in the prior and current fiscal year, cash balances are more tentative. Coupled with projected budgetary shortfalls, cash flow issues could impact the ability to pay vendors and meet employee payroll.”

Get more money out of nonprofits Although they take up nearly a third of all property in the city—estimated at a total of $3 billion—local colleges and hospitals pay only $1.9 million in lieu of property taxes. “Hospitals and colleges need to either increase or being to make payments for City services,” the report states.

Close 7 schools, eliminate 20 sick days for teachers The report urges the city to consider closing up to seven schools that are no longer needed due to declining enrollments. It also urges the city to fix a provision in the teacher contract that allows teachers to take up to 20 sick days a year—not counting days off for bereavement and two personal days. On top of that, teachers can take up to five sick days and still claim a perfect attendance bonus. “Since substitute teachers must cover all absences, the generous sick time allowance results in a substantial incremental cost to the City notwithstanding the obvious adverse instructional impact,” the report states.

Privatize the zoo The panel also recommends that the city consider privatizing the Roger Williams Park Casino, Botanical Center, and Zoo, saying the move could raise more revenue for the city.

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Other cuts … from cell phones to cars The report hones in on a number of other areas of potential wasteful spending:

400 cell phones cost $275k An estimated 400 cell phones are issued to city workers, costing $275,000 a year in bills. Of those 400 employees, 140 do not work in a public safety department. Plus, a new police radio system makes cell phones assigned to police officers redundant.

50 Police vehicles taken home at night Providence has “numerous vehicles” that employees take home each night. The Public Property Department does not thoroughly track who is taking home city vehicles. In the Police Department, more than 50 city-owned vehicles go home with an officer each night. The panel recommends reviewing this policy to “ensure there is a legitimate need to allow employees” to take city vehicles home with them.

Dumping mattresses costs $500,000 According to the report: “The City is spending over $500,000 a year on fees to dump mattresses that are dropped on City streets and sidewalks. The City needs to establish a cost effective way of disposing of these mattresses either through available dump sites and then city trucks taking them to the landfill rather than the garbage vendor.”


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