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Providence Budget at Risk Due to Fire, Questions Over Tax Base

Tuesday, March 01, 2016


Providence's fiscal future will soon become a reality, as the city council - and city - awaits Mayor Jorge Elorza's FY17 budget proposal in the coming weeks. Photo: Flickr/ Burling

The City of Providence must submit its Fiscal Year 2017 budget proposal in less than two months, and the city’s internal auditor and council members are questioning projections based on uncertainties surround fire litigation — and assertions by the city that the tax base is expanding.

Internal Auditor Matt Clarkin had submitted a letter to the city asking for clarification on a number of provisions of the city’s five year budget plan submitted in December 2015 and reviewed last week, including the assumption by the city that they will bring in an additional $8.3 million in taxes in FY17 from previous tax stabilization agreements as well as nearly a million dollars more in payments in lieu of taxes (PILOT) payments, among other inquiries — but one of his biggest concerns is how the city is accounting for the pending legal battle with the city’s firefighters over the platoon shift change implemented last year. 

“The administration’s FY2017 expenditure projection for the fire department does not provide for an adequate reserve should the city receive an unfavorable result from the litigation concerning the platoon change. The administration does mention a “Reserve for Contingency – Fire” of $3.0 million in FY2017, but that is based upon an assumption that the department’s total expenditures on callback for the fiscal year will be $2.0 million, which is not realistic based upon current manpower,” said Clarkin. “Since July 1, 2015, approximately 50 firefighters have either retired or resigned from the department. Based upon actual expenditures through January 2016, I am projecting that the fire department will spend in current fiscal year approximately $9.5 million on callback.”

Meanwhile, the city is currently in a revaluation year for residential property — which could play a factor if they city finds its fire savings projections aren’t what they had anticipated. 

“Batten down the hatches,” said Sharon Steele, President of the Jewelry District Association and a Providence real estate broker and consultant.  “The questions is, where are we going to get the money we need?  The Mayor had talked about having a surplus at his State of the City, then Clarkin addressed the reality of the fire callback issue. If nothing else goes wrong, we have some challenging times ahead."

“The word on the street is we’re looking at 10% increase in [residential real estate] assessment, and then the double whammy is then we'll get new mill rates.  The city’s essentially backing into the budget,” said Steele. “So what happens to the mill rate -- the investors are already paying a higher rate, so they're none to happy. So if you can't get it from then commercial guys, and the next level of investor who's not willing, then you get the single family owner."

“Honestly, I think people will leave,” said Steele.  “We are at a tipping point.”

Issues Big and Small

Councilman Sam Zurier recapped the most recent finance committee meeting in a recent newsletter to constituents — and spoke to the city now looking to conduct a ten year plan, 

“This past Thursday night, the Finance Committee reviewed the 5-year budget the City submitted to the State at the end of last year. Based on the assumptions it contains (marginal growth of the tax base, no increases in salaries or State aid beyond currently known commitments), the budget projections anticipate deficits of $4.5 million to $33.5 million in the municipal budget, and $12 million to $15 million in the school budget,” wrote Zurier. “This compares with anticipated deficits of between $11 million and $19 million in report prepared last March by PFM Consultants. The City has engaged another consultant to prepare a 10-year budget to shape the City's budget for next fiscal year, which likely will be submitted sometime in April.”

Rick Shaw

Providence skyline Photo: Flickr/Rick Shaw

Finance Committee Chair John Igliozzi said that while the ten year plan might be difficult to predict that far out, that it had its purpose.

“I’ve seen in the past years some type of company coming in trying to put together what the city "should" do -- they never really seem to get into the controversial things that need to be addressed.  They go to the easier issues, but don't seem to address the systemic problems,” said Igliozzi. “ It becomes a political playbook than a financial guidance book. When you start going so far out, it's based on so many hypotheticals -- what may grow, what might not grow -- it's too speculative. But sometimes it has merit, like applying certain things today to have an impact later.”

Igliozzi said he thinks the fire issue — and how the city could raise money per the revaluation — as two of the biggest issues facing the budget.

“First of all, the revaluation has to be completed as soon as possible,” said Igliozzi. “Per the cap, you can only raise $13M million. What I want to try and understand, is even if you get $13 million -- is that enough to pay the city's bills?  I felt that question went unanswered.”

Igliozzi spoke to what the city said it is anticipating in terms of bringing in more tax revenue.

“’The Manchester [Street] power station, that will increase the city's revenue I think from $5 million to $9 million. It's a pretty big number,” said Igliozzi. “Those things are happening.  But we have several items that most likely won't happen -- the $2.5 million sale of the Urban League -- that's something that doesn't look like it will be sold, and I think we have a couple of additional revenue sources that won't be realized.”

Clarkin said he had specific concerns with the increased tax base assumptions. 

“The administration is projecting a revenue increase of $4.0 million ($9.2 million from $5.2 million) in FY2017 as a result of the expiration of the current tax treaty on the Manchester Street Power Station.  My concern is that the administration is basing this revenue increase on information provided through the citywide property revaluation, which is being performed by Vision Appraisal,” said Clarkin. “Because of the complexity of issues surrounding the valuation of a power plant, it is my opinion that a firm that specializes in appraising such properties be utilized to determine the appropriate value of the plant.  In addition, should the property no longer be under a tax treaty with the city, it is important to understand how that might impact the city’s 4.0% annual tax levy cap.”

“The administration is projecting an additional $8.3 million in tax revenue for FY2017 based upon a natural expansion of the city’s tax base.  It is my opinion that more research is necessary to determine how solid the city’s current tax base especially as it pertains to increases to both real estate and tangible property in the area surrounding the port,” said Clarkin.


Related Slideshow: 10 Biggest Issues Facing Providence in 2016

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Firefighters, Con't

The battle that started last year spills over into 2016. After Mayor Elorza announced he was going to reorganize the Fire Department from four platoons to three with a condensed shift schedule, the firefighters took the battle to court — and callback costs soared with injured firefighters out on leave. Elorza said the change could save the city “as much sat $5 million” in the next fiscal year (FY17) -- but the city is currently seeing red. "Through the middle of December, fire fighter "call back" expense has been $4.7 million, which represents almost all of the $5.05 million budgeted for the entire fiscal year," reported Councilman Sam Zurier on Sunday. "Should this trend continue, the cost of this line item could exceed the budget by $5 million by the end of the year."

Now it all rides on the outcome in the courts.  If it ends in a negotiated settlement, the crisis could be averted. If not, firefighter union head Paul Doughty has said that Elorza can “hand over the keys to the city" for bankruptcy.

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From the West Side to the East Side, residents across the city in 2015 were organized and mobilized to demand action from the Elorza Administration on crime in the city. GoLocal reported at the end of 2015 that over half of the police department is eligible to retire — and the city still needs to get a new class of officers underway as budgeted. Tensions were high following a Dunkin’ Donuts worker writing #blacklivesmatter on a police officer’s cup (and the Black Major Movement continuing to call for a black major in the department).  

Councilman Seth Yurdin announced this week that he is introducing a resolution to establish a special commission to review relations between the Providence Police Department and the community it serves. The Special Commission on Community-Police Relations will review current public safety practices and create opportunity for public input. 

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Grafitti and Potholes

It’s been a mild winter so far, so perhaps at least one of the two scourges of the city will be mitigated this coming year.  But addressing the conditions of the roads continues to be an issue for Providence. Last year, Mayor Elorza made a public display of commitment to addressing problematic potholes, and also pledged to respond to the rampant graffiti issue in the city that has seen the property destruction spread to private houses.  

City Councilman Michael Correia recently put up a $1000 reward to find who was tagging properties in his district.  Residents of the city want to feel safe, and that includes driving on roads that won’t inflict damage on their cars (or take out runners and bikers) and that their personal property won’t be destroyed.  Graffiti continues to crop up, and it needs to be addressed quickly when it does. 

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Taxes - Commercial

The city’s commercial tax rate might be frozen — for now — but there are a lot of moving pieces.  The $36.75 per $1000 rate on commercial properties is among the highest in the country -- a point well-known in RI circles.  

“Providence has a problem with the commercial tax rate,” said developer Colin Kane. “With new construction or significant rehab -- the costs aren't supported by current rent.”  The property revaluations expected shortly will shed some light how the city will move forward addressing tax rates, but in the meantime, the TSA extensions before the Council are the 600 pound elephant in the room. “The City Council is looking for nickels in the couch cushions because of the fiscal challenges facing the city,” said Kane. “And they weren't caused by this council or mayor, but by the fact that they were kicked down the road.  And now we want to malign people like Buff Chace who made the city what it is?”

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Taxes - Residential

The owner occupied residential tax rate could be in the crosshairs as the city looks to address revenue issues in the coming year. “Everything’s on the table,” Aponte told GoLocal. And with the  revaluation, things could be in flux for the current owner-occupied rate of $19.25 per $1000 . 

“Suppose you had a city where there was a wild appreciation of real estate values — that used to happen here, Providence has seen 10% before. State law says you can only increase the levy unilaterally by 4 and a quarter,” said City Counciman Sam Zurier. “So supposed you have a situation where your values go up 10% and you want to collect 4 — you have to reduce the rate by 6%. "

"If values go up enough — even 5% - then the city will get additional money without raising the rate.  During a [revaluation] year - you have to get into tax bills versus rates.  And when you factor in commercial and non-owner occupied values and rates, it’s tricky.

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Providence Schools face a tall order ahead of them.  The search is on for a new superintendent following the departure of Dr. Susan Lusi.  The current School Board President is stepping down at the end of the month. Providence High Schools scored among the worst in the state following the release of the first year of PARCC test scores. Current School Board member Nick Hemond is slated replace outgoing President Keith Oliveira, but question remains for the choice of the new super.  Council President Aponte told GoLocal this week that stability in leadership in the school department is one of the greatest challenges facing the city moving forward.  Can that be achieved in 2016?

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Lights have been spotted on recently in the Superman Building - i.e. Industrial National Bank Builcing — but the fact remains that the city’s iconic skyscraper remains vacant, which former Mayor Joseph Paolino called one of the biggest issues facing the city (stating that the fact that it remains empty cost him a mortgage from a top bank for an adjacent property).  

Citizens Bank is eyeing a new corporate campus somewhere in Rhode Island, and while indications point to one most likely going in the suburbs, a number of business and community leaders are hoping Superman isn’t ruled out completely. Previous efforts to get state support to turn the building into apartments fell flat, and Providence residents are gun-shy about any project looking for public support.  But the fact remains that the empty anchor is an eyesore for the city, and getting a tenant — or tenants — in should be a top priority in 2016. 

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Lack of Development

Providence needs more cranes.  The city has seen its first one in a while by the Jewelry District with developments at Johnson and Wales, which is a good sign — but the city needs more.

“Owners and property developers want to be treated fairly and play on a level field. Providence does not have a business friendly reputation. This is why there are few cranes in the sky in Providence and very few new businesses coming to the city or planning to expand in the city,” URI Distinguished Professor of Business Edward Mazze told GoLocal earlier.  So in order to get the construction equipment in — Providence has to figure out how best to lure businesses here in the first place. 

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Providence needs a win — or a least a path to victory. Whether that be getting a tenant in Superman, bringing in a notable business, or articulating a concrete plan to move Providence forward, residents want to feel that the city is on the right track.

The City Council recently announced that it received the results of its cluster analysis study to identify where opportunities lie — and now we need to see results.  The Mayor made multiple trips abroad in 2015. He campaigned on a promise of doubling exports from Providence in five years.  What results will we see from those overseas meetings?  Providence wants a concrete vision moving forward. 

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“Absolutely not,” said City Council President Luis Aponte, as to whether the city could go into receivership in light of its current precarious financial condition. 

“If the city loses, Elorza can hand over the keys, because the city will go bankrupt,” has said firefighter union head Paul Doughty regarding the firefighters legal battle over the Mayor’s platoon reduction.

Financial advisor and GoLocal MINDSETTER Michael Riley said receivership is almost a certainty. 

“Essentially Providence is bankrupt and insolvent. It is only by illegally borrowing from the pension fund the last 10 to 15 years that have saved them from being sued by creditors, and the lies continue,” said Riley. “Until Providence goes into receivership nothing else can happen — no railroads, no Superman, they are sunk. I consider everything else irrelevant.”


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