Providence Budget at Risk Due to Fire, Questions Over Tax Base
Tuesday, March 01, 2016
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.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTMeanwhile, 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.”
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.
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