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EXCLUSIVE: Providence Budget Still Faces Crushing Deficit

Monday, November 28, 2011

 

Nearly halfway into the fiscal year, Providence Mayor Angel Taveras has yet to achieve his goal of balancing the city budget, new data uncovered by GoLocalProv reveals.

 

Many months ago, the city faced a $110 million deficit for the current fiscal year. Calling for shared sacrifice from unions, taxpayers, and others, Taveras came up with a plan that would have closed that nine-figure gap.

But now, six months later, key cost-cutting initiatives either have been thwarted, failed to generate the expected savings, or never even been fully implemented:

■ Universities and hospitals not coming through: Taveras was counting on an extra $7 million from payments in lieu of taxes from the tax-exempt universities and hospitals in the city. So far, none of that additional money has materialized. Negotiations between the city and its top nonprofit institutions have now dragged on for months.

 

■ Health care blowback: Taveras hoped to save $11 million by switching retirees over to Medicare. But most of those savings got wiped out when the federal government slapped the city with an $8 million penalty, according to city officials.

■ Police retirements: Savings of up to $6 million hinged on 30 officers taking advantage of an early retirement incentive. Only 16 did. Overall, due to a variety of factors, the Police Department could be over its budget by as much as $2.4 million, according to city Internal Auditor Matt Clarkin.

■ Fire Department over too: In addition to police, the Fire Department could be over budget by as much as $2 million, due to call back pay, retroactive pay raises, and severance, according to a recent report Clarkin submitted to the city council.

■ 2011 deficit: The city ended the 2011 fiscal year in June with a higher-than-expected $4.9 million deficit, city records show—and that is not counting approximately $30 million that was borrowed to help close the gap.

As of this writing, all that adds up to as much as $24.3 million in potential shortfalls—about a fifth of the original deficit the city forecast for the year.

“If you’re looking at ‘unknowns,’ I would say $15 to $20 million in ‘unknowns,’” Clarkin said, when asked to estimate the total amount of the potential shortfall.

 

‘Not panic … yet’

The Taveras administration remains confident it will balance the budget. Spokesman David Ortiz said in any year not everything will go according to plan. “Some things will run over. Savings will be anticipated as well and at the end of the year we will expect to end with a balanced budget,” Ortiz said. “We will be decisive and transparent about Providence’s finances as we continue through this budget year in the same way we have been from Day One.”

So far no one on the city council is sounding alarm bells, but members are concerned.

“I am concerned. It’s not at a level of panic yet,” said Councilman Michael Correia. “I am also quite confident the administration will follow through on the obligations it brought up in the budget hearings.”

“We hope to be able to wrangle this deficit in a way that’s prudent,” added Councilman Luis Aponte. “We all understood that this was going to be a difficult budget in a very difficult time.”

But, nearly halfway through the fiscal year, the council can wait only so long before it calls on the administration to find another way to balance the budget, said Councilman Sam Zurier. “We have the prerogative at some point to say, ‘We don’t agree with your forecast and we want you to address it,’” Zurier said. “At some point in the future we’ll need more information.”

 

“There are different places you can look for additional savings,” Zurier said. “It’s the administration’s prerogative to take the first crack at identifying those things.”

Source: City close to deal on nonprofits

Much of the focus remains on the last hold-outs in the budget process: the nonprofit universities and hospitals. “It’s taken longer than expected to negotiate agreements with our tax-exempt universities and health care institutions,” Ortiz said. “Conversations are ongoing and we expect to be able to reach agreement for fair and appropriate payments in lieu of taxes.”

Four local universities—Brown, PC, Johnson and Wales, and RISD—have already agreed to contribute $1.9 million this year to the city in lieu of taxes, but the administration was counting on millions more from them, as well as from the hospitals.

Overall, the nine leading nonprofit hospitals and universities cost between $28.4 million and $35 million in city services, according to a November 2010 report of the city council.

One source close to the negotiations tells GoLocalProv that the city is, in fact, close to striking a deal with the four universities. Care New England, the parent company of Women and Infants and Butler Hospital, has offered the city some payment options but the other hospital system, Lifespan, is resisting any payments, the source said.

 

The deal with the universities and Care New England is expected to be announced before the end of the calendar year, according to the source. Ortiz declined to comment and representatives of the two health care companies did not respond to requests for comment in time for publication.

The president of the Hospital Association of Rhode Island, Ed Quinlan, pointed out that Providence hospitals provide $115 million worth of uncompensated care each year. “That’s a staggering contribution to meeting the needs of the community,” Quinlan said. There are federal reimbursements available, but the amount has “significantly dwindled,” according to Quinlan.

The president of the city firefighter union, Paul Doughty, said city taxpayers should not bear the burden of providing uncompensated care to residents across the state. However, Quinlan said that an “overwhelming percentage” of that care was for Providence residents.

Brown snubbing the city?

The heat is also being turned up on universities like Brown to step up.

“They’ve done well by Providence. Now it’s time for Brown to help Providence,” Doughty said. “They have to do something. It’s not fair.”

 

Brown alone, were it a for-profit, would be paying $26.9 million in taxes on the $996.7 million in property assets it has, according to a 2010 city estimate.

Like the hospitals, Brown can claim that it is a valuable asset to the city. But that argument will only go so far, Doughty said. “They’re going to end up turning it on its head and hurting themselves and, in the meantime, destroy the city,” he said. “It would be like having Brown University in Detroit. I’m not sure anybody would look at Brown the same way.”

Update: A Brown official tells GoLocalProv that the university is committed to helping the city. “We understand and appreciate the fiscal challenges facing the city and the difficult choices facing the mayor. We have conveyed our interest to Mayor Taveras in being part of the solution, and are exploring options to enhance the $4.0 million in direct payments we already make annually to the city through voluntary and property tax payments by providing additional support for the Providence public schools and economic development infrastructure,” said Marisa Quinn, vice president of public affairs and university relatons. “Brown has an important stake in the success of Providence, and we are hopeful we can find productive ways to strength our partnership.”

Federal penalty ‘a major hit’

One of the biggest areas of savings was supposed to be in retiree health care. But instead of carving $11 million out of the budget, the city only shaved off $3 million, due to an unforeseen federal penalty.

“It’s a major hit to the city’s budget not being able to realize all the savings from that change,” Clarkin said.

 

The penalty was assessed for each year a retiree over 65 years old was switched over to Medicare, according to Clarkin.

Worse yet, it is not a one-time fee. Instead, the penalty will be assessed annually for the foreseeable future. “We know that the savings aren’t going to be realized and that is of concern,” Clarkin said.

“There’s a lot of moving parts to the budget and that will have to be made up somewhere else,” said Gary Sasse, a former state director of administration and the current fiscal adviser to the city council. “You have to look at the entire forecast and spending to see where the pluses and minuses are. … Budgeting is not a one-time event. Bumps are always on the road.”

Public safety: $4 million over budget?

Less clear is just how much of a deficit there could be in the fire and police budgets.

For the Police Department, Clarkin’s preliminary projections show a shortfall between $1.9 and $2.4 million. Right off the bat, Clarkin disagreed with the city administration that 30 retirements would bring it to the $6 million it needed to cut out of the Police Department. He instead estimates the city would have saved only $4.9 million. With only 16 retirements, that number got knocked down to $4.4 million.

 

(A total of 27 people have left or announced they are leaving, according to union president Taft Manzotti, but only 16 of them fell under the early retirement incentive.)

As for the Fire Department, Clarkin’s report shows a similar shortfall of $1.5 million to $2 million—the result of call back, severance, and retroactive pay raises. Doughty said he would be meeting with city officials this week to confirm the numbers. He also pointed out that the increase in call back pay is due to Hurricane Irene.

Clarkin, whose recent report on the budget was based on first-quarter data, said it was too early to make solid projections for the entire year. “There’s unknowns and there’s areas of concern,” Clarkin said. “I think that’s what I wanted to get across to the council.”

He said the city council finance committee will be in a better position to gauge how the fiscal year is going in January. From then on, he said the finance committee will be reviewing financial statements on a monthly basis.

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