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EXCLUSIVE: Audit Shows Providence Running Out of Money

Wednesday, February 02, 2011

 

Providence overspent its budget last year to the tune of nearly $144 million while the unfunded costs of the city retirement system ballooned to well over $1 billion, according to a new independent audit that outlines in stark detail the full extent of the city’s fiscal crisis.

A perfect storm of lost state aid, a national recession, and rampant overspending helped drive the city into a $57 million deficit and left it with a dwindled balance of just $3.4 million in its general fund, according to a copy of the 2010 fiscal-year audit obtained by GoLocalProv.

“It’s awful government. They should be ashamed of what they’ve done. It’s total mismanagement—drunken sailors could do better,” said Joe Rodio, the chief legal counsel to the Fraternal Order of Police, Lodge No. 3, referring to the previous administration of Mayor David Cicilline.

Over the long term, the financial problems are worse: the city had an unfunded pension liability of more than $800 million as of June 2010 and an even higher $1.4 billion liability in health care and other benefits for retirees as of July 2009. (Read more about the unfunded retirement costs.)

Taveras: ‘A sobering reminder’

Providence Mayor Angel Taveras issued a statement yesterday in response to a GoLocalProv inquiry, calling the audit “a sobering reminder” that his administration had hard work ahead to put the city on “firm financial footing.” (Read more about his response to the audit.)

Meanwhile, both the city police and fire unions blasted Cicilline and his administration for mishandling city finances.

Rodio said the deficit and other budget issues would affect upcoming arbitration meetings between the union and the police administration. “They should be embarrassed to go to arbitration to take it out of the pocket of the men and women of the Police Department,” he said. “Why should we suffer any pain for their malfeasance—or misfeasance?”

Fire Department overspends by $8.6 million

A review of the appendix to the audit shows that overspending plagued several city departments in 2010. For example, the Fire Department was supposed to spend $56.8 million, but ended up spending $65.4 million—a difference of $8.6 million. Other departments also wound up with million-dollar-plus deficits: $2.1 million in the Municipal Court, $2.6 million in the Police Department, and $1.3 million for heat, lighting, and energy bills.

“Cicilline’s claim during the campaign that the budget was balanced was disingenuous at best … the proof is in the pudding,” said Paul Doughty, President of the International Association of Fire Fighters, Local 799. “You’ve got to use a credit card to balance the budget and I don’t think the budget was ever balanced. He should stand up and take responsibility for that.”

The city even overspent the amount of money it had budgeted for payments on its debt—by $10.5 million. “If you were under the water in your mortgage why would you build an addition and borrow money against it?” Rodio said.

'A deteriorating financial condition'

The audit, taken as a whole, supports the conclusions of a controversial report issued last October by then-Internal Auditor James Lombardi, who has since been appointed City Treasurer. “This audit confirms my report of October 2010 where I reported the prior administration’s improper and irresponsible use of reserves, a deteriorating financial condition, and the issues that the City will face with the lack of cash flow,” Lombardi told GoLocalProv.

“It further disputes claims made by the prior administration of the amount of reserves and their disagreement with the facts associated with the report,” Lombardi added.

In the wake of that report, the City Council ordered a special audit of the first six months of the fiscal year 2011—from July 1 to December 31, 2010. Council President Michael Solomon, who said he is still reviewing the annual 2010 audit, said the special audit will reveal the true state of city finances as the Council prepares the next budget.

“I think the bigger story will be the December 31 audit,” Solomon said. “I think that’s more important because it gives us that snapshot.”

The audit, which was part of the Comprehensive Annual Financial Report for the city, was prepared by an outside firm, Braver, PC. The audit was originally due December 31, 2010, but it was delayed by a month for a number of reasons, including staff turnover in city hall and a delay in submitting the documents necessary to complete the audit.
 

 

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