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Providence Faces $11M Deficit

Friday, February 01, 2013

 

Providence is facing a potential $11.2 million deficit, undermining claims by Mayor Angel Taveras that the city is running on a balanced budget and raising renewed questions about the city’s long-term financial health.

The deficit forecast, made by the Internal Auditor in a new report, comes on the heels of news that the city failed to eliminate the $22 million estimated deficit for 2012 that had some observers predicting municipal bankruptcy for the capital city. Ultimately, Providence ended last year with a $15.2 million deficit, according to the annual city audit.

Councilman David Salvatore, the chairman of the Ways and Means Committee, said the city is not done solving fiscal problems that first came to the fore two years ago, when Providence was saddled with a $110 million deficit. “While we’re not at the starting line, we’re not at the finish line either,” Salvatore said last night.

The reason for the discrepancy between the Internal Auditor's budget projection and the administration's is unclear at this point. When the administration was asked about it yesterday, a Taveras spokesman refused to comment.

Pension system, overtime pay drive deficit

The current forecasted deficit is being driven by a number of different factors. A flood of new homestead exemptions and the collapse of 38 Studios have eaten away at $1 million in expected tax revenues. An estimated $2.7 million stems from a drop in employee medical co-shares. A shortfall in the annual pension contribution has punched another $4.1 million hole in the budget while firefighter overtime pay is ballooning past budgeted amounts by $2.2 million, according to the Internal Auditor's analysis.

The city owes more to the pension system because of the settlement the administration reached with employees and retirees to avoid a court battle over a pension reform ordinance. The additional $4.1 million the city needs represents the difference between the savings sought in the ordinance and what was realized in the subsequent negotiations, according to Clarkin.

A number of other smaller shortfalls are taking their collective toll on the budget as well: an overnight parking program that so far has yielded only $71,000 of the $600,000 it was supposed to produce; an estimated $500,000 overrun in the police overtime budget; and an estimated $400,000 shortfall in federal funds for city schools.

City needs ‘corrective action plan’

Clarkin last night suggested the city council should work with the Taveras administration to hash out a “corrective action plan” for the budget. That would conceivably entail a hiring and purchasing freeze, Clarkin said.

The city might get some addition help from state funding for distressed cities, an estimated $2.4 million, but that money is not guaranteed.

After that, the options for the city become considerably less attractive: it could either decide to not fully fund its pension system this year or it could drain funding from its so-called rainy day fund—both actions that got the city into trouble in the first place, according to Gary Sasse, the fiscal adviser to the council and the former state administration director.

Sasse urged the city council to press for the corrective action plan. “If you don’t and you solve the problem with gimmicks—you do that a second and a third time, you’re really digging a hole for yourself,” Sasse said.

Underfunding the rainy day or pension funds would be frowned upon by credit rating agencies, Sasse added.

“They’re not long-term positives,” Clarkin said. “They’re not things you want to do.”

Councilman John Igliozzi expressed concern about the impact on the pension system. “I’m very concerned because I wouldn’t want to see a point where the city decided not to fund its contribution,” Igliozzi said. “It’s going to have a further detrimental impact on the unfunded liability.”

City runs deficits four years in a row

Sasse said the city also can’t keep running deficits, as it has been for the past four years, according to figures provided by the Internal Auditor. In 2009, the city ended the year with a $5 million deficit. In 2010 it was $12.5 million short. The deficit dropped by half that in 2011 but then doubled to $15.2 million last year, according to Clarkin.

In all, the city’s deficits total $39.4 million—and that’s not counting this year’s potential deficit.

Those deficits have to be made up by appropriations over a five-year period. This year’s payment on the 2011 deficit comes out to $1.3 million. The payments on the 2012 deficit won’t kick in until 2014, according to Clarkin.

“That really detracts from what resources you have available for city services,” Sasse said.

He urged the city to act on the budget this month, warning that waiting until May could limit its ability to deal with the deficit.

Salvatore expressed confidence that the city council would be able to work with the Taveras administration to address the problem. “I don’t think it’s an impossible feat; however, I think we have work to do,” he said. Salvatore declined to rule out any of the options outlined by Clarkin, but quickly added that the city needs to be responsible in its approach to the correction action plan.

Fire overtime pay over budget by $2.2 million

One of the single largest overruns among city agencies is in the Fire Department, which is $2.2 million over what was allotted to overtime. The actual projected hit to the budget is $1.5 million, thanks to some unfilled vacancies which lowered expected spending on salaries, according to Clarkin.

But Paul Doughty, the city firefighter union president, questioned the Internal Auditor’s projections. He said the last six months of a calendar year are the high point for vacations—for both the summer and the holidays—resulting in more overtime than would occur in the first six months of the next calendar year, from January to June.

He also expects overtime to drop once the new class of firefighters starts working at the department, boosting manpower by about 50 firefighters. The arrival of that class has been delayed by about six months so the positions could be advertised more extensively, Doughty said.

Overall, he questioned the administration’s and the Internal Auditor’s budget projections. “I’m not sure that either side is right. It’s probably somewhere in the middle,” Doughty said.

If the deficit is in the middle of the two estimates, that comes out to about one percent of a roughly $600 million annual budget—certainly a far cry from the days when the deficit threatened nearly a fifth of the budget. “I would say that is nothing short of remarkable,” Doughty said.

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Comments:

anthony sionni

Seems like Taveras is following cicillines footsteps, I hear the law department is overbudget by over a million as well! No wonder taveras wants to jump ship and run for governor, you can only paint the rosy picture for so long!

anthony sionni

Lets not forget he just gave Alan sepe a nice raise for being a director of operations, you know the job that wasnt need before because of consolidations and dont forget Taveras had is friend Damico who is raking in another 175,000 filing in for that job! So now Damico keeps his big check Sepe gets another raise, you cant make this stuff up! You might want to cut some of those big salaries mayor, in this economy we shouldn't be paying those exorbitant salaries .

I have another money saving tip for you, privatize or get rid of your security detail. You see this wont amount for millions of dollars short, but you keep cutting it adds up fast!

Taveras puts on a nice front, but as Lincoln once said, "You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time."

anthony sionni

Salvatore isn't to knowledgeable on whats going on either, he just got elected a couple years ago,he is still wet behind the ears! He heads the ways and means committee, he is the puppet for Solomon. Solomon created this new committee because he thinks he is a dictator, he didn't like what Igliozzi was doing on the finance committee, you know the one that he appointed Igliozzi chairman of,so he just creates another committee to bypass the finance committee,some democracy huh! I attend many meetings at city hall and I can see things going downhill since Salvatore has been heading the ways and means committee , I give Igliozzi some credit, he knew what was going on !

Imagine, Solomon wants to run for mayor lol. I hope he pays off his 25 year loan to the PEDP before that, heck with opening up a new pizza place and a big renovations coming to wes rib house, he must be doing alright!

frank bentley

its 6:06am..how is AS posting at 7:21am? GoLo has a clock issue

Chris MacWilliams

"Councilman David Salvatore, the chairman of the Ways and Means Committee, said the city is not done solving fiscal problems that first came to the fore two years ago, when Providence was saddled with a $110 million deficit."
Councilman you forgot to mention that Mayor Taveras endorsed Ciciline knowing that he saddled Providence with the $100 million deficit.

Captain Blacksocks

The "corrective action" is going to raise taxes on all hard working citizens. That is so much easier than cutting spending. Why? Because those in power feel no power to truly fix the budget issues, as long as voters keep voting for the same people year, after year after year. Your taxes are going up and those in charge know at least 51% of voters will not care a bit.

Captain Blacksocks

The "corrective action" is going to raise taxes on all hard working citizens. That is so much easier than cutting spending. Why? Because those in power feel no power to truly fix the budget issues, as long as voters keep voting for the same people year, after year after year. Your taxes are going up and those in charge know at least 51% of voters will not care a bit.

David Beagle

If the 50 new fire fighters earned $75K in salary and benefits right out of the academy, thats a cool $3.75 million right off the bat. More employess means more to take vacation and sick time, rendering the recently tweeked minimum manning requirements useless. How about just getting tougher with attendance policies before bleeding more and more out of the tax payer?

Art West

Kudos to Stephen Beale for such detailed reporting.

The article certainly shows that Providence cannot live in spending fantasy land for too much longer.

Thomas Lessio

Glad to see that Stephen Beale knows how to cut and paste John Igliozzi's press releases.

Beale forgot to add that Mayor Taveras put it bluntly in his State of the City address earlier this week:

"We have survived the worst of our fiscal storm, but we must remain vigilant. Just weeks ago, Moody's Investor Service said several years of year-end deficits have left our City "with little room for error in the event of future operating pressures."

"Providence's reserve funds have been depleted, and we must manage our City's finances responsibly and transparently, and work to replenish our reserves and restore our credit ratings in the coming months and years."

I agree.

Real vigilance is required. Not the kind of vigilance that John Igliozzi had for year after year while the City went on the verge of bankruptcy. But, real vigilance.

steven richard

its a good thing that ciccilini left providence is good fiscal health, tavares takes over and also lies, i mean very slightly exaggerates the fiscal health. so when he runs for gov he too can say providence has no fiscal issues. thanks
please stay in providence the rest of the state doesnt want or need more lies

Kati Loreen

Clown Shoes, Inc. (the Tavares administration) has been blowing smoke since the beginning. About time for another scandal to cloud the real issues of mismanagement and incompetence; did anyone see where PHA won National recognition? Solomon’s appointment of Salvatore lets you know where his agenda is “all for Solomon screw the rest of you.” Salvatore is not qualified to oversee City finances, nor is Solomon. When will Clown Shoes and Solomon be held accountable? Certainly not by the Providence urinal. Did anyone see the disgusting coverage of the State of the City Address? How does Alisha Pina have a job? Talk about a hack. When all these lame politicians shift to another office then we’ll find out that emperor has no clothes.

anthony sionni

I was at the finance committee meeting recently and alisha pina from projo didnt attend for the interal auditors report,dan mcgowan was there from wpri, this was on Jan 17th.

These politicians are all the same, cant anyone do the right thing???

Odd Job

What problem? Just double the car tax, problem solved. People will gripe a little but they'll still vote these pols back in by a landslide.
Seriously they could double everything and would still get reelected.

JOJO MONKEY

Another DELUSIONAL democrat mayor who is running the numbers blindfolded. Repeating the phrase "the city is in great financial shape"just like his good friend David Cicilline did. We are victims of the same old same old and Providence will eventually die.

jon paycheck

how about a list of all administrative employees that make over $75k per year.

there must be over 100, probbaly more.

taveras has never laid anyone off...

anthony sionni

Your probably right jon! Its funny how everyone always say they can make so much more in the private sector, yeah right, go see who will hire you in Providence or even in this state at 175,000 in this economy!

Charles Marsh

Deception is what professional politicians do best. Investigative reporting is still not completely dead in RI. Keep exposing RI's political sewer, we know the smell all too well and the awareness of the electorate is the only thing that will cure the stench.




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