Providence Mayor Jorge Elorza will address how he plans to tackle a potential $23 million budget deficit for Fiscal Year 2016, when unveils his first budget proposal as Mayor on Wednesday evening.
Slides: Ten Things to Know About Elorza’s Budget Address BELOW
"I don't have any other info besides my projections for a $17.5 million projected budget gap [made] in May of last year," said Providence Internal Auditor Matthew Clarkin, of his most recent three year projection. "Subsequent to my report, the City Council did change the non-owner occupied tax rate, so that will add another $6 million to the original figure."
During the campaign last year, Elorza had proclaimed that raising taxes was not a feasible option. "We are in a difficult position where the City can neither raise taxes nor cut services any further," Elorza told the Greater Providence Chamber of Commerce in the fall.
Former Director of Administration and head of the Rhode Island Public Expenditure Council Gary Sasse posed questions as to how this will be achieved.
"The issues that I would monitor closely include the following," said Sasse. "What is the long term fiscal impact of foregoing a property tax increase in FY2016? More specifically will the structural out-year deficit become more problematic as a result? How realistic are both the revenue and spending assumptions that would make it possible for a no tax increase budget plan?
"Mayor Elorza is prepared to present an efficient, balanced budget that puts Providence on a firm path toward a new era of innovation and economic prosperity," said Elorza spokesperson Evan England on Tuesday.
Providence City Council President Luis Aponte noted what he was anticipating seeing in terms of budgetary cuts.
"I think we need to start from the premise that there's not 'one thing,' that will address our budgetary issues," said Aponte. "We need a real, proactive management of the budget, and focus only on hiring positions that are necessary from a [human resources] standpoint -- looking at every department, and determine the requirements to fill a position and ensure we can ensure quality services."
The City hired Michael D'Amico, the former Chief of Staff to Mayor Angel Taveras, to conduct an analysis of staffing duties -- and potential cost savings consolidation and cuts -- which was submitted to the Council earlier in the month.
"The 1033 contract is up at the end of the [fiscal year]; the police department has a wage re-opener at the end of the fiscal year as well," said Aponte. "The negotiations will be taking place in the coming year. The big drivers are healthcare costs, employee benefits, and pension payments -- hard costs that drive the budget."
While Mayor Elorza -- and the Council -- begin the process of addressing budget, some, including former Congressional candidate, GoLocalProv MINDSETTER Michael Riley, are advocating that the city consider bankruptcy as an option.
"Each day that Providence, Rhode Island avoids filing for bankruptcy and a nice clean “reset”, the city’s wealthy residents and property owners are placed in a more perilous condition," said Riley. "Delaying the inevitable will cause great harm. A closer look at the financial circumstances shows that Providence has all the signs of Detroit before its downward spiral. Residents and businesses pay property taxes that are among the highest in the nation."
Related Slideshow: Elorza’s First Budget Address—Ten Things To Know
While Mayor Elorza will be introducing his Fiscal Year 2016 budget proposal on Wednesday, over two months remain for FY15. In his FY15 to FY17 budget narrative, Providence internal auditor Matt Clarkin projected that the city would break even for the current fiscal year -- which City Council President Luis Aponte said is still on target based in part by the city's recent bond refinancing. 'We're hoping one of things that helped us is the refinancing of the PRA and PRB bonds which has yielded some savings. If there is a deficit for the current year, it will be a small one," said Aponte.
From the campaign until now, Mayor Elorza has indicated that he doesn't support raising taxes. Former RIPEC Executive Director Gary Sasse told GoLocal that he questioned the implications - and realistic expectations -- of forgoing a property tax increase this year (see Wednesday's article.)
Meanwhile, GoLocal MINDSETTER Mike Riley - who continues to make the case for bankruptcy for Providence -- told GoLocal In December, "Providence is in dire straits and needs to consider imposing a wealth tax totaling about $1 billion dollars, combined with another $500 million in additional PILOTs from Brown and other non-profits over the next 3 years to survive," said Riley, deeming Providence highest on the list of cities and towns in Rhode Island that could go bankrupt.
Adding a potential hurdle for this first year's budget is the fact that Governor Raimondo's proposed FY16 budget eliminates $5 million in "payment-in-lieu-of-taxes" (PILOT) funding to cities and towns, which had gotten a boost from refinancing tobacco bonds last year -- so Providence would be returned to FY14 levels.
"We'd receive 2 million less from the state next year, which we'd have to factor in if that stays in the [state] budget," said Aponte, who noted that he hasn't spoken with the Governor about the proposal. "I know that city officials and lobbyists are working to address it."
Providence City Councilman Sam Zurier spoke to the FY16 budget where he said there were roughly $7 million in "one-time fixes" - meaning they wouldn't recur in the next fiscal year -- but he remained optimistic the city could identify other "one time" solutions on a similar scale next year. Last year, outgoing Mayor Angel Taveras tinkered the budget by selling the naming rights of the city's downtown skating rink, with a lease extension at Triggs, and anticipating the sale of Flynn Elementary School and Urban League property, the latter two which are still pending. How will Elorza match those line items this year? "Every year something comes up," said Zurier.
The ordinance passed by the City Council last year that allows landlords who do not live in their homes to pay 160% (down from 175%) of the city’s $19.25 per $1,000 of assessed value rate for owner-occupied homes starting in FY16 means a $6 million plus shortfall in revenue for the coming year.
Whether the Mayor will support the change -- and the City Council, with two members since last year's votes -- is another question. "The new remembers replace the two who were on opposite sides of the issue last year," said Zurier. "If there's still a substantial majority that supports this issue, and the Mayor presents a budget that doesn't included it, they'd have to make the case of how to address that shortfall."
City internal auditor Clarkin said that the city was meeting with its actuaries to discuss the first quarter returns on Tuesday -- the same day GoLocal MINDSETTER Michael Riley posed the pension question, that "if total plan assets are actually $357,000,000 as reported in city documents, then why is Wainwright only managing $268,000,000?" Clarkin did not provide a response when asked Tuesday. "Providence and their actuaries under each Mayor knowingly overstated Pension Assets producing an inaccurate and overstated Funding ratio," wrote Riley.
"This allowed the Mayors to set less aside for ARC payments and spend tax dollars on other items including raises,' continued Riley. "The tactic of over reporting the assets and funded ratios caused an estimated $60 to $100 million shortfall in what should have been contributed to the pension over the last decade." Will the city stick to its guns -- and explain the difference and explain its reported assets number in light of what is managed?"
A report done by consultant and former Taveras Chief of Staff Michael D'Amico, submitted to the City Council on April 1, outlines twenty potential areas of at least $344,000 in reduced costs to the city following a comprehensive review of staffing -- and opportunities to streamline operations.
"It's important to note that some of the recommendations may require negotiated changes within the city's collective bargaining agreements with its unions," writes D'Amico. From DPW and Parks department consolidations, to addressing overlap of clerical positions, what Elorza will attempt to implement from the suggestions -- and what can be achieved -- remains to be seen.
According to Clarkin, Medical benefit spending is expected to increase a continual substantial rate in coming years. Expenditures for employee and retiree medical benefits are projected to increase 7.75% annually through FY 2017, according to the city’s medical consultant -- it is projected that the city’s general fund budget for medical expenditures will increase from $40.5 million in FY 2015 to $47.0 million in FY 2017. How the city will continue to account for the increasing costs will be a major question for Elorza.
The most recent contract with the Providence Teachers union expired on August 31, 2014 -- and after the PTU rejected a contract deal last fall, it has been mediation since. In Internal Auditor Clarkin's FY15-17 budget projection, it was assumed that a new contract with the PTU will not contain an across-the-board salary increase effective in fiscal years 2016 and 2017.
"A one-percent across-the-board salary increase would result in approximately $1.35 million in additional salary costs," wrote Clarkin. "Additional salary costs of $800,000 for teacher step increases have been incorporated into the school department’s budgets in fiscal years 2016 and 2017." Whether or not the projections will be accurate will be seen when a new contract is ratified.
The structural deficit projected by Clarkin is supposed to increase from $17M in FY16 to $22M in FY17. Will structural staffing changes have an impact on the bottom line? How will the city continue to address pension obligation needs? As Elorza looks to tackle this year's budget issues, longer-term implications will be at the core of many decisions.
