Elorza’s Budget Avoids Facing Fiscal Realities for Providence
Friday, April 29, 2016
Providence Mayor Jorge Elorza unveiled an overview of his $717 million Fiscal Year 2017 budget proposal this week — and while Elorza said that his budget “focuses on the long term,” critics are questioning what it actually does to address long term structural issues including a budget deficit that is projected to balloon over 1100% in ten years.
“The city’s fate rests more than most understand on the stock market,” said pension critic Michael Riley, who has consistently questioned the city’s asset claims -- and called for Providence to declare bankruptcy. “It appears that this ten year plan relies on the false input of pension assets between $330 million and $350 million, when they are actually $250 million."
"The report assumes $350 million will achieve 8.25% compounded for the next ten years. Presuming the investment commission headed by Elorza does not earn 8.25 % but rather 5% over ten years, it is an additional $350 million above the report estimates," said Riley. "Obviously this renders the rest of the report as hopeless.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTNew reports show that without "corrective action" the city is poised to spend $176 million more than it can afford over the next ten years — but the tax-and-spend plan unveiled by Elorza for the coming fiscal year shows investments in education and infrastructure along with an increased car tax exemption, made possible in part by a $13 million tax property tax expansion.
Elorza noted in his budget address that he would be convening working groups to identify new revenue streams, meeting with unions to tackle the city’s pension obligation, and working with the city’s non-profits to come up with a more uniform payment-in-lieu-of-taxes [PILOT] structure — which are not reflected in the coming year’s budget.
“I think the case for the [tax increases] can only be made in the context of a broader plan of how the city is tackling its larger issues,” said City Councilman Sam Zurier on Thursday. “Can taxpayers see how this increase fits into a long term plan for sustainability for the city? Does it justify the increases?”
Short Term Tax Cuts, Increases
“The budget documents have not been distributed so it is impossible to evaluate the soundness of the entire fiscal plan,” said Gary Sasse, former Director of the Rhode Island Department of Administration and Rhode Island Public Expenditure Council (RIPEC). “However, the financing plan and choices may not be homeowner or business friendly.”
"The reduction of under 1% commercial tax rate is more than offset by a 7% increase in commercial property tax values. Providence already has some of the highest commercial property taxes in the United States. This policy will make the City less competitive and conflicts with other state and local programs aimed at incentivizing development,” said Sasse. “The tax rate on owner occupied residences is recommended to be decreased by almost 2%, but values citywide are increasing by approximately 10%. Many homeowners, thus, may see their property tax bills increase. How will this impact the affordability of middle-class housing?”
“The budget will propose increasing the motor vehicle value exemption. This will mean a $60 tax break for car owners and elimination of the tax on low value vehicles,” added Sasse. “A key policy question is does it make more economic sense to hold down real estate taxes on homes and businesses or provide a modest reduction in the motor vehicle tax? If jobs are the City’s highest priority than this choice should be vigorously debated.”
Elorza’s budget proposes an increase in the car tax exemption from $1000 to $2000, and would cost the city approximately $4 million next year, according to City Council President Luis Aponte.
And apartment owners are decrying taking the biggest hit because of it.
“The mayor's budget hits apartment owners and renters which is essentially taking from one pocket and putting in another relative to changing the car tax exemption,” said Brian Bishop who is a board member of taxpayer group OSTPA. “It appears to give low income car owners a break but will actually collect more from them through rents to pay another double digit increase in apartment taxes.”
“Homeowners went up on average 8 to 9% in value and got a 1.75% reduction in rate so they will see a 7% increase,” said Bishop. “Apartment owners assessments went up between 15 and 16% in value on average and got a 1% reduction so our increase is more than 14%. They think nothing of raising our rates 15% a year continuously.”
Zurier said he noticed a distinct difference between this budget and ones in years past.
“Elorza had a lot of good things to say [Wednesday], but I disagree when he said fixes by [previous Mayor Angel Taveras] were short term,” said Zurier. "Taveras actually tackled a lot of structural reforms. Yes, [Taveras] had packages that had tax increases -- but they also included other long-term pieces. The council will be getting more details on the budget on Friday, when we'll know more.”
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