As Elorza prepares first budget, city faces fiscal uncertainty

PROVIDENCE, R.I. (WPRI) – When Providence Mayor Jorge Elorza unveils his budget Wednesday night, he’ll open up about an issue he’s been reluctant to discuss in his first four months on the job: the true state of the city’s finances.

Elorza and his top aides have been tight-lipped about how they intend to address a projected shortfall of between $10.5 million and $23.1 million, except to repeatedly say they have no plans to balance the budget with a tax increase.

But with multiple union contracts set to expire, a tax break for rental property owners in the works and the president of the school board calling for the city to provide more funding to the school department, City Council leaders say they hope Elorza will present a responsible plan that won’t force them to revisit the budget midway through the fiscal year.

“With what we know, it’s a real tight budget,” Council President Luis Aponte told WPRI.com. Aponte acknowledged some of his colleagues have told him they’re skeptical the city can avoid a tax increase.

Because Providence’s fiscal year runs from July 1 to June 30, Elorza is currently working with a budget that was approved by the City Council and signed into law by his predecessor, Angel Taveras. Elorza’s budget proposal Wednesday night will give the council about two months to vet his plan, propose changes and pass it twice before it becomes law.

Aponte said several “one-time” revenue sources in the current budget are among the many challenges for the new mayor.

The current budget assumed the city would receive $2.6 million from the sale of Urban League headquarters on Prairie Avenue, $1.4 million from the sale of the Flynn School, $2 million from a lease extension at Triggs Golf Course, and $500,000 from the naming rights to the downtown skating center, all non-recurring revenues. (Elorza could benefit from the fact that the sales of the Urban League property and the Flynn School may not be complete by June 30, meaning those revenues could be carried over for his budget.)

Unions in contract negotiations

Then there are the collective bargaining agreements with the unions.

Providence teachers have been working without a new contract for the entire school year, but the union and the city are currently involved in mediation talks to settle their dispute. A proposal from the Taveras administration that was rejected by the teachers included a 1.5% raise for the 2015-16 fiscal year, but a budget proposal approved this week by the school board did not factor in a wage increase for next year.

Local 1033 of the Laborers’ International Union of North America, which represents Providence’s municipal employees, has a contract that expires on June 30. The deal for the city’s school clerical workers ends Aug. 31. The police union has a wage reopener clause in its agreement that allows for it to negotiate a raise of up to 6% for the next fiscal year.

In other words, more than half of the city’s workforce is eligible for a raise in the next budget.

“I’d hate to pass a budget and three months later, receive contracts that have items we have to pay for,” City Council Finance Committee John Igliozzi said during a committee meeting Thursday. “I’m hoping there’s some money in the budget to deal with it.”

Landlord taxes

As it stands now, there will also need to be money in Elorza’s plan to deal with an ordinance the council approved last year that allows rental property owners to pay 160% of the city’s $19.25 per $1,000 of assessed value rate for owner-occupied homes beginning July 1, down from the 175% rate they currently pay. If there is no tax increase, landlords would pay $30.80 per $1,000 of assessed value.

That ordinance was vetoed by Taveras, who said it would force the next mayor to raise taxes elsewhere. But the council overrode the mayor’s veto. On the campaign trail, Elorza said he opposed the law because it didn’t “clearly identify a method of payment” for the projected $5.6-million cost, but he argued that the current non-owner occupied tax rate gives a “strong disincentive to invest in our housing stock.”

Now that it’s time to pay for the ordinance, the head of the advocacy group that represents rental property owners has acknowledged that he has been approached about the possibility of phasing in the tax rate change rather than allowing it to happen all at once.

But Keith Fernandes, president of the Providence Apartment Association, told WPRI.com he hasn’t made a decision on whether he would support changes to the current ordinance. He said his group has identified several ways to pay for the change, including reforming a policy that awards generous tax breaks to developers.

“As we look over the city’s finances today, there are various savings that can be had if there is the political will to do so,” Fernandes told WPRI.com. “We look forward to having that conversation with the stakeholders in the city and the public at large.”

School funding

Although some of Elorza’s loftiest campaign proposals focused on education, the mayor has signaled he doesn’t intend to increase the city’s $124.9-million contribution to the school department (that doesn’t include state or federal funds) for a sixth consecutive year. The mayoral-appointed school board approved a budget proposal – the actual budget can only be approved by the council and mayor – last week, but board President Keith Oliveira voted against the plan.

The budget proposal includes funding for additional teachers at the West Broadway Middle School and Providence’s two new high schools, as well as expanded career and technical education programs at all high schools and more Advanced Placement courses across the city. But it doesn’t include funding for certain supplies, technology upgrades or bus passes for all high school students who live at least two miles from school. (The city plans to continue to provide bus passes for all students who live at least 2.5 miles from school.)

“I don’t think this budget meets the needs of the school department,” Oliveira said this week.

And while Elorza is putting the finishing touches on his first budget, he’s still keeping a close eye on the current fiscal year.

Earlier this year, finance director Larry Mancini informed the state that Providence could end the year with a small deficit, but officials now say they believe the city won’t end the year in the red. Last week week, internal auditor Matt Clarkin raised questions about the city’s cash flow for the rest of the fiscal year, but Mancini told the Finance Committee last Thursday he expects the city to have enough money to pay its bills on time. He said about $2.7 million in checks – for vendors and other recipients – that the city was holding were released this week.

Elorza’s office is also reviewing two separate reports it expects to release publicly in the coming weeks. One is a financial analysis conducted by Public Finance Management; the other is a school department audit conducted by Boston-based Mass Insight Education.

As for the mayor’s budget address, Igliozzi and Aponte said they want to be presented with a plan that sets Providence on a firm path for the future.

“The city of Providence still has serious systemic financial problems that have not been solved completely and will continue to magnify in the coming years if we don’t start addressing them now,” Igliozzi said.

This report has been updated.

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Dan McGowan ( dmcgowan@wpri.com ) covers politics, education and the city of Providence for WPRI.com. Follow him on Facebook and Twitter: @danmcgowan

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