Auditor general raises red flag about Providence’s finances

Mayor Jorge Elorza signs his his first budget into law. (Photo by Dan McGowan/WPRI)

PROVIDENCE, R.I. (WPRI) – Rhode Island’s auditor general has asked the Elorza administration to “adopt and comply with a realistic plan” to eliminate Providence’s cumulative deficit, a shortfall that grew when officials disclosed the city ended the last fiscal year $5 million in the red.

In a letter obtained by WPRI.com, Auditor General Dennis Hoyle told the city it needs to submit an updated deficit reduction plan that shows how it will chip away at a multiyear shortfall that has grown to $13.6 million.

“The city’s current estimated general fund operating deficit for fiscal 2015 of $5 million not only interrupts the planned reduction of the cumulative deficit but also adds a new layer requiring resolution,” Hoyle wrote in the letter dated Oct. 20.

Hoyle also said he is concerned the city “will be challenged just to balance its fiscal 2016 budget,” citing several one-time sources of revenue Providence benefited from during the fiscal year that ended June 30.

Evan England, a spokesman for the mayor, said the administration inherited a budget “that was crafted by the prior administration and passed by the council.”

“The [fiscal year 2015] budget relied on a number of one-time fixes that were unrealistic and did not come to bear,” England told WPRI.com. “The mayor is committed to addressing the cumulative deficit and has budgeted funds to pay it down this year. The mayor will continue to make responsible budget decisions to address long-term structural financial issues and ensure Providence is on sound financial footing.”

In a statement, former Mayor Angel Taveras, the architect of the 2014-15 fiscal year budget, said a report the city sent to the state in July showed Providence would end the year with a balanced budget. Taveras said he left office in January projecting a $300,000 surplus.

“Providence should not have finished fiscal year 2015 with an operating deficit and the July 28, 2015 report suggested as much,” Taveras told WPRI.com. “In fact, the Elorza administration was so confident in the city’s finances that in June it adopted a budget for 2016 that included a tax cut for non-owner occupied homes.”

Taveras continued: “Running a city like Providence is difficult. The choices an administration makes on a daily basis certainly have a significant and immediate impact on city finances and our future. The Elorza administration should focus on the choices it has made since taking office to find the reasons for the $5 million deficit that has appeared in the last few months. I am proud of the work that we did to leave Providence better off than it was when I became mayor.”

The Elorza administration stunned members of the City Council last month when it disclosed that Providence finished the 12-month fiscal year that ended June 30, 2015, with a $5-million deficit, in part because it previously said it expected the city to finish with a shortfall of just $27,000.

The city won’t officially release its annual audit until the end of the year, but Finance Director Larry Mancini has said he expects the operating deficit to hover around $5 million.

But Hoyle’s concern revolves primarily around the cumulative deficit, a figure that combines the amount Providence owes from deficits incurred in 2011, 2012 and now 2015. That shortfall is pegged at $13.6 million.

State law requires municipalities to pay cumulative deficits down over the course of five years. Paying down the deficit doesn’t mean that money is actually transferred to the state. The city is simply expected to run an operating surplus each year to offset the earlier red ink.

Providence posted surpluses of $1.6 million and $1.2 million during the 2012-13 and 2013-14 fiscal years, respectively, before taking a step backward this year.

Hoyle isn’t the only one keeping close tabs on the city’s finances.

During a taping of WPRI 12’s Newsmakers Friday, Gov. Gina Raimondo said she is “concerned” about Providence, but indicated she isn’t considering sending state officials into City Hall to help with the budget. She said she speaks with Elorza regularly and is working with the city on several economic development opportunities.

“Rhode Island needs a strong Providence,” Raimondo said. “As Providence goes, Rhode Island goes.”

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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