In letter to Providence, state officials voice concern over budget battle

PROVIDENCE, R.I. (WPRI) – A day after the Providence City Council Finance Committee approved a taxing plan without passing a corresponding spending plan, two top state officials have told Mayor Jorge Elorza and Council President Luis Aponte they are concerned about the committee’s actions.

In a letter sent Tuesday, Auditor General Dennis Hoyle and state revenue director Robert Hull said they understand the city’s need to send tax bills to residents as soon as possible, but called the committee’s decision to approve the tax levy separate from the rest of the budget “ill advised.”

“All components of the budget – both planned revenues and expenditures – must be included to demonstrate that the budget is balanced,” the two officials wrote. “We note that the tax levy was decreased without specific expenditure decreases leaving the budget temporarily unbalanced.”

The Finance Committee unanimously approved a $363.9-million tax levy Monday evening, making marginal reductions to Mayor Jorge Elorza’s proposed tax rates on owner-occupied homes and rental properties. The levy is about $1.8 million less than the mayor requested, which means the committee must now find matching cuts on the spending side of the proposed budget in order to have it balanced when the fiscal year begins July 1.

Under the approved levy, Providence’s owner-occupied property tax rate would drop to $18.77 per $1,000 of assessed value and the non-owner-occupied rate to $31.91 per $1,000 of value. The budget also lowers the city’s commercial tax rate to $36.65 per $1,000, which is actually 15 cents higher than the mayor proposed but still lower than the current year’s rate. City car taxes would remain $60 per $1,000, but the exemption goes from $1,000 to $2,000.

Both the taxing and spending plans need to be approved twice by the full City Council before they are sent the mayor’s desk for his signature. Elorza said Monday he will “only evaluate this proposal as a complete budget and will only enact that budget if it is a fair deal for taxpayers.”

Finance Committee Chairman John Igliozzi said the committee plans to meet again Thursday evening with the goal of approving a spending plan, but he declined to say how it will go about cutting $1.8 million from the mayor’s proposed budget. He said the administration knowingly left about $1.5 million in expected payments in lieu of taxes (PILOTs) out of its proposed budget and suggested that money could cover the bulk of the gap.

Igliozzi said the decision to approve the levy without a budget fully in tact came as a response to the Elorza administration’s repeated requests to quickly approve a tax-and-spending plan for the fiscal year that begins July 1 so that tax bills can be sent out as soon as possible. Administration officials urged the committee to hold off on approving the taxing plan.

Hoyle and Hull acknowledged the need to send to send tax bills as quickly as possible – the administration’s goal is for a July 24 due date –  to avoid cash-flow problems, noting that the city relies on first quarter tax revenue to make the bulk of its previous fiscal year’s required contribution to the pension system. This year, that contribution is scheduled to be $71.6 million. The longer the city waits to make the full contribution, the more interest it owes the pension system.

“Reducing the number of days after the fiscal year that the payment is made to the pension fund reduces the interest required on that late payment thereby providing budgetary relief as well,” the officials wrote.

Hoyle has been keeping close tabs on the city ever since it ended the 2014-15 fiscal year with a $5-million shortfall after the Elorza administration claimed it had balanced the budget. In February, the administration submitted a plan to Hoyle outlining the ways it would eliminate the city’s $13.4-million cumulative deficit by 2021.

Unlike an operating deficit, which only accounts for a shortfall that occurs within any one fiscal year, a cumulative deficit includes all deficits incurred in previous years. In Providence’s case, that means shortfalls during the 2011, 2012 and 2015 fiscal years.

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.

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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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