Mayor Elorza: Providence posted $9.5M surplus last fiscal year

From left to right, Providence finance director Larry Mancini, Mayor Jorge Elorza and chief operating officer Robin Muskian. (Photo by Dan McGowan/WPRI 12)
From left to right, Providence finance director Larry Mancini, Mayor Jorge Elorza and chief operating officer Robin Muskian. (Photo by Dan McGowan/WPRI 12)

PROVIDENCE, R.I. (WPRI) – Calling it Providence’s largest operating surplus in at least 20 years, Mayor Jorge Elorza announced Monday Rhode Island’s capital city ended the 2015-16 fiscal year $9.5 million in the black.

The surplus accrued between July 1, 2015 and June 30, 2016 puts the city on track to wipe out its years-long cumulative deficit during the current fiscal year – meaning Providence would finally have reserves in its general fund, a safeguard commonly known as a rainy day fund.

“This is good financial news for the city of Providence,” Elorza said in a prepared statement. “Providence has gone through some trying financial times in the past decade, but we have turned a corner.”

The single-year surplus marks the best financial news the city has received since Elorza, a Democrat, took office last year. During his first year in office, the city posted a $5-million deficit after administration officials initially claimed the budget was balanced. (That budget was enacted under former Mayor Angel Taveras, but managed by Elorza for the final six months of the fiscal year.)

The 2015-16 fiscal year budget built in $4.3 million for deficit reduction, but the surplus grew in part due to the administration’s decision to not follow through on a pledge to hire 32 more police officers and 52 firefighters. Those academies were instead pushed to the city’s current budget, although it remains unclear when the new public safety workers will be hired.

The city also benefited from an extra $3 million in savings through a decision to refinance outstanding bonds as well as a $2-million boost from the way it structured a deal to borrow $13 million to purchase all of the city’s streetlights from National Grid and replace them with LED lights.

Although the fire department ended the year spending $1.7 million more on salaries than expected, the city likely benefited in the short term from a decision to give firefighters an 8% pay increase for a 33% increase to their average work week as part of a department restructuring. City officials acknowledge they’ll likely have to provide back pay to the firefighters in the coming years, but the total sum was not included in a tentative five-year contract agreement the city has reached with the union.

Providence is still facing a $3.9-million cumulative shortfall, but the administration has set aside $6.1 million for deficit reduction in its current budget. The city had $22 million in reserves in 2008, but those funds were rapidly drawn down after massive cuts in state aid and the economic downturn.

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.

Elorza has warned the city still faces massive out-year deficits, thanks in part to growing pension and healthcare obligations to retirees. As it stands now, Providence’s unfunded pension liability is hovering around $900 million and its other post-employment benefits (OPEB) liability is projected to be $1 billion.

Robert Hull, the director of the state Dept. of Revenue called the surplus a “step in the right direction,” but warned that Providence still has more work to do. He said the Raimondo administration will continue meeting regularly with city officials.

“Though we remain concerned that the city cannot arrive at long-term sustainability without difficult work to address unsustainable pension and retiree healthcare obligations, the reduction of year-over-year deficits reflects the administration’s proactive efforts to address Providence’s fiscal challenges,” Hull said in a statement.

City Council President Luis Aponte also warned that the city budget needs to be “managed continually and consistently.”

“Although this year’s surplus is a respite, it represents more short term fixes than structural or sustainable changes to the city’s budget,” Aponte said.  “A substantial portion of the savings were realized from not hiring the police officers and firefighters we budgeted for. The fact remains, both the police and fire departments are currently understaffed, and in future years we must prioritize hiring to ensure appropriate staffing levels for the public safety of city residents and visitors. Borrowing $2 million for street lights is another instance of a short-term fix. These are deferred costs that we’ll have to repay in the years ahead.”

An annual independent audit of the city’s finances is expected to be completed by the end of year.

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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