PROVIDENCE, R.I. (WPRI) – Officials in the Elorza administration have told the Rhode Island auditor general’s office Providence expects to show a $10-million operating surplus for the fiscal year that ended June 30, an amount that would eliminate the city’s cumulative deficit well ahead of schedule.
The results won’t be official until an independent auditor completes its review of the city’s books later this year, but the Elorza administration’s projection would mark the second straight year Providence posted a surplus of at least $10 million. In the mayor’s first year in office, the city ended with a $5-million shortfall.
In a letter to Auditor General Dennis Hoyle outlining the city’s deficit reduction plan, city finance director Lawrence Mancini explained that the projected surplus for the fiscal year that began July 1, 2016, and ended last week would erase the city’s $3.1-million cumulative deficit. (An operating surplus or deficit reflects the difference of the amount taken in and the amount spent within a single fiscal year, whereas cumulative totals reflect the results of all 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. If Providence’s estimates are accurate, the city would be wiping away its cumulative deficit three years sooner than it initially expected.
The remaining funds from the surplus would be used to give the city reserves in its general fund, a safeguard commonly known as a rainy day fund. 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. Aside from giving the city flexibility in the event of an unexpected financial crunch, healthy rainy day funds are viewed favorably by credit rating agencies.
In the letter, Mancini stated the city’s actions to eliminate the cumulative deficit included exercising “prudent fiscal controls, including reductions in non-contractual spending” as well as a policy that requires non-emergency or non-essential purchases to need two additional levels of internal review and savings in new union contracts.
On the revenue side, Mancini noted that Providence expects to generate between $8 million and $9 million in building inspection fees over the next three years stemming from new construction projects. He said the city is projecting a tax base expansion of between $800 million and $1 billion by 2020 based on the construction projects.
In a response to the city dated June 30, Hoyle said, “I commend the city for eliminating the cumulative deficit more quickly than originally anticipated.”
But Hoyle also warned that the city’s long-term liabilities for pension and other post-employment benefits “remain a significant challenge.” The city’s unfunded pension liability was $985 million as June 30, 2016.