Audit: Providence’s budget surplus was less than Mayor Elorza predicted

PROVIDENCE, R.I. (WPRI) – Providence’s decision to settle a legal dispute with its firefighters ate up about half of its projected surplus for the 2016-17 fiscal year, but the city still ended the year more than $5 million in the black.

An independent audit of Providence’s finances released Wednesday shows the city finished the fiscal year that ran from July 1, 2016, to June 30, 2017, with a $5.44 million operating surplus while wiping away a cumulative deficit that was incurred over several years dating back to 2011.

So how does that square with Mayor Jorge Elorza repeatedly saying in recent months that the city ended the fiscal year with a much larger surplus of $10.2 million?

Victor Morente, the mayor’s press secretary, said the change was due to a far-reaching legal settlement the city reached with its firefighters after the fiscal year ended. The city reported $4.9 million of the deal’s cost as an expense for the already-ended fiscal year.

“The surplus was impacted by the settlement of labor disputes,” Morente wrote in an email. “It is important to note that for the firefighters agreement in particular, more than half of the $5.9M that is part of the settlement is for an [federal] lawsuit dating back to 2013 ($3.1M).”

The city announced last month it would pay firefighters $5.9 million over two years to end multiple lawsuits regarding overtime. The audit did not state why the majority of the settlement’s cost was applied to the 2016-17 fiscal year, though the bulk of the disputed overtime was accrued in 2016 and 2017.

The audit, prepared by BlumShapiro, shows Providence has completely erased the $13.4-million cumulative deficit it faced in 2015, which stemmed from annual shortfalls incurred during the 2011, 2012 and 2015 fiscal years and could only be reduced through future operating surpluses. Providence now has $2.2 million in reserves in its general fund, which is commonly known as a rainy day fund.

As for the $717.9 million budget audited by BlumShapiro, Providence collected $271.5 million in real estate taxes, $49.5 million in tangible property taxes and $29.9 million in car taxes during the fiscal year. Providence’s tax collections have grown 30.6% since 2008, according to the audit. The city’s collection rate was 95%

On the spending side, the city’s law department ended the fiscal year $9.1 million over budget, while the police department ($1 million) also posted a seven-figure shortfall, according to the audit. The largest department surpluses were incurred in the planning department ($1.5 million), fire department ($1.2 million) and City Council ($714,000).

While the audit paints a rosy picture of the Providence’s short-term finances, the city still faces $2 billion in long-term liabilities stemming largely from pensions and health care benefits owed to retirees.

Providence’s unfunded pension liability was $1 billion with a funding level of 25.8% as of June 30, 2017, according to the audit. The fund paid out $103 million in 2017, about $15 million less than it took in from employee contributions and investment income. (In 2016, Providence paid out $17.5 million more than the pension system took in.)

The audit shows the city’s unfunded liability has grown by $128 million since 2014, due in large part to the city’s decision to lower the fund’s assumed annual rate of return on investments from 8.25% to 8%. The fund posted a healthy 12.2% return in 2017 after consecutive years of returns below 4%.

When it comes to Providence’s vital statistics, the city’s population shrunk slightly to 178,710 after hitting 179,000 in 2016. Total school enrollment reached 24,000 students for the first time since 2008. The city’s unemployment rate fell to 4.3%, the lowest rate in more than a decade.

The total number of city employees – counting the school department – was 5,045, the most since 2009. Calls for fire and rescue services grew to 47,000, while the city’s 130,000 police calls were the most since 2010.

Elorza, a Democrat who is running for re-election this year, is expected to release his proposed budget for the 2018-19 fiscal year in April.

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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