Providence financial condition sketched out and it’s not pretty

THE LONG-TERM OUTLOOK for Providence is not positive if no changes are made, according to a report done for the city the the National Resource Network. / COURTESY CITY OF PROVIDENCE
THE LONG-TERM OUTLOOK for Providence is not positive if no changes are made, according to a report done for the city the the National Resource Network. / COURTESY CITY OF PROVIDENCE

PROVIDENCE – Providence Mayor Jorge O. Elorza is getting some outside help on how he might address the city’s dire financial situation, which could help guide decisions made in his upcoming fiscal 2017 budget proposal.
The National Resource Network this week released benchmark findings from its report on the city’s finances, detailing a number of troubling trends, including the widening gap between revenue and expenditures that unabated could rise to a cumulative $176 million in the next decade.
“The way the city currently budgets rewards short-term thinking and forces us to scramble for one-time fixes instead of focusing on the investments we need to succeed,” Elorza said in response to the findings.
The study largely reaffirms much of what’s already known about the city finances, although in great detail.
The report shows continued imbalances in the city’s pension system and post-employment benefits, growing health care costs and cuts in state aid. Long-term debt, personnel costs and deferred maintenance also plague the city’s balance sheet.
In basic terms, the city’s expenses each year are growing at a faster rate than its recurring revenue. In the short term, unabated, the city’s projected baseline deficit for fiscal 2019 could grow to nearly $10 million, which is equivalent to a commercial and residential tax rate increase of 4 percent, according to the report. Without taking any action, the yearly deficit could exceed more than $37 million by fiscal 2026.
Given the city’s current spending trends, however, closing the structural deficit will not likely happen without some deep systematic changes.
“Even if the city closes this gap, it will not have the resources needed or critical investments in education and infrastructure – let alone reasonable increases in salary over time,” according to the report.
The report compares Providence to 10 New England cities in Massachusetts, New Hampshire, Connecticut and Rhode Island, including Cranston, Pawtucket and Warwick.
The city’s actuarial funded ratio for its employment retirement system is 27.4 percent compared with state and local plan average of 73.7 percent.
It ranks second worst among comparable cities. Springfield, Mass., ranks worst with its funded ration of 27 percent. Providence’s unfunded liability for pensions and other post-employment benefits is also comparatively high in a city that has among the highest public safety staffing levels per capita, according to the report.
For every 1,000 Providence residents, there are 5.9 full-time public-safety employees compared with 3.9 non-public safety employees, according to the report.
The budgetary issues are reflected in the city’s credit rating, as Moody’s Investors Service Inc. recently assigned Providence a Baa1 rating, which is the lowest among comparable cities, according to the report.

Most troubling for business, however, might be the city’s commercial tax, as Providence ranks fourth highest among 53 cities reviewed for the study behind Detroit, New York City and Chicago, respectively.
The report details overtime spending within the Providence Fire Department, saying $7.6 million was spent in fiscal 2015. About 96 percent of the overtime spending was driven by callback spending, representing about 20 percent of total personnel costs and nearly three times more than police overtime.
Elorza and the city’s fire department have clashed over staffing issues since he took office.
Finally, the report details the city’s soaring deferred maintenance costs, which for roads, schools, sewers and sidewalks alone totals $868.1 million. And that doesn’t address any of the future long-term capital funding needs, according to the report.
“Beyond addressing deferred maintenance, Providence needs to achieve a cycle of proactive capital investment based on asset useful lives,” according to the report. “Based on [theoretical] calculations, capital funding needs for life-cycle projects might be $42 million per year just for roads and buildings – not including sewers, sidewalks, or anything else.”
The benchmark results are the first installment of the NRN report. There’s no mention about insolvency, receivership or bankruptcy, although, those options, along with other short- and long-term solutions, are likely to surface in the organization’s next installment of the report, expected to be released next week. Elorza’s fiscal 2017 budget proposal is also expected to be released sometime in the near future, according to a spokesman.
“If no corrective action is taken, the city will inevitably face cash flow challenges, an inability to invest in priorities and the need to further reduce services and increase taxes,” according to the report. “In fact, the longer it takes for the city to acknowledge and confront its fiscal challenges, the harder and more painful it will become to implement viable solutions.”

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