Elorza’s Budget Avoids Facing Fiscal Realities for Providence
GoLocalProv News Team and Kate Nagle
Elorza’s Budget Avoids Facing Fiscal Realities for Providence
“The city’s fate rests more than most understand on the stock market,” said pension critic Michael Riley, who has consistently questioned the city’s asset claims -- and called for Providence to declare bankruptcy. “It appears that this ten year plan relies on the false input of pension assets between $330 million and $350 million, when they are actually $250 million."
"The report assumes $350 million will achieve 8.25% compounded for the next ten years. Presuming the investment commission headed by Elorza does not earn 8.25 % but rather 5% over ten years, it is an additional $350 million above the report estimates," said Riley. "Obviously this renders the rest of the report as hopeless.”
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTNew reports show that without "corrective action" the city is poised to spend $176 million more than it can afford over the next ten years — but the tax-and-spend plan unveiled by Elorza for the coming fiscal year shows investments in education and infrastructure along with an increased car tax exemption, made possible in part by a $13 million tax property tax expansion.
Elorza noted in his budget address that he would be convening working groups to identify new revenue streams, meeting with unions to tackle the city’s pension obligation, and working with the city’s non-profits to come up with a more uniform payment-in-lieu-of-taxes [PILOT] structure — which are not reflected in the coming year’s budget.
“I think the case for the [tax increases] can only be made in the context of a broader plan of how the city is tackling its larger issues,” said City Councilman Sam Zurier on Thursday. “Can taxpayers see how this increase fits into a long term plan for sustainability for the city? Does it justify the increases?”
Short Term Tax Cuts, Increases
“The budget documents have not been distributed so it is impossible to evaluate the soundness of the entire fiscal plan,” said Gary Sasse, former Director of the Rhode Island Department of Administration and Rhode Island Public Expenditure Council (RIPEC). “However, the financing plan and choices may not be homeowner or business friendly.”
“The budget will propose increasing the motor vehicle value exemption. This will mean a $60 tax break for car owners and elimination of the tax on low value vehicles,” added Sasse. “A key policy question is does it make more economic sense to hold down real estate taxes on homes and businesses or provide a modest reduction in the motor vehicle tax? If jobs are the City’s highest priority than this choice should be vigorously debated.”
Elorza’s budget proposes an increase in the car tax exemption from $1000 to $2000, and would cost the city approximately $4 million next year, according to City Council President Luis Aponte.
And apartment owners are decrying taking the biggest hit because of it.
“The mayor's budget hits apartment owners and renters which is essentially taking from one pocket and putting in another relative to changing the car tax exemption,” said Brian Bishop who is a board member of taxpayer group OSTPA. “It appears to give low income car owners a break but will actually collect more from them through rents to pay another double digit increase in apartment taxes.”
“Homeowners went up on average 8 to 9% in value and got a 1.75% reduction in rate so they will see a 7% increase,” said Bishop. “Apartment owners assessments went up between 15 and 16% in value on average and got a 1% reduction so our increase is more than 14%. They think nothing of raising our rates 15% a year continuously.”
Zurier said he noticed a distinct difference between this budget and ones in years past.
“Elorza had a lot of good things to say [Wednesday], but I disagree when he said fixes by [previous Mayor Angel Taveras] were short term,” said Zurier. "Taveras actually tackled a lot of structural reforms. Yes, [Taveras] had packages that had tax increases -- but they also included other long-term pieces. The council will be getting more details on the budget on Friday, when we'll know more.”
10 Biggest Issues Facing Providence in 2016
#10
Firefighters, Con't
The battle that started last year spills over into 2016. After Mayor Elorza announced he was going to reorganize the Fire Department from four platoons to three with a condensed shift schedule, the firefighters took the battle to court — and callback costs soared with injured firefighters out on leave. Elorza said the change could save the city “as much sat $5 million” in the next fiscal year (FY17) -- but the city is currently seeing red. "Through the middle of December, fire fighter "call back" expense has been $4.7 million, which represents almost all of the $5.05 million budgeted for the entire fiscal year," reported Councilman Sam Zurier on Sunday. "Should this trend continue, the cost of this line item could exceed the budget by $5 million by the end of the year."
Now it all rides on the outcome in the courts. If it ends in a negotiated settlement, the crisis could be averted. If not, firefighter union head Paul Doughty has said that Elorza can “hand over the keys to the city" for bankruptcy.
#9
Crime
From the West Side to the East Side, residents across the city in 2015 were organized and mobilized to demand action from the Elorza Administration on crime in the city. GoLocal reported at the end of 2015 that over half of the police department is eligible to retire — and the city still needs to get a new class of officers underway as budgeted. Tensions were high following a Dunkin’ Donuts worker writing #blacklivesmatter on a police officer’s cup (and the Black Major Movement continuing to call for a black major in the department).
Councilman Seth Yurdin announced this week that he is introducing a resolution to establish a special commission to review relations between the Providence Police Department and the community it serves. The Special Commission on Community-Police Relations will review current public safety practices and create opportunity for public input.
#8
Grafitti and Potholes
It’s been a mild winter so far, so perhaps at least one of the two scourges of the city will be mitigated this coming year. But addressing the conditions of the roads continues to be an issue for Providence. Last year, Mayor Elorza made a public display of commitment to addressing problematic potholes, and also pledged to respond to the rampant graffiti issue in the city that has seen the property destruction spread to private houses.
City Councilman Michael Correia recently put up a $1000 reward to find who was tagging properties in his district. Residents of the city want to feel safe, and that includes driving on roads that won’t inflict damage on their cars (or take out runners and bikers) and that their personal property won’t be destroyed. Graffiti continues to crop up, and it needs to be addressed quickly when it does.
#7
Taxes - Commercial
The city’s commercial tax rate might be frozen — for now — but there are a lot of moving pieces. The $36.75 per $1000 rate on commercial properties is among the highest in the country -- a point well-known in RI circles.
“Providence has a problem with the commercial tax rate,” said developer Colin Kane. “With new construction or significant rehab -- the costs aren't supported by current rent.” The property revaluations expected shortly will shed some light how the city will move forward addressing tax rates, but in the meantime, the TSA extensions before the Council are the 600 pound elephant in the room. “The City Council is looking for nickels in the couch cushions because of the fiscal challenges facing the city,” said Kane. “And they weren't caused by this council or mayor, but by the fact that they were kicked down the road. And now we want to malign people like Buff Chace who made the city what it is?”
#6
Taxes - Residential
The owner occupied residential tax rate could be in the crosshairs as the city looks to address revenue issues in the coming year. “Everything’s on the table,” Aponte told GoLocal. And with the revaluation, things could be in flux for the current owner-occupied rate of $19.25 per $1000 .
“Suppose you had a city where there was a wild appreciation of real estate values — that used to happen here, Providence has seen 10% before. State law says you can only increase the levy unilaterally by 4 and a quarter,” said City Counciman Sam Zurier. “So supposed you have a situation where your values go up 10% and you want to collect 4 — you have to reduce the rate by 6%. "
"If values go up enough — even 5% - then the city will get additional money without raising the rate. During a [revaluation] year - you have to get into tax bills versus rates. And when you factor in commercial and non-owner occupied values and rates, it’s tricky.
#5
Schools
Providence Schools face a tall order ahead of them. The search is on for a new superintendent following the departure of Dr. Susan Lusi. The current School Board President is stepping down at the end of the month. Providence High Schools scored among the worst in the state following the release of the first year of PARCC test scores. Current School Board member Nick Hemond is slated replace outgoing President Keith Oliveira, but question remains for the choice of the new super. Council President Aponte told GoLocal this week that stability in leadership in the school department is one of the greatest challenges facing the city moving forward. Can that be achieved in 2016?
#4
Superman
Lights have been spotted on recently in the Superman Building - i.e. Industrial National Bank Builcing — but the fact remains that the city’s iconic skyscraper remains vacant, which former Mayor Joseph Paolino called one of the biggest issues facing the city (stating that the fact that it remains empty cost him a mortgage from a top bank for an adjacent property).
Citizens Bank is eyeing a new corporate campus somewhere in Rhode Island, and while indications point to one most likely going in the suburbs, a number of business and community leaders are hoping Superman isn’t ruled out completely. Previous efforts to get state support to turn the building into apartments fell flat, and Providence residents are gun-shy about any project looking for public support. But the fact remains that the empty anchor is an eyesore for the city, and getting a tenant — or tenants — in should be a top priority in 2016.
#3
Lack of Development
Providence needs more cranes. The city has seen its first one in a while by the Jewelry District with developments at Johnson and Wales, which is a good sign — but the city needs more.
“Owners and property developers want to be treated fairly and play on a level field. Providence does not have a business friendly reputation. This is why there are few cranes in the sky in Providence and very few new businesses coming to the city or planning to expand in the city,” URI Distinguished Professor of Business Edward Mazze told GoLocal earlier. So in order to get the construction equipment in — Providence has to figure out how best to lure businesses here in the first place.
#2
Leadership
Providence needs a win — or a least a path to victory. Whether that be getting a tenant in Superman, bringing in a notable business, or articulating a concrete plan to move Providence forward, residents want to feel that the city is on the right track.
The City Council recently announced that it received the results of its cluster analysis study to identify where opportunities lie — and now we need to see results. The Mayor made multiple trips abroad in 2015. He campaigned on a promise of doubling exports from Providence in five years. What results will we see from those overseas meetings? Providence wants a concrete vision moving forward.
#1
Bankruptcy
“Absolutely not,” said City Council President Luis Aponte, as to whether the city could go into receivership in light of its current precarious financial condition.
“If the city loses, Elorza can hand over the keys, because the city will go bankrupt,” has said firefighter union head Paul Doughty regarding the firefighters legal battle over the Mayor’s platoon reduction.
Financial advisor and GoLocal MINDSETTER Michael Riley said receivership is almost a certainty.
“Essentially Providence is bankrupt and insolvent. It is only by illegally borrowing from the pension fund the last 10 to 15 years that have saved them from being sued by creditors, and the lies continue,” said Riley. “Until Providence goes into receivership nothing else can happen — no railroads, no Superman, they are sunk. I consider everything else irrelevant.”
