Group offers strategy to balance
city’ s budget without property tax hike,
suggests creation of ‘new taxes’
Public Financial Management, a financial advisory firm based in Philadelphia, outlined Thursday a wide range of options Providence can take to balance the city’s budget this year and avoid a property tax increase for the next five years.
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The company made the recommendations to city officials and business leaders at the Rhode Island Foundation, where it released the study.
“The purpose of this yearlong undertaking has been to restore the fiscal integrity of this city and the confidence of its people,” Providence Mayor David N. Cicilline said in a release. “If all the options are adopted, (it) prevents us from having any property tax increases for the next five years.”
The mayor cautioned, though, that it represents “a range of truly, difficult choices.”
Projections of the city’s revenues and expenditures from FY 2003-2004 until FY 2007-2008 form the basis of the report. Expenditures are expected to exceed revenues, and the growth in recurring expenditures will exceed the growth in recurring revenues.
Ahead, the report shows, are escalating health care, pension and debt service costs, with health care costs projected to climb at an average annual rate of 17 percent, while non-tax local revenues grow at 2.3 percent, real property tax revenues remain flat and tangible and inventory taxes decline. The report presents more than 145 initiatives to close the fiscal gap in each of the next five years, without a tax increase, ranging from portfolio changes to modernizing fees.
The report is the second part of a two-part study by PFM, which included a previously released Short Term Action Plan (released last April) and the completion of the fiscal year 2003-2004 city budget.
PFM credited Cicilline for taking steps in the first eight months of office to control costs and expand revenues. The company said freezing management wages and imposing a first-ever health care contribution – saving $600,000 annually; downsizing the management work force, cutting 24 positions and saving $1.2 million per year; working with the city council to “implement revenue enhancement strategies” such as parking and traffic violation fees; getting state approval for an increase in the hotel tax and a 1 percent meals and beverages tax; and other measures “incorporates some of the administration’s strategies for achieving structural fiscal stability.”
What PFM proposes:
– The city reduce its dependence on revenue sources not under its control (i.e., state funding,) maintain existing revenue sources, and not rely on tax increases as a revenue-generating initiative.
– Shift its reliance to more revenue sources within the city’s control, such as property sales, new taxes and increases to certain existing taxes, new user fees or fee increases for such things as repeat Fire and Communications Department inspections, new or increased fines, and revenues resulting from market demand for city resources.
– Improve the way it collects its receivables – fees, fines and taxes already assessed. Conduct an inventory of outstanding fees, fines and taxes, improve collections, and automate procedures – outsourcing where appropriate.
– Because two-thirds of the city’s expenditures are employee wages and benefits, “long-term fiscal stability is largely dependent upon controlling the costs of the work force.”
– Per employee costs must be reduced. With 89 percent of the city’s work force in unions, the city must make “long-term structural changes to its work force spending,” including menu options for consideration in negotiations, such as medical care costs, and reducing the numbers of holidays and personal days – bringing them more in line with the United States, Rhode Island and other local governments and private business.
The PFM study noted, “The experience of other governments experiencing financial distress strongly indicates that dramatic reforms are essential to long-term, sustainable recovery,” such as one-year wage and step freezes, unpaid furlough days, increased employee pension contributions, health care redesign, and a change in the workweek from 35 to 40 hours.
– Develop a healthier labor-management relationship that is more focused on performance.
– Conduct a critical review of the organizational structure of the city, considering what services the city provides and should provide; create, eliminate or combine departments, agencies or individual functions; reduce the number of boards and commissions and costs associated with them; shed non-core governmental services, and consolidate functions and use economies of scale.
– Make changes in investment strategies as necessary, including reducing administrative costs of cash management, reducing city’s exposure to credit risk, implementing longer-duration portfolio strategies and actively managing the portfolio.
– Some initiatives will require the help of the state of Rhode Island, local colleges and universities and other external entities.
“The city of Providence faces real financial challenges. … There is not time to waste, and successful implementation will be an ongoing challenge. Providence’s future depends on the broad partnership and shared sacrifice of city managers, workers and residents; some support from the state, laser-like focus on prudent financial planning and determination to make tough decisions now to avoid tougher times later.”
The mayor said the city must carefully review these proposals and consider the options before it.
“In order to avoid another property tax hike, we must consider the alternatives recommended by PFM, even though many of the recommendations will be difficult to implement,” he said. “Our next step is to begin telling the public exactly where we are and what we can do together, to prevent another increase in our property taxes.”
