East Providence continues consistent climb towards firm financial footing

City is in the black, but new expenditures loom

By Mike Rego
Posted 4/23/18

EAST PROVIDENCE — East Providence is on as firm a financial footing as it’s been this decade, holding in its coffers an amount of money likely the envy of most municipalities around the …

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East Providence continues consistent climb towards firm financial footing

City is in the black, but new expenditures loom

Posted

EAST PROVIDENCE — East Providence is on as firm a financial footing as it’s been this decade, holding in its coffers an amount of money likely the envy of most municipalities around the state.

At its meeting April 17, the City Council discussed the impact of budgetary amendments proposed by the Charter Review Commission seated last year and approved by voters during a special election in November of 2017.

“I think it’s a good idea to review the charter amendments that pertain to budgetary matters before we start work on the next budget. I think it will allow us to plan and work on ideas,” said At-Large Councilman and Mayor Jim Briden, who included the subject on the April 17 docket.

According to state-appointed Municipal Finance Advisor Paul Luba and City Finance Director Malcolm, currently doubling as acting city manager, East Providence, combining the assets on the municipal and schools sides, has upwards of $35 million in reserve. The status of the city’s books is a far cry from the times just before East Providence was put into state oversight late in 2011. Then, the city was officially in the red to the tune of some $50,000, though facing debts of several million dollars as well, Messrs. Moore and Luba said.

The key change suggested by the Charter Review Commission and accepted by residents last year was tweaking the Budget Reserve Fund enacted during the tenure of the state-appointed Budget Commission. The Budget Commission, as did the review body, proposed placing the Reserve or “Rainy Day” Fund amendment on the November 2012 ballot. And voters also approved the measure that year.

Initially, payments into the fund needed to be at least one percent of annual tax revenues maxing out at $10 million or 10 percent of fiscal year receipts. That total was heavily restricted in use, only able to be accessed under extreme cases of financial duress such as a sudden drop in the tax base or state aid.

The city swiftly met the $10 million Reserve Fund requirement, eventually adding over $4 million more. That balance has been transferred into a capital reserve account, which was called for in the original text of the act.

The Review Commission suggested upping the reserve percentage to 12 percent, leaving seven percent restricted and five unrestricted, allowing elected officials and administrators to have greater access to the surplus cash. Because of the change, which takes effect in the upcoming Fiscal Year 2018-19 budget season, the restricted balance is currently $8 million with $6.8 in the unrestricted column.

“One of the problems with the old charter was that (the reserve fund) was very difficult to use. There was no way to really get that money out,” Mr. Luba said. “The new charter recognized that. It upped the reserve requirement from 10 to 12 percent, but split it seven percent in the reserve and five for unrestricted.”

In addition and based on another proposal from the Budget Commission likewise previously approved by voters, the city has upwards of $14 million currently set aside for use to possibly synchronize East Providence’s fiscal year with that of the state. However, the council has opted not to pursue synchronization at the moment, leaving that money free to be used for other aspects. The sitting council chose to use the $2 million-plus earmarked for the sync fund this budget season on road repair. The planned use of the balance is for a down payment on the city’s contribution for the contemplated construction of a new East Providence High School.

There were some caveats to the good news, however, and they involved the EPHS plan and an annual necessity of the city side finance department.

East Providence will assuredly incur an increase to its debts if and when voters potentially approve a bond referenda item to be placed on the November 2018 ballot funding the new high school. The city’s share of the proposed $190 million construction costs, if all elements of the plan take shape, would be just under $60 million.

Mr. Luba previously indicated to the council tax increases were to be expected over the next few fiscal years regardless of whether the new school is built and will definitely be necessary if it constructed.

Also, without synchronization of its fiscal year, East Providence will continue the practice of borrowing against future revenue through the use of Tax Anticipatory Notes (TANs). TANs are needed for East Providence to stay liquid, pay its bills at certain points on the calendar. The city currently borrows about $40 million a year in TANs, repaying the money back as revenues come in, but still is subjected to interest charges depending on when the money is paid back.

With those things considered, Mr. Luba said FY18-19 is likely the city’s last chance to spend significantly on other infrastructure such as roads because of the added depth taken on with the construction of new high school. He also cautioned about potential drops in state aid for schools and a downturn in the economy as reasons to be hesitant about the overextending itself.

“Few communities in Rhode Island have that much, so in good shape there,” Mr. Luba added of the reserve balance. “I think next year you should be in good shape from a reserve standpoint.”

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A lifelong Portsmouth resident, Jim graduated from Portsmouth High School in 1982 and earned a journalism degree from the University of Rhode Island in 1986. He's worked two different stints at East Bay Newspapers, for a total of 18 years with the company so far. When not running all over town bringing you the news from Portsmouth, Jim listens to lots and lots and lots of music, watches obscure silent films from the '20s and usually has three books going at once. He also loves to cook crazy New Orleans dishes for his wife of 25 years, Michelle, and their two sons, Jake and Max.