Last spring, Mayor Joseph Solomon was singing the blues. He estimated that the city’s unreserved fund balance – the rainy day fund – had melted to between $11-$14 million and that the city was facing a structural deficit going into the current fiscal year of $7.4 million.
What a difference five months can make. The 2018 audit put the rainy day fund at $22.6 million, a tad higher that what Mayor Scott Avedisian said it would be when he resigned from office. Indeed, the budget process wasn’t easy and for a time it looked like schools would be forced to eliminate a number of programs, including sports. The school committee was preparing to sue the city for additional funds. But that worked out with the mayor and the council using funds earmarked for road repaving to fund about half of the school cuts and schools maintaining about half of its initial cuts.
Then making it all even brighter, last week S&P Global Ratings affirmed the city’s “AA” rating with a stable outlook on the issuance of a $6.185 million bond issue scheduled to sell through the Rhode Island Health and Educational Building Corporation next week. The money will be used for renovations and improvements to schools and school facilities.
Portions of the seven-page report are glowing, citing the city’s strong economic position and 15 percent growth in value to $10.7 billion (a result of the revaluation), bond debt obligations and measures taken by the administration to improve city-school relations. On the cautionary side, the report notes the cost of funding pensions and the liability of OPEB (other post employment benefits), concluding, “We expect Warwick will likely continue to manage these costs while maintaining stable finances and reserves.”
Mayor Solomon enthusiastically welcomed the news. In a statement issued by his office he said, “The city is pleased with the results of the recent rating review. The positive comments in the rating report support our efforts to stabilize and improve city finances and the cautionary comments provide a blueprint for our continued efforts to improve the city’s credit profile.”
That’s not the way former councilman and chairman of the school committee Robert Cushman or City Council President Steve Merolla see it. For them, the report overlooks the approaching storm clouds.
A read of the report also reveals a rosy picture, which in some cases is supported by less than accurate information.
“Comic book fiction,” Cushman said Tuesday after reading the document. He questioned whether those who wrote the report “sitting in their cubicles” verified information or even visited the city. Had they driven Sandy Lane, drunk water from a system that has outlived half its expected life, known that portions of the sewer system collapsed and looked at OPEB costs, Cushman believes they might have reached a different conclusion.
“Maybe this is great for bond investors,” Cushman said.
One of the authors of the report, Anthony Polanco, who is based in Boston, said Wednesday the report is based on audits and information available from different sources as well as provided by the administration.
“We do depend on information provided by the city,” he said.
Cushman and Merolla point to the lack of consideration given to the city’s infrastructure and a long-term plan to address sewer, water, road and school improvements. Cushman questioned how the report could state the city submits five-year forecasts to the state when, in fact, it is only discussing now a five-year plan.
Polanco said the city has a capital improvement program, which he likened to a long-range plan, albeit one that is limited to future equipment purchases and projects. He noted that water and sewers are enterprise funds and, as such, funding for upgrades and repairs would come from user rates.
“He’s touting this like winning a gold medal at the Olympics,” Cushman said of Solomon’s reaction to the bond rating.
He found it disingenuous that S&P cite the administration’s actions to save money with a 5 percent budget cut in the closing months of the past fiscal year for a total of $5.8 million.
“He re-appropriated that $5.8 million. He spent it. He didn’t save money. He didn’t save anything. This is such a deceptive statement,” Cushman said.
The report references the $5.8 million as an example of the administration’s ability “to manage expenses and mitigate budgetary challenges.”
“The report also did not take into account a structural deficit of $3.8 million in fiscal year 2019 or a structural deficit of $3.5 in fiscal year 2020,” Merolla says in an email.
Merolla lists other omissions from the report, including unfunded healthcare liabilities of $392 million and unfunded pension liabilities of $448 million that he took from 2018 financial statements for the city.
Yet the report reads, “In our view, Warwick debt-and-contingency-liability profile is very strong. Total government-fund debt service [money owed on bond issues] is 2.5 percent of total government-fund expenditures, and net direct debt is 6.9 percent of total government-fund revenue.”
The report cautions that without a plan in place, the unfunded liability of pensions and OPEB “is a credit weakness.”
Cushman is mystified by the report’s observation that the administration “has improved communication and oversight with the school department to identify and mitigate issues and budgetary challenges ahead of time.”
It goes on to list the incorporation of city representatives on the school committee, which has not happened; maintaining and improving access to school financial systems and meeting regularly with school officials on budget status and projections.
Cushman notes, as a councilman, Solomon advocated the need to finance infrastructure improvements and address OPEB costs.
“I want the Joe Solomon who was in the City Council in 2012,” he said, questioning how in seven years “everything is great.”