Mayor Joseph Solomon and City Council President Steve Merolla once again find themselves on opposite sides regarding the city’s financial picture.
Solomon sees the recently released FY18 audit as a vindication of prudent financial practices and a sign that the city is headed in a more positive direction. Merolla sees the audit as confirmation that, if things don’t change in regards to pension and healthcare costs, the city is headed for financial disaster.
“You're going to have input from all sides,” Solomon said on Wednesday morning. “As far as I'm concerned, my eye is on the ball, I'm going forward and dealing with what I was dealt. [The city] is operating successfully and I feel that it didn't happen by accident.”
“The facts are still the same,” countered Merolla later on Wednesday afternoon. “We are not paying our bills. It's on a credit card and it keeps getting worse and worse every year.”
The “bills” Merolla is specifically referring to is the ARC (annual required contribution) payments to keep the city on track with funding its other post-employment benefits (OPEB), a line that encompasses healthcare costs for retired city employees. As of the FY18 audit, the city faces a net long-term OPEB debt of $405.8 million.
The city paid $13.4 million to continue funding its four pension accounts in 2018 – which amounts to an overall long-term liability of over $435.5 million. The ARC for the OPEB liability recently jumped from $21 million to $34 million per year due to a federal change in how municipalities must report revenue and expenses within budgets. Unlike the pension accounts, the city is currently allocating not a single penny towards the OPEB liability.
“If we don't start having dialogue about it…it's going to blow up,” Merolla said.
The city’s unrestricted fund balance – also know as the free cash or surplus account – improved by $104,000 in FY18, bringing the city’s surplus to about $22.6 million. This was a surprise to many, considering that Solomon predicted a much different picture in February during a State of the City address in which he predicted the surplus could be more in the neighborhood of $13-15 million.
This happened due to revenue coming in $2.88 million higher than expected and expenses coming in $1.16 million lower than expected, which made drawing $4.3 million from the surplus – as was originally budgeted – not necessary.
Solomon attributed this not merely to good fortune but due to proactive steps taken by his administration, such as not filling many of the 88 vacant city positions that occurred during FY18.
“Things that you see didn't happen by accident. It could have been much worse,” he said. “I'm happy that things fell into place the way they fell into place. Because again, we're heading in a positive direction. It's not because we're in neutral gliding. We're taking active steps on behalf of the taxpayers in the community to achieve what we've achieved. But it didn't happen by accident and surely it wasn't by prediction.”
But Merolla – who mentioned that he was scheduling a meeting with the city council’s auditing team, Marcum LLP, to go over the results from the FY18 audit – sees it differently.
“The bottom line is if you don't have enough money [in the fund balance] to pay one year of our ARC, that's all the need to know about where we're at financially,” he said.
Solomon, too, agrees that the city’s unrestricted fund balance is not where it needs to be.
“We're still under-funded in the rainy-day fund. We're still under-funded,” he said. “We're already authorized to go out for $40 million in school bonds. If your bond rating was to deteriorate and you kept going to the well, so to speak, and drawing down, it would appear you're not in a healthy financial status.”
It is also important to note that the FY18 audit comprises information as of June 30, 2018, from a budget that was assembled in May and June of 2017. More updated information will come from the FY19 audit, which is due to the Auditor General by December 31, 2019.
The city still has yet to release a report conducted by the Rhode Island Public Expenditure Council (RIPEC), which Solomon initiated shortly after taking office in May of 2018. Merolla, noting that the city’s legislative body is not the one who is tasked with creating five-year fiscal outlooks, has nonetheless docketed an item on the Aug. 19 meeting of the City Council to discuss conducting an updated five-year forecast.