Surplus puts city reserves at $11.8M
While the city and schools ended the 2013 fiscal year with a collective surplus of $7.7 million, it’s too early in the budgeting process to know how that might affect expenditures and taxes going forward.
Mayor Scott Avedisian disclosed the audited totals yesterday, adding that while the city’s portion of the overall surplus – $3.6 million – will flow into the unassigned fund balance, the school surplus of $4.1 million will go back to that department.
The addition of the $3.6 million puts the city reserves at $11.8 million, a high water mark in Avedisian’s 14 years as mayor. Avedisian said he would like to see the reserve at about 10 percent of the city budget exclusive of school expenditures. It is now close to that at $11.8 million. The reserve, often referred to as the “surplus,” stood at $4.5 million when he assumed office.
Avedisian attributed last year’s surplus to a combination of lower-than-projected costs and higher-than-estimated revenues. The Department of Public Works realized savings of $763,984. Revenues exceeded budget projections on several levels, including $903,563 in strong tax collections, an added $263,441 in state aid; $410,213 in recording fees/tax realty; $677,473 in interest on taxes, plus a combination of revenues from the airport, hotel/meal tax, grant income and enterprise fund backcharges.
“The economy is starting to look a little better,” Avedisian said.
Also enabling growth of the surplus over Avedisian’s tenure is a reduction in municipal debt and the administration’s reluctance to create new debt.
“We don’t take on new debt until you pay it [old debt] off,” he said.
In the last fiscal year, the city retired $9.6 million in debt, reported City Controller Ken Alfano. He said the city is currently carrying about $160.5 million in debt. Broken down, the lion’s share – $108 million – is for sewers. The city share, which also includes some school debt, is about $51 million. School debt makes up the biggest portion of the city total.
With construction of the Potowomut Fire Station projected to cost $1.9 million and the city share of improvements to the City Hall bell tower of about $500,000, Avedisian said the city would take on new debt, but nothing like the $9.6 million it paid off. In addition, he said with continued low interest rates, he is considering the refinancing of some of the city’s debt that would further lower costs.
The mayor also pointed out that both the sewer authority and water division that are enterprise funds (their operating revenues cover costs independently of the city’s general fund) are in positive net positions. The balance sheet for the sewer authority puts assets over liabilities at $73.2 million, an increase of $6.9 million from the prior year. Water division net assets are $10.9 million.
Having a significant impact on the city’s operating costs were grants financing the salaries and benefit costs of an added 17 firefighters and Fire Department equipment. The added personnel have reduced overtime costs, but do not lock in costs when the three-year grant is completed.
“There is no requirement to keep the department at that [manpower] level,” the mayor said.
Could all of this positive news forecast a year when the administration will recommend holding the tax line or even reducing taxes?
Referring to budget preparations, Avedisian said, “We’re in that process right now. We’re going over projections.”
The School Department is also digging into the numbers.
Business affairs director Anthony Ferrucci was grateful for the surplus, given projected pension cost increases and the uncertainty of the impact of the state pension settlement that would reinstate some costs that were eliminated by the pension reform package in 2011.
Ferrucci said the state has advised school departments that, even before consideration of the latest agreement, they should plan on a 10 percent increase in pension payments. This would boost Warwick payments by $900,000 to nearly $10 million annually. Taking into consideration additions attributable to a settlement, Ferrucci expects Warwick schools could be looking at another $600,000 to $700,000 in pension costs.
As for the school surplus of $4.1 million, Ferrucci pointed out that, last July, the committee voted to restore $2.3 million in cuts. Additional to that amount, $709,000 was “committed” for school building security projects that were ongoing and hadn’t been completed in the prior year. He said $119,000 is a state set-aside and in January, the committee voted to spend $775,000 for heating and air conditioning and energy saving renovations at the Lippitt School. The air conditioning is needed for the summer program for disadvantaged children at Drum Rock. Drum Rock will need to be closed for fire code improvements. Additionally, the committee allocated $120,000 for work at Holliman School.
What’s left of the school surplus – about $300,000 – Ferrucci said “would be eaten up” by increased pension costs.
Although finances are of concern, Ferrucci said the news of surpluses bodes well for the city, especially given conditions faced by other Rhode Island municipalities.
“That should turn into some really stable taxes for the community,” he said.