City Finance Director Peder Schaefer had good news for the mayor and the city council on Friday — the city is projected to close out the Fiscal Year 2024 with a $2.8 million surplus that will boost the general fund balance to nearly $36 million.

A number of factors played into leaving the city’s checkbook in the black with some to spare for the year ending June 30, 2024. As Schaefer emphasized this is a preliminary look at the year end numbers as required at this time by the city. The definitive numbers will be reported in the FY 24 audit that won’t be completed until next year.

Schaefer’s numbers assume the city won’t dip into the general fund balance to the tune of $1.4 million as provided for when the City Council and mayor approved the FY 24 budget in May of 2023.

The news was enthusiastically greeted by Mayor Frank Picozzi. In large part he credited tax collections that were $2.3 million more than projected in May of this year.

In his letter to the mayor and the city council, Schaefer said approximately $1 million of the total was due to supplemental tax bills as authorized by state law for the assessment of back taxes.

He explained in an interview that the city “did not capture” the 8% of revenues tax of moderate and low income housing. In addition, he reported that the remainder is “attributable to higher collection rates relative to the norm, aggressive collection of past due taxes especially motor vehicles, and a one-time collection of deferred taxes of over $100 K.”

Picozzi applauded tax collectors for their diligence in pursuing unpaid taxes.

Balance bodes well for bond sales

Taking a longer view, the mayor noted that an increase in the general fund balance, which he said exceeds generally recommended municipal reserves as a percentage of the budget by financial institutions, bodes well for the city’s bond rating.

This could play an important role when it comes to issuing more than $300 million in bonds for the construction of new Pilgrim and Toll Gate High Schools. Earlier this year, the city sold $45 million in school bonds of which $27 million was earmarked for the design and engineering of the new schools with the balance to be spent on ongoing renovations to elementary and middle school renovations. In his 5-year forecast issued in July Schaefer projected the bonds would sell with a 4.5% interest rate. Sold through the Rhode Island Health and Education Building Corporation, however, the lowest rate bid was 3.81367% that is projected to save taxpayers $700,000 to $800,000 a year over the 20 year life of the bond from a rate of 4.5%.

City Council President Steve McAllister observed the report reflects the efforts of the mayor and the council not to use federal APRA funds to balance the budget.

“The city did not use any of them for operating expenses and only used them for one time purchases.  This was a deliberate plan by the Mayor and the City Council.  I predict we will see a number of communities in the next few years have some financial struggles because they used these one time funds for operating expenses or continuing expenses like new hires or new programs.  Warwick did not,” he wrote in an email.

McAllister isn’t as confident that the school department is in the same position.

“This is something the city will have to keep a close eye on in the next few years.  

These preliminary results assume that the school department achieved a balanced budget. This is consistent with the school finance director’s estimates,” he wrote.

Also boosting revenues beyond projections in 2024 were license and fee revenues and the receipt of $400,000 from the Rhode Island Airport Corporation in anticipation of City Council action to abandon portions of streets within RIAC owned property abutting the site south of the terminal where a south cargo facility is under construction.  The street abandonments is part of an agreement for RIAC to construct a means for tractor trailer trucks to access the airport connector without using local streets. While some council members questioned the appraised value of the street abandonments collectively amounts to more than three acres, a majority of the council voted for the measure.

Not all of the surplus can be accounted for by higher than projected revenues.

Expenses were down

Expenses were almost $1.9 million less than projected in May.

Schaefer reports that Central Administrative costs were $300,000 below budgeted levels as a $100,000 finance contingency went untapped; $100,000 in assessor revaluation costs were delayed and another $100,000 was saved when IT costs were less than estimated.  Additional savings include $500,000 related to the delay in utilizing a state pass through grant; $100,000 in Public Works and $800,000 in employee benefits and other fixed costs associated with reduced social security and Medicare employer contributions as the base for contributions.

In his memo Schaefer cautions that his projection is based on the assumption that schools completed the fiscal year with a balanced budget. Asked whether there is any reason to suspect that won’t happen, Schaefer replied, “I’m confident of a balanced school budget.” He is also reasonably sure the city will close out the books on FY 24 in order the meet the state deadline of Dec. 31, 2024.

Compared to other municipalities, Schaefer said, “We have complicated financial statements.” Unlike Cranston and other cities, Warwick has enterprise funds for water and sewers, meaning revenues generated by those entities pay for expenses.  Cranston is tied into the Providence Water Supply and its sewer operations are contracted. Warwick also has its own pension funds whereas many municipalities participate in state pension funds.