The city closed out the 2022 Fiscal Year on June 30, 2022 with a $33 million unassigned fund balance, an increase of $2 million from the prior year.

That’s good news for Mayor Frank Picozzi who is in the midst of drafting next year’s budget in the face of increasing costs due to inflation and contractual agreements. But that’s not to say the sky is clear of storm clouds or that the city can skate by without considering an increase in taxes, a first in four years.

The increase in the unassigned fund balance, referred to as the rainy day fund, puts it at 9.29% of the total fiscal year according to the 2022 year end audit filed last Friday with the state and posted to the city’s website. Bruce Kieser, interim chief of staff, notes the unassigned fund balance is within fractions of a percentage point of 10% of the city’s budget that is considered by bond rating agencies as preferred, thereby enabling the city to reduce its borrowing costs.

City Finance Director Peder Schaefer was cautious in placing too much emphasis on the surplus. Naturally, he found the $2 million surplus preferable to a deficit, pointing out that for the year the city didn’t dip into reserves to balance the budget. The administration had budgeted $5.8 million from reserves, “but we didn’t have to use any of it,” said Schaefer

Schaefer is “disappointed” that the audit, which was due to be submitted Dec. 31, 2022 by state statue, took this long to complete. While Schaefer forecast last fall how the year would end, he didn’t have firm figures on which to project a starting place going into the next budget cycle.

“The city has had this problem for years,” he said of meeting the audit deadline. Some of the delay can be attributed to the School Department that often is late in getting its year end data completed. A larger impediment is what Schaefer calls the “most complicated” accounting system of any other Rhode Island city. He points out that the city’s water and sewer departments are enterprise funds, meaning that their books are audited as part of the overall city audit whereas other municipalities may not own their systems, or contract to run them. In addition, the city has multiple pension funds as well as post-employment benefits that are also included in the audit. Further hampering the process has been perso0nnel changes and the inability to fill positions in both the city and school department.

“We have the most complicated financial statement (of any municipality),” he said.

Regardless of the unassigned reserve, Schaefer said the city “has a big structural deficit” that he put in the range of $7 million to $10 million resulting from American Rescue Plan Act funds used to balance the budget. About $21 million of the $39 million in ARPA went into acquiring equipment including fire apparatus and sanitation trucks, construction of Bayside sewers and other infrastructure improvements. “Most of it went into projects,” said Schaefer.

However, because the city was “revenue qualified,” it also used the money for recurring operating expenses . Now the administration is faced with allocating tax revenues or again using eligible ARPA funds to balance the budget. About $10 million in ARPA funds remain available and how that is allocated could impact the structural deficit going forward.

Schaefer is not prepared to say how this might play out, as the budget has not been finalized. The revaluation could be a factor impacting the outcome. The revaluation was delayed last year, but the administration is moving forward with it this year. Revaluation notices are projected to be in the mail about the first week of May.

What could also come into play is a Council resolution introduced on behalf of the mayor to amend the ratio between the residential and commercial tax rates. The commercial rate is currently 150% of the residential rate. If the amendment gains General Assembly approval, the city could raise the commercial rate to 175% of the residential rate.

In a follow up email Tuesday, Schaefer wrote, “ Revenues of $281.8 million exceeded budgeted estimates by $2.0 million. Other financing sources including use of $5.9 million in fund balance were budgeted at $53.3 million but only $47.8 million was required as total expenses of $329.6 million including $173.6 million by the Warwick Public Schools were $4.1 million lower than budgeted. Because of these positive revenue results, constrained spending, and no necessity to draw down fund balance, the unassigned general fund balance has increased to $33.1 million from $26.6 million at the end of FY 21.”

He continues, “While the City of Warwick continues to address structural deficit issues associated with the use of Federal ARPA funds and other modest one time revenues, the unassigned fund balance is now approximately 10% of annual operating expenses and provides a strong foundation for the City moving forward.”

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