Riley: What Elorza Needs to Tell Us in 2018

Tuesday, January 09, 2018

Michael G. Riley, GoLocalProv MINDSETTER™

Jorge Elorza

For several years now, Providence Mayor Jorge Elorza has made many promises regarding pension funding and the City of Providence. When elected, he highlighted his credentials as an accountant finishing first in his class at URI after transferring from CCRI. The Mayor defeated Buddy Cianci and Daniel Harrop, who ran on a platform that included the idea of the bankruptcy of Providence.

Since his election in 2014, Elorza has commissioned several studies dealing with Providence finances and its structural deficit. Each of the studies highlighted the issue of pension funding with strong suggestions as to the need of bargaining with public union employees for reduced costs to the city, as well as the need for increased contributions.

The PFM 5 year study, delivered in May of 2015, suggested the only solution for reducing the projected 5 year, $85 million structural deficit was immediate and hard negotiations with public employees over pension and health benefits. No such negotiations ever took place.

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One year later in April of 2016, National Resource Network (a 2013 HUD incarnation) produced a 10-year study for Providence. It was a whopping 167 pages entitled “A Strategic Fiscal & Management Plan for the City of Providence: A Plan for Sustainability and Investment.”

The stated goal was for “The Network” and Providence, with input from five local stakeholder workgroups to develop a 10-year baseline financial projection for Providence and identify initiatives that the City can pursue to close projected deficits and invest in its future. Our readers can see all the happy talk in the study yet, cutting through the fog, the report properly cited some significant headwinds. The 10-year projected Structural deficit, (assuming Providence pension fund earns 8%, compounded 10 years), is $176 million.

The City’s projected fiscal gap is principally driven by four factors:

The City’s unfunded pension and OPEB liabilities (between 2 and 2.5 billion)
Growing health benefits costs (health care and other benefits)
Revenue growth that cannot balance long-term expenditure growth and the past loss of State Aid
Maintenance of high carrying costs (e.g. workforce levels, overtime)

The report highlighted needed cuts in expenses and possible increases in revenues that Elorza should consider but any real progress on the expense side appears impossible without a grand bargain with unions. No negotiation is taking place making this and the PFM report interesting but not real.

Elorza, the self-proclaimed accountant/auditor, continues to mislead voters with pipe dream solutions, like the sale of the Water Supply.

What Providence Can Do

For other less meaningful revenues, Providence can: increase its collection rate of levied taxes, fees, fines, and other charges – adopt new sources of revenue (many requiring State authorization) to ensure a fairer burden-to-benefit ratio.

Currently, some groups that benefit from city services are not paying their “fair share” – strike a grand (local) bargain to move toward shared goals and visions with anchor institutions (blight reduction, capital investment, workforce development, etc.) None of this is new but the report has nice tables and is very informative. It informs me that Providence is in deep, deep trouble.

In December of 2016, Elorza again promised to finally address fiscal instability and worsening pension funding. He said his hope is to strike a “grand bargain” with the city’s retirees, but said he still needs to craft a plan to begin those negotiations.

The truth is Elorza does not have a meaningful solution or plan to avoid bankruptcy, without a union negotiated “grand bargain” and the sale of the Water supply. To insist this is his plan and he will save Providence is a sick charade and disgusting. I had hoped by now the Revenue Director would step in at the Governor's request and place Providence into receivership. No such luck. Meanwhile, the Rhode Island Governor is hiding under her desk.

Raimondo Weighs In

Here’s what the Governor said about bankruptcy in October of 2016:

“Providence should not go bankrupt,” Raimondo said. “I’ve looked at the numbers. However, they can’t do anything. And there are some difficult decisions to be made. And the mayor and the City Council need to start making those decisions.”

“If we’re sitting here a few years from now and it looks the way it is now, I might have a different opinion,” Raimondo said. “I think we need some leadership and some action. And make some tough decisions.”

It’s 2018

Well, Governor, here we are in 2018 and virtually nothing has been done to reduce the pension crisis. Her secret weapon, the highly capable Robert Hull is no longer there (now in Private Sector) pressuring Elorza to act.

Sensing the relief from Hull’s oversite and departure and Raimondo’s refusal to acknowledge the crisis, Elorza has even gone public laughing at the idea of bankruptcy. He mocks those who think Providence is on the verge. His latest tact is to pin Providence hopes on only one of the dozens of recommendations he commissioned. The sale of the Water Supply which he knows will never happen.

As a politician, the Governor and venture capital veteran has chosen to hide and as an accountant, Elorza has decided to kick the can again and lie to the public while praying no one notices his failure.

Riley: What Elorza Needs to Tell Us in 2018

Related Slideshow: GoLocal: Benchmark Poll, October 2017

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