City Expecting a Combined Year-End Operating Surplus of $9.1M for FY 2018
Thursday, October 25, 2018
PROVIDENCE, RI – Mayor Jorge Elorza today announced that Fitch Ratings has affirmed the City of Providence’s A- rating on its outstanding General Obligation Bonds. In addition, Mayor Elorza announced that the City is expecting a combined year-end operating surplus for Fiscal Year 2018 of $9,114,994.
“This is good news for Providence. Fitch has recognized that we have worked diligently to stabilize our finances,” said Mayor Elorza. “Maintaining our current rating is important as we continue to see the results of our work. Both our rating affirmation and our expected operating surplus show that we are on the right path here in Rhode Island’s capital.”
The Fitch report notes the City’s strengths such as its tax base, location, improved financial results and declining unemployment. Mayor Elorza said he is more focused on the long-term challenges and is encouraged to see that Fitch recognizes the City’s steps to address them. “Fitch correctly points out that earlier periods of fiscal stress have had a negative impact on the City,” notes Mayor Elorza.
Fitch said, “The assessment reflects a period of strained fiscal operations prior to fiscal 2016. Operating performance has improved based on fiscal 2017 results and projections for fiscal 2018, which show eradication of negative fund balances. The city’s financial resilience is weak, but the aforementioned projections reflect management’s progress in restoring its fund balance to positive levels.” The City has rebounded from its negative $13.4 million fund balance with three years of operating surpluses, including a projected $9.1 million surplus for the year ended June 30, 2018. The City is projected to have $11.3 million in a positive fund balance as of June 30, 2018.
“It also clearly states the City is addressing its legacy financial issues, including the City’s return to a positive fund balance position earlier than anticipated. We have been paying the full required contribution to our pension plans and have been able to achieve savings in health care and long-term costs. Our employees have worked very hard to achieve budget stability and deserve tremendous credit,” the Mayor added.
As budgets are educated estimates of projected costs and collections and cannot account for unanticipated expenses or revenues, surpluses do occur. This year’s significant surplus can be attributed to:
- Realistic budgeting practices
- Better cash management and tax collections
- Non-essential hiring freeze
- Better departmental revenue
- Lower salary expenditures
- Reduced spending on operational expenses, where opportunities existed
The total $9.1M operating surplus is applied directly to the general fund operating fund balance.
In their report, Fitch indicated that strong budget management is crucial, “The rating is sensitive to the city’s ability to continue to address any budget imbalances. Restoration of reserves to more adequate levels and maintenance of an adequate level of budgetary flexibility could improve credit quality.”
Fitch also warned that containment of long-term liabilities will continue to be important to their analysis, “Fitch expects the city’s long-term liabilities exposure to remain a burden on the budget. Notable growth in the budget burden associated with these liabilities would reduce financial flexibility further and could negatively affect the rating.”
The review was conducted in connection with Fitch Ratings’ annual surveillance of the City’s credit. In addition to the GO Bond Rating, Fitch has affirmed Providence’s Issuer Default Rating (IDR) at ‘BBB.’ According to Fitch, the GO bond rating is two steps above the IDR, which reflects the enhanced recovery prospects for GO bondholders afforded by a statutory lien on pledged property tax revenues.