On March 3, Providence’s new mayor, Angel Taveras, released "staggering" figures showing that the city has a $180-million structural deficit for this fiscal year and next and has nearly depleted its reserve or "rainy day" funds. "I thought we had a Category 3 hurricane," Taveras said. "This is a Category 5."
In the wake of that announcement, Taveras’ predecessor, U.S. Rep. David N. Cicilline, was criticized for leaving the city in poor financial shape and draining reserve funds to balance his last city budget.
Cicilline denied that he had masked an emerging financial crisis in Providence and he defended his accomplishments during his eight years as mayor, saying that, "When I took office in 2003, we had very little reserves, and we worked very hard to build up our reserves."
We decided to take a look. We began by asking Cicilline’s communications director, Jessica Kershaw, to provide the basis for the former mayor’s statement.
In reply, Cicilline’s congressional office issued a statement saying: "When referring to the unreserved fund balance, or rainy day fund, as the attached Comprehensive Annual Financial Report shows, in 2003, when Cicilline took office as mayor, there was $10 million, and the Cicilline administration more than doubled that by building it up to $22 million by 2008."
Attached to the statement was a page from the city’s audited financial statement for the fiscal year that ended June 30, 2010. That page shows Providence had an "unreserved" general fund balance of $10.2 million at the end of fiscal year 2003. That total rose to a high of $22.36 million at the end of fiscal year 2008, but it plunged to $2.08 million at the end of fiscal year 2010.
So does $10.2 million represent "very little reserves"? Well, at that time $10.2 million was just under 3 percent of the city’s $345 million in actual general operating spending for 2003.
Certainly, that’s not nearly as much as the $22.36 million in unreserved fund balance that the Cicilline administration had accumulated by fiscal year 2008 -- about 5 percent of the city’s actual spending that year.
But it’s a whole lot more than the $2.08 million that the Cicilline administration had left by the end of fiscal year 2010 -- about 0.5 percent of the actual spending.
And it looks really good in comparison with the $220,814 that remained in those reserves as of March 11.
But what is the standard for determining whether a city’s rainy day fund is sufficient? Public finance literature often focuses on a 5 percent standard. And this year, the Government Finance Officers Association executive board is recommending revised "best practices" that call for the equivalent of two months -- or 16.6 percent -- of annual spending.
With that in mind, did Cicilline have "very little reserves" when he had $10.2 million, or about 3 percent?
Gary S. Sasse, the former Rhode Island Public Expenditure Council director and state revenue director who is now financial adviser to the Providence City Council, said, "I would say 3 percent is marginal reserves. It doesn’t meet the requirement of 5 percent. But it’s better than nothing. It’s better than we have right now."
City Treasurer James J. Lombardi III, a critic of Cicilline’s financial practices, said that while the 2003 unreserved fund balance fell below the 5 percent threshold, that doesn’t mean Providence had "very little" reserves at the time. "Clearly, it was a lot more than we have today," he said.
Plus, the Cicilline administration had other restricted contingency accounts as a cushion, Lombardi said. And in 2003, the city’s assets included the Dunkin’ Donuts Center, which it later sold. Now, the city has slashed its unreserved general fund balance, depleted restricted contingency accounts and borrowed at least $60 million to balance the budget, he said.
Cicilline has defended his decision to use reserve funds and to borrow money to balance budgets, saying those actions were better than cutting city services and significantly raising taxes. "It was a judgment that I made that that was the best way to navigate through the worst economy since the Great Depression," he said.
So where does that leave us?
Certainly, it’s true that when Cicilline took office, the unreserved fund balance did not meet the often-cited 5 percent threshold and it fell well short of the 16.6-percent goal that a professional group now recommends.
But it’s a stretch for the former mayor to characterize the $10.2 million he had in 2003 as "very little." After all, that’s almost five times what was in the reserve fund in his last year in office.
Given municipal finance standards, there is an element of truth in Cicilline’s claim, but his statement ignores critical facts that would give a much different impression. On the Truth-O-Meter, that is the definition of "Barely True."
Editor's note: This statement was rated Barely True when it was published. On July 27, 2011, we changed the name for the rating to Mostly False.