League, Fung: 'COVID Trifecta' puts taxpayers at risk

‘If this keeps up, we may have to borrow. And that’s not something that we want to do.’”

Mayor Allan Fung

A “COVID Trifecta” is threatening municipal budgets across the Ocean State, according to the Rhode Island League of Cities and Towns – and Mayor Allan Fung said Cranston is among the communities being put in a difficult position.

“We’ve been lucky so far that we have a healthy rainy day fund … It’s time to shake up the State House and tell everyone to act, because this is ridiculous,” Fung said Tuesday morning.

Cranston, at this point, has received roughly $6.1 million less from the state than anticipated as a result of a recent change in the way Rhode Island distributes some types of funding, according to Fung and the League.

While property tax bills for the first quarter of the current fiscal year were issued on time and the city is “keeping our head above water,” the mayor said the situation has the potential to become untenable.

“As you can imagine, that’s a big cash flow issue … If this keeps up, we may have to borrow. And that’s not something that we want to do,” he said.

The League last week released a statement indicating that “property taxpayers across the state may be left to fill the multi-million dollar gaps” left by a threefold squeeze on local budgets.

The three facets of that “Trifecta,” according to the organization, are the fact that none of the $1.25 billion Rhode Island received through the federal CARES Act has been distributed to communities; that the state is “withholding millions in lump sum budget allocations required by state law”; and that cities and towns have been “warned to expect long delays” when it comes to COVID-19 disaster relief funding through FEMA.

According to the League’s statement, a National League of Cities study found Rhode Island, New York and New Jersey to be the only three states that “had not provided Federal emergency relief aid to local governments.”

The League also indicates the state is “withholding $42.2 million in PILOT funding (Payment in Lieu of Taxes) to cities and towns” and has reduced its motor vehicle tax phase-out payments to municipalities.

“These payments are required by law to be paid in full on July 31st for expenses incurred in the prior year, but the State announced late last Thursday, July 30, that it plans to make less than 10% of the payments,” the League’s statement reads. “PILOT funds compensate municipalities for tax revenues that cities and towns do not collect from certain property owned by the State and health and education non-profits. Cities and towns plan their budgets around receiving full PILOT aid on July 31, which has been the practice for many years. The State is also reducing the expected August 1st reimbursement for the quarterly motor vehicle tax phase-out by $14.6 million.”

Rhode Island remains without an approved state budget for the fiscal year that began July 1. Gov. Gina Raimondo and legislative leaders have been awaiting action on a possible second round of federal stimulus, and to see whether another aid package might include relief specifically for state and municipal budgets.

Talks have stalled in the nation’s capital, however, and the prospect of a breakthrough remained murky on Tuesday. Raimondo has said she has held off on more actively distributing CARES Act funding in the event that more aid is not forthcoming from the federal level – and to prepare for the possibility that Congress and the president provide additional flexibility for that money to be used to bridge yawning state budget gaps.

In terms of the specific affect on Cranston, the League’s statement indicates that Cranston was due to receive $4.8 million in PILOT funding and $2.5 million in car tax phase-out relief during the week of July 27 – a total of roughly $7.3 million. It received only $1.2 million, according to the League. Fung said only $400,000 of the PILOT funding has been received at this point.

In the League’s statement, Fung said: “Cities and towns have been working day and night to provide public safety services, enforce state guidelines and keep local government running, yet they have received none of Rhode Island’s $1.25 billion. Now the State is withholding funds that communities were counting on. It is unacceptable that cities and towns have been left to fend for themselves.”

North Providence Mayor Charles Lombardi said in the League’s statement: “At the 11th hour, the State has reneged on its budget. The State has received $1.25 billion dollars in stimulus funds from Congress and borrowed $300 million in emergency funds, and yet cities and towns have been left out of the equation. Rhode Island’s dual battles against COVID-19 and to avoid a painful fiscal crisis will be effective only if all levels of government work together.”

Fung reiterated those points on Tuesday, saying it is “disappointing and it really adds insult to injury when you have all three [aspects of the ‘Trifecta’] coming on you at the same time.”

“We have been partners in this fight on COVID,” he said.

Fung said the city and its school system have incurred a combined $1 million in additional costs related to the COVID-19 response. He said delays in FEMA assistance are not uncommon, making the need for action on relief from the state and federal levels even more urgent.

Fung said he signed an executive order on city spending early in the crisis, which helped limit the budgetary impact of the crisis for the fiscal year that ended June 30. He said Cranston was “actually trending fairly well with all the cuts” and was on course to have a balanced budget, but the reduction in the PILOT funding – which is effectively paid a year late – has at least temporarily affected that course.

“There’s nothing we can do,” he said.

The mayor also noted that the state’s lack of an adopted budget has led the city to hold off on issuing car tax bills for the current year. That, he said, has added to the financial crunch.

“Part is also the General Assembly, because they’ve sat on their hands for months,” he said.

Cranston remains under a declaration of emergency, which has been in place since March. Fung said that declaration will remain in effect in conjunction with the statewide emergency order. He noted that the city’s COVID-19 case numbers have “ticked up last two weeks,” a trend seen in other parts of the state as well.

“I’ve just got to be cautious,” he said.