A Community Conversation: Providence’s Finances & Why a Water Partnership

1. A Community Conversation:Providence’s Finances & Why a Water Partnership

2. Where We Were • High tax rates • Limited funding for schools and infrastructure • Constrained ability to provide services • Lowbond ratings • No Rainy Day Fund • Looming unfunded pension liability

3. How Did We Get Here? The City made promises it could not keep and then failed to make 100 percent of the Annual Required Contributions (ARC) into the City pension system for years. From 1994 through 2012, 17 out of 18 years were short funded by a total of $121M, which today would total $400M. The City now has close to a $1B pension liability. Retirement Payment Promise 25-year employee retires at $50,000 salary 1991: $30,000 pension payment base year 2012: $102,000 pension payment based upon 6% Compounded COLA Where We are Heading: Where we should be: 60% by 2025, $67.3M payment per year Where we are: 60% by 2034, $140M payment per year $73M more per year

4. Schedule of Unfunded Pension Liability

5. What have we done to fix it: Responsible Short Term Budget Decisions • Operating surpluses for 3 consecutive years. (FY16-- $10.3 million, FY 2017 – $5.4 million and FY2018 -- $9.2 million) • Erased cumulative deficit of 13.4 million 3 years earlier than expected. • Five-year projections show balanced budgets for FY 2019 and FY 2020. • Increased Maintenance of Effort (MOE) to School Department. • 100% ARC payments made by the current administration • Reduced ARR 8.5% to 8% (.25% 4m to budget, 32m to unfunded liability) • Increased collection rate assumptions from92.5% to 93.75% based upon increased compliance

6. What have we done to fix it: Improving Credit Ratings ** The Issuer Default Rating (IDR) is shown and reflects the City’s unsecured general credit quality. The security rating on the GO bonds is two notches above the IDR (“A-” as of November 2016 when Fitch instituted this new rating system), reflecting the enhanced recovery provided by the statutory lien granted under state law.

7. What have we done to fix it: Improving Business Climate • Office market is healthy and trending upward with moderate rent growth expected • Hotel market is extremely tight, with several new hotels, in the pipeline • Recorder of Deeds fees has increased 15% year over year signaling a strong real estate market in the City • Recently-adopted new zoning ordinance streamlines process for high-quality development projects • Number of building permits over past 6 years:

8. What have we done to fix it: Implementing a Long Term Capital Planning Process

9. What have we done to fix it: Implementing a Long Term Capital Planning Process Student Centric Innovations Statutory & Infrastructure Improvements $310 Million RIDE Stage II Application 2019 through 2024

10. What have we done to fix it: Pension Reform & Fully Funding Pension The Cicilline Administration: • Reinstated full ARC payments. • Aggressive changes to bargaining agreements The Taveras Administration: • Advanced short and medium term solutions towards pension obligation and passed consent decree. • Prevented immediate bankruptcy. The Elorza Administration: • Made full pension payments every year of their administration. • The earliest 100% completed payment in more than 3 decades. • Rebuilding the rainy day fund

11. What did pension reform accomplish? Pension reform did: • Avoid imminent threat of bankruptcy for the City of Providence. • Provide short and medium term solutions to the problem. • Froze retiree cost-of-living allowances (COLA)’s for 10 years. What still needs to be done: • Adequately fund the pension system over the 30 year schedule. • Pay growing healthcare expenses. • Close structural deficit.

12. What About Pension Reform for Current and Future Employees?

13. What Other Actions Has the City Considered? Union Negotiations (revenue neutral; controls employee costs) • City reduced health, leave and longevity benefits for City union workers • City reduced minimum staffing in Fire Department • New employees in PVD receive fewer overall benefits than other similar cities Increase in Taxes and Fees ( 〜$500,000-$2,500,000 impact) • Explored Hotel Tax Increase- Requires State Approval • Explored Meal and Beverage Tax Increase- Requires State Approval • Explored Parking Tax - Requires State Approval IncreasePILOT dollars from Non-Profit Institutions • Submitted legislation to tax non-mission essential properties at commercial rate - requires state approval 〜1,000,000/yr impact

14. Are There Other Alternatives? In Summary... • Increase in Taxes and Fees for Residents • Decrease in Quality of City Services • Decrease in School Investments • Decrease in Parks and Recreation Opportunities None of these options, even when combined, will fix the problem.

15. Considering a Water Partnership: Impact and Potential Structure

16. Why Providence Water? Because your tax dollars should go towards city services. Each dollar spent towards the pension is one dollar less towards the investments our city needs. Even using a combination of options- increasing fees, decreasing services, selling city assets- do not have enough of an impact on the liability to reduce the annual pension payments in a meaningful way. Providence Water unlocks the money we need now without losing control of any of our most valuable assets.

17. What Would Happen if 400M was put into the Pension Fund? What could we do with 30-45 million dollars per year? • Reduce Taxes • Invest more in schools • Create new parks and recreation facilities • Improve the conditions of our roads and sidewalks • Create new job training and small business programs ≅45 million ≅30 million

18. How would it work? The City has not chosen a partner to operate the region's water supply, but has begun the process of learning more about organizations with the capacity to serve in this role. Transactions of this type are often: • A long term 30-50 year lease with low yearly payments. • Annual lease payment to city could yield around 4-8 million per year depending on the determined value of the water system minus other expenses. • Partners would be required to: • Protect employees • Maintain stable water rates • Ensure quality of water • Infrastructure investments

19. How would it work? A partnership will make Providence Water more competitive and efficient. • Protect employees • Stable long-term rates • Ensure quality of water • Maintain system investments • Realize efficiencies via economies of scale Rates will continue to be overseen by the Public Utilities Commission (PUC). Quality will continue to be overseen by the Department of Health (DOH). Providence Water will still be owned by the City of Providence.

20. What Would Happen if 400M was put into the Pension Fund? What could we do with 30-45 million dollars per year? • Reduce Taxes • Invest more in schools • Create new parks and recreation facilities • Improve the conditions of our roads and sidewalks • Create new job training and small business programs ≅45 million ≅30 million

21. A strong Capital City is important for a strong Rhode Island. The City continues to put itself on solid financial ground- now, it must use its assets to ensure its longevity. It is unsustainable for Providence continue to oversee the water supply for 60% of the state. We believe that it is our responsibility to ensure all Rhode Islanders have access to safe and affordable drinking water in the long term. We have more options today than we will have tomorrow and the worst kind of action is inaction.

22. FAQ: Flint, Michigan changed their water source and ended up having a crisis. Is that going to happen to us? Absolutely not.Flint, Michigan, changed their water source to save money. Rather than using Lake Huron, they switched to the Flint River and did not treat the water properly. The pristine Scituate Reservoir will continue to be the source of our water and will have the same safeguards and monitoring in place as we do today. Following strict guidelines set by the R.I. Department of Health and applicable regulations, the Department monitors our water to ensure it is safe and healthy to use.

23. FAQ: I heard that Providence Water is going to be sold? No, Providence Water has and will continue to be owned by the City. The City is looking to partner with experts to manage and achieve financial sustainability for the water system for the long-term. Under the current proposal, the City would monetize the Providence Water Supply Board by entering into a long-term lease of the asset with a qualified, experienced partner while maintaining ownership of the system. Currently, the Public Utilities Commission has regulatory oversight regarding rates and the Department of Health oversees the quality of the water. We would maintain public oversight of this utility.

24. FAQ: The City says they don’t want to “privatize” the system. What is the actual transaction? Privatization would mean that a public institution (in this case the City of Providence) would no longer have ownership of the utility (in this case the Providence Water Supply Board) and would sell that utility to a private entity. This is not what is being proposed. The City wants to enter into a long-term lease of the Providence Water Supply Board with a qualified, experienced partner while maintaining ownership of the system.

25. FAQ: Where has this kind of partnership worked throughout the country? No city has been in exact same situation, seeking the exact same solution. However, there are many cases where other cities have prioritized receiving the most revenue possible through a major transaction. We are not willing to sacrifice our values of ensuring our quality of water, stable long-term rates and maintaining a unionized workforce over maximum revenue.

26. Visit the City’s website for more information on Providence Water and additional resources. For more information, visit: www.providenceri.gov/water

27. Questions&Answers