$51M in federal rescue funds could help plug budget, infrastructure holes

COVID-19 could end up enabling the administration to address some major capital improvement projects that have been put off for years, including repairs to sewers, water lines and roads.

Or the $24 million the city expects to get from the American Rescue Plan could be used to offset operating costs, which would offer some short-term tax relief.

Mayor Frank Picozzi is looking at doing a bit of both, although at this point, he can’t say for sure how much federal funding will flow into city coffers and the strings it will carry.

Meanwhile, the new administration is faced with putting together its first budget. Picozzi, City Finance Director Peder Schaefer and members of the mayor’s staff met with department directors last week to review their budget wish lists.

“We’re giving every director the opportunity to make their pitch,” Picozzi said last Tuesday. Yet, as Picozzi notes, “the big topic is the American Rescue Plan and how it affects us.”

In fact, depending on how the state allocates funds targeted for counties, Schaefer said Warwick could receive at least an additional $10 million. Schaefer bases his projection on city’s population, which is 49 percent of the population of Kent County. From what Schaefer has gleaned, those funds are earmarked for small businesses, affordable housing, nonprofit organizations and tourism and hospitality. However, Schaefer has questions – the legislation says the money must be spent by Dec. 31, 2024. As of Monday, he was still looking for answers as to eligible uses of the funds to cost expenses and lost revenues.

For example, using FY 2019 as a baseline, Warwick received $1.3 million in room and hotel taxes. In FY 2020, those revenues took a precipitous drop with the shutdown in March, but that wasn’t a full fiscal year. Schaefer projects hotel revenues for FY 2021 to be off by $500,000.

The question is whether the city is eligible to recover the lost revenues for multiple fiscal years and if not, what years?

Schaefer wants to be careful to properly apply for lost revenues and expenses. Otherwise, the city could lose funding or be in the position of reimbursing funds.

Also of concern as the budget comes together is to what extent it depends on federal funds. By over relying on federal funds to meet operational costs, Schaefer observes, the city could be building a “structural deficit” for the 2023 budget when those funds would have to be replaced with city tax-generated revenues.

As the current budget relies on a draw down from unrestricted reserves, or the “rainy day fund,” the administration faces a structural deficit going into next year. Picozzi said Tuesday the 2022 budget might also depend on a draw down form the fund.

The current city budget stands at $323.5 million, of which $171.5 million is earmarked for schools. Schaefer projects a $1.2 million deficit as of the end of the fiscal year June 30, 2021. However, that projection could be more since there is a $500,000 discrepancy over car taxes.

School funds

What schools end up getting and how those funds are allocated cost have a significant impact on the city budget.

“There’s another pot of money for schools,” said Schaefer. In what he called “a fair chunk of change,” Schaefer projected at least another $12.7 million flowing to schools.

Robert Baxter, executive director of school finances and operations, projects ARP funds at $17 million. Using the $17 million, it all adds up to $51 million.

Baxter said schools received $3.2 million through the federal CARES Act. Of that amount, $1.7 million was earmarked for COVID relief that included the purchase of personal protection equipment and technology upgrades for distant learning; $1.4 million for Chromebooks and distance learning; and $130,000 for substitute teachers.

Schools received another $5.4 million in the December stimulus package, with much of that targeted for school cleaning, air quality equipment and to help with “loss of learning.”

Like Schaefer, Baxter is looking for a clear definition on how the funds can be used to cover budget shortfalls and expenses going forward.

The mayor is hopeful of applying some of the federal funds to infrastructure maintenance and upgrades. Of particular concern is a 30-inch water main – a major artery in the city’s water system – that ruptured in December 2018. The rupture in the supply line from Cranston occurred under Interstate 95 and Route 37. Fortunately, when designed, a bypass to that critical location was installed. That was immediately put into service and has held up since.

A study of what it will take to repair as well as upgrade the bypass is nearing completion.

Picozzi said the city could be looking at more than $3 million to “slip-line” the two pipes. He calls the project a priority, for should the bypass fail, the city’s water supply would be seriously compromised.

“You can’t do without water.”

Now it appears federal funds will be available to take on the job as well as some other infrastructure maintenance that has been put off for years.