An Introduction to Municipal Finance in Rhode Island

PROVIDENCE, R.I. – The Rhode Island Public Expenditure Council released today “An Introduction to Municipal Finance in Rhode Island.” The first of a series, in this report RIPEC establishes a foundational overview of the structures of municipal finance in Rhode Island to serve as a backdrop for a more in-depth investigation into subject areas affecting the fiscal health of municipalities. RIPEC’s report gives a historical and legal overview and analyzes key demographic data from Rhode Island’s 39 cities and towns, as well as local revenues and spending. The report uses data from fiscal year 2019 and calendar year 2019, primarily obtained from the Rhode Island Division of Municipal Finance’s Municipal Transparency Portal and the U.S. Census Bureau’s American Community Survey.

“Our analysis reveals stark differences among Rhode Island municipalities in terms of family income, property wealth, spending priorities, and debt,” said RIPEC President and CEO Michael DiBiase. “Notably, some communities do not have sufficient property wealth to fund their K-12 education systems and so have a greater reliance on state aid than on local revenue collections,” he continued.    

Property tax is the single largest local revenue source in Rhode Island (60.4 percent of all local revenues) and a staggering difference in property wealth among municipalities significantly impacts local tax rates. The gross assessed property value per capita of Central Falls ($26,427) is less than one-quarter of the statewide total ($120,716), Woonsocket is well below half of the total ($55,058), and Pawtucket ($61,390) is only slightly above half of the total. At the other extreme, seven communities with high proportions of non-resident homes have gross assessed value per capita of more than twice the statewide total: Westerly, Newport, Narragansett, Charlestown, Jamestown, Little Compton, and New Shoreham. Each of these seven communities consequently have property tax rates well below the state average, while municipalities with less property wealth tend to apply higher rates; Central Falls’ average property tax rate is the highest in the state and exceeds the state average by 45.0 percent.

The issue of wealth and income disparity manifests itself most critically in elementary and secondary education—by far the largest source of municipal spending in Rhode Island (60.1 percent of all local expenditures). Of particular concern, despite a school funding formula that heavily favors municipalities with lower levels of family income and property values, two communities that respectively have the third and fourth highest proportions of low-income students in the state—Pawtucket and Woonsocket—spend far less per pupil than the statewide total ($18,079) and respectively rank third and first lowest in the state in terms of per pupil expenditures (Woonsocket spends $15,372 per pupil and Pawtucket spends $15,646).

“To guarantee equitable education funding, policymakers will need to further reform the funding formula to ensure that the communities obligated to educate large proportions of low-income students receive sufficient state funding and are required to dedicate appropriate local resources to education,” said DiBiase. “Alternatively, for these communities, policymakers should consider having the state assume full financial responsibility for education, with appropriate enhanced state oversight.”

In terms of spending, education is hardly the only noteworthy difference. There is also a wide difference in public safety spending, the second largest local spending category and nearly a fifth (19.2 percent) of all municipal expenditures. Another great difference among municipalities relates to debt, pension, and other post-employment benefit liabilities. RIPEC’s report calculates total liabilities on the basis of net property assessment—essentially showing how the amount each municipality owes in long-term obligations relates to their ability to raise the revenues necessary to ultimately retire that debt—and while a large majority of municipalities (22) have total liabilities that are less than five percent of their total net assessed property value,  three have total liabilities exceeding one quarter of their net property assessment: Pawtucket (25.6 percent), Providence (26.6 percent), and Woonsocket (26.6 percent).

Interactive demographic, revenue, and expenditure data that correspond with this report are available here.

An executive summary is available here.

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