Providence’s latest financial crisis, explained, a Q&A

What’s going on with Providence’s finances?

City Hall leaders need to pay millions to the Providence Public School Department after losing a court case over how much city taxpayer money must be paid into the school system each year under the current state takeover.

Unlike the federal government, Providence has to have a balanced budget. Huge chunks of the $381 million in taxes Providence will collect this year are consumed by fixed costs such as the mandatory payment to the pension fund ($112 million), debt service ($71 million) and the school payment ($135.5 million), which means the city will have to cut services, lay off personnel or raise taxes to come up with the additional money.

Wait, I thought it was the school department that was going to make big cuts, such as cancelling sports. Is that now off?

Providence school leaders last month threatened to eliminate winter and spring sports, pull RIPTA bus passes from 1,700 students, cut special education teaching assistants, eliminate a program to get more teachers certified to teach multilingual learners, and more. But after the judge’s decision, Superintendent Javier Montañez told the Globe he is “optimistic” those cuts will not have to go through.

Montañez originally said he would make the call on cancelling winter sports on Nov. 13, but that has been pushed off until after a court hearing on Wednesday about how much the city owes.

How much will the city have to pay?

It is likely somewhere between $11 million and $55 million, according to court documents. Even with the judge’s ruling, there are several ways to calculate the amount, and the two sides are currently negotiating what that should be. As of Tuesday, there was no agreement.

Montañez has pointed out the school department has never asked for the “full amount” that the city owes each year, signaling he is willing to agree to a number less than the full $55 million.

Of course, a smaller budget hole would be easier to absorb. City leaders have so far identified $2.5 million from a new RISD lease, and some unspent COVID relief funds that will cover some of it. Mayor Brett Smiley has said cuts that could be made include cancelling upcoming police and fire academies, summer learning, and events such as PVDFest or the New Year’s Eve celebration.

Will Providence taxes go up?

Potentially, though not without General Assembly approval if it happens in the current budget year. The city’s budget and tax rates for the current year were set back in June, and tax bills went out in July. Providence can only raise its tax levy — the total amount of taxes collected — by 4 percent each year, which is roughly $15 million. The city already did that this year, so city leaders would need to ask the General Assembly to pass a bill to allow taxes to be raised beyond that cap.

Does Providence owe back pay for the entire state takeover?

No. The city owes the school department for the 2024 and 2025 fiscal years. The three years before that were put to rest in a settlement inked with former Mayor Jorge Elorza in the waning days of his administration in 2022. The city provided $11 million to settle the dispute over the fiscal year 2021, 2022 and 2023 payments.

Aside from that settlement money, Providence has sent the schools $130 million each year of the takeover, with no increase until this year, when the city provided $135.5 million.

Doesn’t the state control the Providence schools? Where are state leaders on this?

State aid to public school districts is calculated based on a formula that includes enrollment and other factors. Providence schools received $294 million from the state this year.

Governor Dan McKee has said it would be unfair to allocate more money to the Providence schools, favoring them over other school districts. Judge Jeffrey Lanphear had a different view. While he did side with the state in the court case, he argued that under the state takeover there never should have been a risk of cutting sports and transportation, as the state could have covered it.

It’s not all up to the governor, though. General Assembly leaders could also appropriate state money to cover the crisis once they convene in January.

What is the Crowley Act, and how does that fit in here?

The Crowley Act is a state law that governs state interventions in local school districts. It says during a state takeover, local governments must increase aid to the schools by the same percentage as total state aid to all school districts increases.

City leaders argue this doesn’t make a lot of sense. If Providence’s school enrollment drops, for example, state leaders could cut aid to Providence, but the city would still have to increase its payment if total state aid to all districts goes up.

Now that the judge has ruled against the city’s interpretation, Smiley is likely to ask the General Assembly to change this law before next year’s budget cycle.

If Providence has been underfunding the schools throughout the takeover, why did it take five years to get to this point?

City and state leaders have indeed been at odds over the calculation of city aid to the schools since the state takeover began in 2019, and the situation has landed in court under both Elorza and Smiley. But both the city and the school department have had heaps of federal coronavirus relief aid that has been used to fill budget gaps, preventing the dispute from turning into a full-blown crisis until now. That COVID relief money expired in September for the school district, and expires in December on the city side. While the school department has had to make plenty of budget cuts in recent years, they did not have actual cash-flow issues until now.

Steph Machado can be reached at steph.machado@globe.com. Follow her @StephMachado.