WOONSOCKET — The state Department of Revenue has laid down a Wednesday deadline for the School Department to submit a plan to clarify its current rate of spending on personnel after the unexpected discovery of a deficit of $2.2 to $2.7 million in last year’s school budget.
If the inquiry points to the incursion of yet another deficit at the end of the current fiscal year, DOR might appoint a fiscal overseer to monitor the city’s expenses, state Revenue Director Rosemary Booth Gallogly said.
“I was a little surprised to hear the school department had incurred a deficit when they had projected they would not be in a deficit,” Gallogly told The Call. “Obviously we’re going to be paying closer attention in the coming months than we were now that a preliminary audit has yielded a result that’s quite different than something they said they were going to yield.”
The revenue director also ordered the school department to get some outside help in supplying some “very detailed” accounting data for personnel and other expenses.
The instructions were handed down during an emergency meeting with city and school officials at the State House Monday.
All this comes just days after the modest surplus School Department Business Manager Stacey Busby had projected for the fiscal year that ended June 30 somehow morphed into a multi million-dollar deficit – a pattern similar to what happened last year under Busby’s watch. School officials have pointed the finger of blame at bookkeeping errors committed by someone other than Busby and unwarranted hiring by former Supt. Robert Gerardi.
The new numbers come from a draft audit performed by Braver PC of Providence, the city’s accountants. Firmer figures are due within a week, said Finance Director Thomas M. Bruce III.
Echoing Gallogly, Bruce said there’s nothing that can be done to eliminate a deficit in last year’s budget. But if a continuation of the trend appears likely, there’s little doubt the city’s finances will fall under increased state scrutiny and control.
“Much of what happens may depend on how quickly and how accurately the school department provides the information the state is looking for,” the finance director said.
More ominously, the mayor said the shortfall adds a new element of risk to the city’s already fragile fiscal health. His biggest short term concern is that the New York credit agencies will further downgrade the city’s bond rating, already teetering at or below junk status, depending on which agency is doing the evaluating.
“Moody’s has already requested a conference call in the next day or two,” Fontaine said. “We need to speak to the bond rating agencies about where this is heading because it’s a very critical matter at this point.”
The background issue driving the latest round of fiscal hand-wringing is that the city floated a $12 million deficit elimination bond earlier this year to wipe out accumulated deficits, prop up its wobbly bond rating and, perhaps most critically, preserve access to short-term credit.
The more the city’s bond rating falls, the harder it is to obtain the short term loans needed to meet everyday bills, putting the city that much closer to a crippling cash crunch.
Normally, it’s against the law for a municipal entity to borrow money to address a fiscal deficit, but in this case the city was allowed to do so with the approval of the revenue director, the auditor general – and an explicit waiver from the General Assembly.
The exemptions allowed the city to avoid a fiscal meltdown like that of Central Falls, which is in receivership, or, more recently, East Providence, for which the state has appointed a fiscal overseer.
But the state permitted the city to act autonomously only under a rigorous set of conditions, including a provision that it continue to operate without deficits in order to remain free of a higher level of state oversight of local fiscal affairs.
So far, that day hasn’t come yet, said Fontaine, but it’s not clear whether the city will be able to avoid it now.
“Obviously I’m extremely concerned,” said the mayor. “Especially since the arrangements we had with the state were done with the very strict acknowledgement that we had to balance our budget at all costs.”
In attendance during yesterday's meeting at the State House were Fontaine, Gallogly, Auditor General Dennis Hoyle, Council President John Ward, newly elected Councilman Marc Dubois (until recently chairman of the School Committee), Finance Director Thomas M. Bruce III, Schools Supt. Giovanna Donoyan, and School Committee members Anita McGuire Forcier and Eleanor Nadeau.
In an interview later, Forcier seemed confident the school department would meet the deadline for providing the state with the necessary information. But she seemed less certain that the school department has much room to make any more cuts to eliminate any sizable deficit, if there is one, in the current year’s budget.
“I think it’s going to take a miracle,” said Forcier. “I do not feel we have the capacity to absorb the deficit. We’ve laid off so many people already our unemployment account is running in the red.”
The latest developments come during a brief period in which the school committee is operating without a chairperson. While the City Council reorganized on the same night members were sworn in a week ago, the school committee is expected to choose a successor to former Chairman Dubois at tomorrow night’s meeting.
Efforts to reach Donoyan for comment about the State House meeting were not successful.