Brien Protests Budget Commission Accounting on Deficit

City Council President Al Brien took issue with an accounting maneuver Finance Director Thomas Bruce characterized as a $4.8 million IOU from the City to the School Department at Monday's Budget Commission meeting.

Bruce said the IOU, an inter-fund liability, is similar to the $2 million liability the City's Hydro Fund recently paid to the City's General Fund. The debt was paid little by little over decades starting before 1980, he said, with operating surpluses. The new liability will likely be paid off in the same manner, Bruce said. 

Bruce said the move, approved by Woonsocket's new auditors, Cohn Resnick of New London, CT, transfers an apparent City surplus in the General Accounting fund to the School Department to cancel out part of the department's $9.3 million deficit, leaving it at $3.5 million.

Bruce said taking on the liability improves the City's financial outlook with auditors and rating agencies, preserving Woonsocket's ability to issue bonds and continue operations. "A deficit of $3.5 million City-wide is a vast improvement," over the city's previous situation, Bruce said.  

The City had $5.3 million in cash on the books as of June 30, 2013 that came from about $2.5 million in revenue from operations (fees and fines collected) and an early $2.8 million tax payment from CVS. That relates to a $5.9 million cumulative surplus, Bruce said.

In November, the Budget Commission passed a resolution authored by Bruce at the direction of RI Director of Revenue Rosemary Booth Gallogly to transfer the $5.9 million (save for a restricted $325,00) from the City's General Fund to the School Department. The amount was reduced by about $1 million thanks to unanticipated revenue in the General Fund, leaving it at $4.8 million, he said.

The City did not pay the $4.8 million as cash, Bruce said, since it was reserved for other municipal needs, and would've required the Budget Commission to approve the payment. So, instead, there is a $4.8 million liability on the General Fund's ledger and a corresponding payment due on the School Department's ledger, Bruce said.

"There was no surplus. You know it and I know it," Brien said during Monday's meeting. He said the money will eventually have to be paid to the School Department. 

"It's a cash flow issue, not a budget issue," said Budget Commission Chair Dina Dutremble.

Bruce said the City will not have to pay the $4.8 million to the Schools for some time, as in the case of the Hydro Fund, unless the Budget Commission rules the Schools need some portion of it over and above what's in the 5-year-plan. Once the Commission is disbanded, the City Council would need to authorize any payment.

Bruce said the move, while unusual, and not likely to have passed by the City's former auditors, Braver Group of Providence, is legal under the extraordinary powers granted to the Budget Commission by the Fiscal Stability Act.
 
Dutremble suggested that Cohn Resnick send a representative to their next meeting Jan. 27 to further explain the accounting strategy.