New London's $12,000,000 Deficit Explained

Following , a number of different sources have quoted conflicting figures.

Councilor Adam Sprecace thinks the deficit is closer to $6 million, and claimed that Finizio's spending over the past few weeks had contributed to the deficit. Kathleen Edgecomb, reporter for The Day, wrote on February 2 that "the shortfall, which spans three fiscal years, is actually closer to $6 million."

These conflicting statements have left New Londoners concerned, confused, and wondering who is lying or twisting numbers. Some feel Sprecace is lying. Some feel Finizio is lying. The fact is, no one is actually lying, but all are talking about different numbers. In order to make sense of this, we must look at the documents that detail the issue and understand them.

Decoding The Budget Information

In the attached document labeled "Budget Information" you will find the estimates of the total structural deficit for the fiscal year, the annual operating budget, and the percentage of the operating budget that we are required to maintain in fund balance, all on the first page. All of these numbers are relevant, but they all must be considered at the same time to understand our situation. The "Total Structural Deficit at 7/1/12" is $6,000,000. This is the number that Sprecace is citing, and the number that Kathleen Edgecomb says is "closer." However, under that you will see it also says:

"Replace Fund Balance pursuant to Council Policy adopted January 19, 1993 8.3% of annual operating budget."

This references an ordinance that mandates the city to keep 8.3% of the total operating budget in the fund balance. Our total operating budget is $82,000,000. 8.3% of 82,000,000 is $6,806,000. So, to recap, we are $6,000,000 in debt. Once we replenish that we are at $0. We are required by law to have $6,806,000 in our fund balance. Therefore, in order to meet the law's requirements, we need $12,806,000.

Kathleen Edgecomb actually references the required fund balance, but makes no attempt to relate it to our deficit or do the simple addition. She instead chooses to obfuscate the facts by saying the deficit "is actually closer to 6,000,000." Neither Edgecomb nor Sprecace have denied this, but they've left the total out of their statements, causing confusion and leaving many New Londoners misinformed and pointing fingers in all directions.

If we do not maintain a fund balance of $6,806,000, it will damage our credit rating, and our bonding rating. This will cause our interest rates to go up, increasing our costs, and cause our deficit to grow even more. Once again, to recap:

$0-($82,000,0000*.083)-$6,000,000= -$12,806,000

After Finizio's announcement of the deficit, Sprecace said that creation of new office space in for the mayor's staff and the in the as well as the police personnel "are costs that were made before the administration had a sense of what the city finances were, I think that’s a problem.” He also said “I was involved during the whole budget process over the past four years. I’ve never seen a deficit like that which was presented tonight.” The terrible irony of Sprecace's statements will be revealed in the following paragraphs.

Personnel Changes and Mayor Daryl Finizio's Spending

In the attached document labeled "Personnel Changes" you will see a memo from Personnel Coordinator Bernadette Welch to Mayor Daryl Justin Finizio. This outlines all personnel changes since Finizio became Mayor. In the second paragraph it says that during the discussions of "revitalizing select departments through targeted retirements" that "the City Manager had been assured by the former Finance Director that F/Y 2011 would either result in a balance or produce a small surplus."

In the second paragraph it says that "the understanding was that the City possessed a fund balance of at least 6 million dollars. ... Therefore, a decision was made by City Manager Rose to offer affected employees retirement incentives." When Mayor Finizio appointed new employees, he appointed them "at or below the wages established for those positions." This shows that Daryl Finizio was indeed given a "sense of what the city finances were" to base his decisions on, though this sense of the finances was later found to be false.

The rest of the document details the retirement of the police captains, the discovery of the financial deficit, and the actions taken by Finizio following the discovery, including directing "department heads to refrain from all but essential spending" and directing the Personnel Coordinator "to postpone all but essential hiring." As for the new office space, that cost was approved before Daryl Finizio even took office.

This document does not indicate irresponsible spending. If anything, personnel changes are exactly what we need when the former government was so clearly neglectful of our finances. What did the previous government do to create this deficit? How did this happen if Councilor Sprecace "was involved during the whole budget process over the past four years?"

Finance Committee Meeting Minutes and Magic Revenues

In the attached document labeled "Finance Committee Meeting Minutes" you will see 10 pages of discussions over revenues from the Finance Committee Meetings held on April 13, 18, and 25 of 2011. Here are some of the first motions passed during the discussion on April 13:

"Councilor Pero moved to increase Ambulance Revenues by $100,000 and investment income by $50,000 seconded by Councilor Sprecace.

Councilor Buscetto moved to amend the motion to increase Ambulance revenues by $50,000 and not to increase investment income seconded by Couilor Hyslop. Motion passed 4-1 (Councilor Pero opposed)

Councilor Buscetto moved the motion as amended to increase Ambulance Revenues by $50,000 and investment income by $50,000 and not to increase investment income seconded by Councilor Hyslop. Motion passed 4-1 (Councilor Pero opposed).

Councilor Sprecace moved to increase investment income by $50,000 seconded by Councilor Pero. Motion passed 3-2 (Councilors Buscetto & Hyslop opposed).

Councilor Sprecace moved to increase personal property audit revenues by $200,000 seconded by Councilor Pero.

Councilor Buscetto Moved to amend the increase to $150,000 seconded by Councilor Hyslop. Motion passed 5-0"

What follows are motion after motion that move to increase projected revenues by hundreds of thousands of dollars. What reason would the Councilors have to expect all of these revenues to go up so much? They also move to increase budgets.

I have an additional 44-page document sitting next to me full of expenditures and revenue increases from the past two years. Could this be a contributing factor to our massive deficit? Is this evidence of cooked books or just poor financial projections? In light of our massive deficit, these revelations call for an external investigation from an impartial entity.

This certainly explains why Sprecace ignored our fund balance requirement and focused attention on Finizio's comparatively minute expenditures. I can't begin to understand why Kathleen Edgecomb or Day columnist David Collins have perpetuated such distrust of our newly chosen Mayor in light of this evidence, but The Day's version of journalism seems to be lacking in both investigation and objectivity.

I believe Councilors Sprecace, Passero, and Hyslop owe us an explanation of their financial projections, as do Pero, Buscetto, and Olsen. Certainly former Financial Director Jim Lathrop, who assured the City Manager of a balance or "small surplus," must have some insight into his $12 million mistake. In the mean time, we need to stop obstructing Mayor Daryl Justin Finizio's attempts to fix our evidently broken government and start contributing to his efforts to make New London the place it has always wanted to be.

UPDATE: On February 3, The Day published a clarification to their analysis of the budget deficit to acknowledge the $12,000,000 deficit.