Finance Director Jeff Smith said Monday that New London could draw upon an estimated $1.7 million in funds and other savings to avoid running a deficit in the current fiscal year, but that some measures should only be taken as a last resort.
Smith’s estimate after an analysis of the second quarter of the municipal budget in the 2012 fiscal year is that the city is facing a $1,106,842 deficit. Smith projects that there is a net shortage of $692,847 in revenues and net overspending of $413,995.
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“It is anticipated that this [deficit] will be offset by savings in Public Works and Police (if nothing major goes wrong) and anticipated balances in the debt service fund, workers comp fund, and health insurance fund,” Smith said in a memo to Mayor Daryl Finizio. “As a last resort the city can hold back payments to the library and nonprofits.”
Smith estimates that the revenue shortfalls will include $281,240 in less than expected state revenue for pilot payments and distressed municipality funds, $199,825 less than expected in building permits, and $132,540 less than expected in conveyance taxes. This is offset by funds $31,710 greater than expected in police revenue and $5,000 greater than expected in engineering revenue.
In expenditures, Smith says he expects overspending to include an account on health insurance for retirees and unemployment, which he estimates will exceed budget by $330,158. The other greatest anticipated overspending is an account for the city’s original unfunded pension fund, which Smith says will exceed budget by $167,104, and the New London Fire Department, which he expects will go over budget by $163,280. Smith said these costs will be offset by an anticipated $257,191 in departments coming in under budget, ranging from $1,467 in the City Clerk’s Office to $67,011 in the Department of Public Works.
The estimated overspending in the fire department is down from an estimated $560,295, which Smith originally reported as part of a then $1.4 million expected deficit in the second quarter. Smith said he believes initial estimates of budget overages were too high but that the Finance Department will continue to monitor the fire department’s costs closely.
“There were a number of items in there,” said Smith. “In particular, there’s almost $200,000 in personnel line items that not a dollar has been spent against.”
Councilor Adam Sprecace asked Smith to calculate the exact cost of a delay in the City Council’s approval of a tentative agreement with the firefighters’ union. The minimum staffing levels in the department remained at 18 rather than 16 during the delay, but Sprecace said he calculated that this resulted in an extra $50,000 to the budget rather than the entire amount of overspending that was initially forecast.
“I take issue with the statement that the delay cost $400,000,” he said.
Smith said the city received greater than expected savings in debt refinancing that was included in a revised 2013 budget. He said the city received premium payments in this refinancing and that he consolidated other premium payments that had been in separate capital accounts. He said the city could draw on $600,000 from the debt service fund if need be.
Smith also said Public Works Director Tim Hanser has told him he expects to save an additional $350,000 in the current fiscal year while Police Chief Margaret Ackley expects to save an additional $300,000. Smith said the city would also be able to draw on $200,000 in a worker’s compensation fund and $50,000 in a health insurance fund.
“At this point I don’t like to use up every reserve we have, but we need to get through this year without overspending our budget,” said Smith.
City auditor Ron Nosseck told the Council last week that a preliminary audit shows a depletion in the general fund from $4,979,248 at the beginning of the 2012 fiscal year to $1,262,989 at the end. He said this represents about 1.5 percent of the city’s operating budget and that the city has generally followed a policy to have its general fund at 8 percent of the operating budget, while rating agencies prefer a ratio of between 7 and 15 percent.
Smith said the city would finish the current fiscal year with $593,158 left over to replenish the general fund if it draws on all sources of funding. However, this would include halting municipal contributions to non-profits and the Public Library of New London for an anticipated savings of $200,000.
Council President Michael Passero asked Smith to take the library funding out of consideration, saying he did not think a cut to this money would pass the council.
“That shouldn’t be on this list,” said Passero. “I view that as just a department of the city, essentially. What you’re talking about is closing that institution down, and all the people it serves, and that just doesn’t happen by fiat.”
The Council has received reports on the budget each quarter due to concerns over the depletion of the general fund in the 2012 fiscal year.
“It seems clear that we’ll continue to do this delicate dance with finances, and with all costs we don’t go over,” said Finance Committee chairman Donald Macrino.