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4 p.m. - 7 p.m. Westerly

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Potential $900,000 deficit is forecast

WESTERLY — The town is facing a projected potential deficit of nearly $900,000 in the fiscal 2014 budget, the town’s finance director told the Town Council Monday.

Finance Director James Lathrop said the projected deficit is due to a $424,058 reduction in funds assigned to the town in Gov. Lincoln Chafee’s budget, a $184,000 contribution the town must make to the state pension system that was not accounted for in the approved 2013-14 municipal budget, a $169,257 projected increase in sanitation operations costs, $250,000 in expenditures related to Superstorm Sandy and the February blizzard, and projected costs of $50,000 associated with new labor contracts, which are currently being negotiated with the police union and Local 808, the union that represents municipal public works and secretarial staff.

Also, revenues in the 2014 fiscal year, which started July 1, are projected to be down by $218,825, Lathrop said.

The lower than anticipated revenues combined with higher than projected expenditures create a “perfect storm,” Lathrop said.

To address the projected deficit, Lathrop suggested the council approve a resolution allowing debt service on the police station and highway garage to be paid using remaining funds from the $16.6 million bond issued in 2005 for the two building projects. Such a move would reduce the projected deficit to $200,000, Lathrop said.

Another means to reduce the potential deficit, Lathrop said, will be to apply revenue derived from a tax sale, the town’s first in five years. Lathrop said notices of the sale would begin to go out in the mail today to the owners of 399 properties who are behind on their taxes. Lathrop said the tax sale should generate $1.4 million.

Unlike most years, in which after one month of the fiscal year, there is little to report, Lathrop said he was compelled to share his observations with the council. “This is not to scare you but it is to bring some concern,” Lathrop said.

He also recommended that non-essential capital purchases be deferred until officials have a better handle on the town’s financial picture.

Council President Diana Serra said she was pleased to learn that Lathrop and Interim Town Manager Michelle Buck had developed corrective measures. “It’s always nice to hear solutions and how we’re going to cut that deficit down. That’s what I want the public to be reassured of, that you are working on it as a team,” Serra said.

Councilor Christopher Duhamel said the town should take immediate steps to identify potential reductions in planned expenditures. Serra said Duhamel’s suggestion would be studied by the town’s “plan B” committee, a group that tracks budget performance.

Buck said she was initially alarmed to learn of Lathrop’s projections but stressed that the projected deficit comes very early in the fiscal year when there is time to readjust. “It’s an eye opener if you will but there is no need to panic,” Buck said.

In a memorandum to the council, Buck outlined a six-step action plan to address the projected deficit.

In addition to the steps suggested by Lathrop to the council, Buck called for reviewing old capital and restricted accounts as another potential source of funds, and refunding other municipal debt.

Also, under Buck’s plan, vacant municipal positions will not be filled. Additionally, Buck said, a new police officer, budgeted for the full year, will not be hired until December.

“The first step in addressing an issue is acknowledging that it exists. Ignoring issues is not acceptable,” Buck wrote in her memorandum.

Councilor Patricia Douglas called Buck’s memorandum a “breath of fresh air” and said Lathrop had warned town officials during the deliberations that ultimately produced the 2013-14 budget that fiscal 2014 would begin with a deficit. “It was ignored,” Douglas said of the warning.

By using undesignated budget surplus funds to offset budget increases, Douglas said town officials had “artificially” kept tax rates stable. Eventually, Douglas said that practice would hurt the town’s bond ratings.

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