New London - The city finance director has identified about $1 million in revenues that will be used to offset a projected $4.5 million deficit in the current year's budget, which ends June 30.

"We found almost $1 million in revenues we hadn't identified last time we did this,'' Finance Director Jeffrey H. Smith told the City Council's Finance Committee Monday. "We could find more money in the capital projects."

Smith also told the committee that the city's cash flow is in "good shape" and that one of two bond agencies that deal with loaning the city money has agreed not to downgrade the city's bond rating. Smith said he is waiting to hear from the second agency.

Smith said the "found" money includes about $250,000 from the deferred revenue account; about $85,000 in refunded electric bills; about $250,000 from the lease-payment segment of the capital projects fund; and $200,000 in an account for matching employees' 401(K) retirement accounts. The money had been set aside but was not needed, Smith said.

"We were as surprised as you are about finding this money,'' he said.

The finance panel has asked each department head furnish updated projected expenses and to provide a strategy to show how the department will stay within its approved budget. Public Works Director Timothy Hanser is expected to appear before the committee Feb. 21 to explain where cuts are being made in that department.

Other department heads will forward their reports as soon as they are available.

The council is also waiting to review the audit for the 2010-11 budget, which Smith said could show a $1.5 million deficit. In the fall, councilors were told that the spending plan, which ended June 30, 2011, showed a slight surplus. That audit should be completed within the next few weeks, Smith said.

The finance panel has been meeting on Mondays to try and get a handle on the city's finances after Mayor Daryl Justin Finizio announced two weeks ago a projected $12 million deficit. Those numbers included the projected $4.5 million deficit in the current year's budget, a $1.5 million deficit in last year's budget and money that would be needed in next year's budget to cover those shortfalls.

The council, which is in charge of the city's finances, was unaware of any deficits until the mayor made the announcement at a press conference.

"I still do not believe there is a $4.5 million deficit,'' Councilor Adam Sprecace said Monday. "Several areas were not counted that should have been counted. Those items will chip away at that deficit."

Future meetings are expected to be held at 4 p.m. Feb. 21 and March 5.

k.edgecomb@theday.com