No one can fault Adam Sprecace, the lone Republican on the City Council, for not doing his homework. Intent on challenging the finance director's warning that New London faces a $4.5 million deficit this fiscal year, the councilor reports he spent almost 100 hours over three weeks examining city financial records.

The good news is that Mr. Sprecace concludes in his 31-page report that Finance Director Jeffrey Smith's deficit projection is far too high. The bad news is that the councilor's own estimate is nothing to cheer about - a budget deficit of $1.13 million. That would follow a deficit of about $1.3 million the prior fiscal year that ended June 30, 2011, according to a draft audit report.

Mr. Smith says he is not buying all of Mr. Sprecace's numbers anymore than the councilor is buying into the director's outlook. The finance director tells us his first warning of a large pending deficit three weeks ago represented an assessment at a point in time, with information still being evaluated and not including steps to slow spending.

Since that first accounting, Mayor Daryl Justin Finizio has ordered a hiring freeze for non-essential positions and the refinancing of some city debt to cut interest payments. The finance director said he has discovered unaccounted for revenues and adjusted some expenditure items, crediting Councilor Sprecace for his contributions to that effort.

We suspect the final shortfall at year's end will fall somewhere between Mr. Sprecace's estimate and the finance director's original number.

It is also welcomed news that the Finizio administration is working with the public schools administration, council and state officials to collect $3.6 million in state contributions toward school construction in the city over the last several years. Though the money is already counted as deferred revenue in the fund balance (the city's rainy day fund), it is important to get the actual cash in hand.

Yet none of these developments should lead citizens to conclude that things are fine. New London still faces a serious fiscal challenge. Successive large deficits (the only debate appears to be how large) show a structural problem with revenues failing to balance with the cost of services. Tax revenue projections have repeatedly fallen well short of estimates. The prior council helped avoid a tax increase by boosting expected revenues from fees and interest earning by $521,000, estimates that the finance director contends were in some cases unrealistic.

Some of the proposed savings Mr. Sprecace points to are one-time savings, such as $413,336 by keeping 13 vacant positions empty. Most if not all of those positions will have to come back online eventually. New London is not a city with excessive services.

Before it can address the problem, the council and administration need to agree on the scope of it. Portions of Mr. Sprecace's report appear more political than financial. He ties $886,715 in expenses to the transition to the new mayoral government. Perhaps one-third of that amount can be fairly connected to the transition, the rest are expenses the city would have incurred in any event or are overestimates.

The real culprit here is the state's tax system and the lack of any county government, forcing municipalities to depend on state largesse and property taxes for city and school services. With 5.5 square miles of land, several large non-profit institutions, and limited space for commercial development, it is close to impossible for New London to raise the revenue it needs to support city services. The result is overly burdensome property taxes, a burden that will almost certainly grow heavier in the next fiscal year.