New London - The City Council has received a draft audit of the 2012-13 finances that shows a $200,000 surplus in the $81 million budget. The audit reaffirms a preliminary report in November by Finance Director Jeff Smith.

The extra cash went into the city's fund balance - which serves as a cushion of cash that can be used during the year for unexpected expenses. Last year, the fund balance was nearly depleted when $3.7 million was withdrawn to balance the books for 2011-12, when the city overspent budgets in nearly every department and overestimated its tax collection rate by more than $1 million.

At the beginning of the 2012-13 fiscal year, there was about $300,000 in the account. There is now about $1.5 million, according to Mayor Daryl Justin Finizio. According to the City's Council's policy, there should be about $6 million in the fund balance.

While thanking the council, the administration and the Board of Education for their work in balancing the budget, Finizio also cautioned that the city remains in a "difficult financial position."

"... we are, at least, on a more stable footing to engage in a constructive dialogue on the best way to move our City forward," the mayor said in a statement sent last week to the council's Finance Committee.

According to Smith's preliminary figures released in November, the 2012-13 budget has a $490,000 education surplus and a more than $300,000 surplus in the government budget. But there were also over-expenditures, including $200,000 in the fire department, about $200,000 in employee benefits, and $677,000 in former employee and retiree insurance. The city also saw less revenue than anticipated, including a reduction of about $450,000 in state and federal grants. The city had estimated it would receive about $33.8 million from state and federal grants. The actual number was closer to $33.3 million.

City Councilor Erica Richardson, a member of the three-member Finance Committee, said Saturday that the surplus does not mean the city is out of financial trouble. A $1.5 million fund balance for an $80 million budget is not very much, she said.

"That's a really tiny cushion," Richardson said. "I think it's good news. It shows drastic measures were taken to stop the bleeding, but there's still a lot more to do."

Councilor Michael Passero, who is also on the Finance Committee, said he needs more information about last year's spending plan to know whether the city is doing better. He's disturbed that the audit shows the city has $350,000 in outstanding medical bills that were not paid in 2012-13. He requested the audit be sent to a consultant for review, but he did not have support from his fellow committee members.

"I have a lot of questions, and I'm not sure I have the expertise in municipal budgets to know even what questions to ask," Passero said.

Council President Wade Hyslop, who is chairman of the committee, could not be reached for comment Saturday.

Complicating the city's finances even further is a request by the Board of Education for the City Council to set up a nonlapsing account that the school board would be able to draw upon throughout the year for unexpected expenses. The school board ended fiscal year 2013 with a total audited fund balance of $398,174 and is requesting money be deposited into an account as soon as it is established.

But the council has not yet received a formal request.

Both Passero and Richardson said they support a fund that would help with maintenance costs for city buildings.

"But we don't have any money," said Passero, explaining that the school board's surplus went to balancing the budget.

Passero requested the audit be forwarded to the City Council for discussion with all seven members.

k.edgecomb@theday.com