Finizio says New London will run out of cash in days
New London — The city does not have enough cash on hand to pay its $1.7 million payroll at the end of this week and has asked the state to expedite payment of educational cost sharing funds to cover the shortfall.
Mayor Daryl Justin Finizio, the city’s finance director and the lawyer who oversees the city’s bonding made the announcement to the City Council in a special meeting Monday and urged the council to approve a proposed fund balance replacement plan to prevent the city from going broke before the end of this fiscal year.
“This is really it. I’m not here tonight to warn you that the sky is falling,” Finizio told the council. “I’m here tonight to tell you that it fell. It fell last week.”
Finizio said he received a call from Finance Director Jeff Smith last week informing him that the city had run out of cash. Finizio called Gov. Dannel P. Malloy and asked that the state expedite payment of $11 million in education cost sharing funds the city is due from the state. The governor, Finizio said, agreed to help speed that process up so the city can get at least some of that money this week.
“We should receive that in time to meet the city’s payroll,” he said. “If not, the city would go broke this week.”
At the heart of the city’s fiscal dilemma is its withering fund balance, the account that can act almost as overdraft protection for the city’s general fund, which currently has a balance of $400,000, according to Smith. The fund balance should be equal to two months of operating expenses, or $13 million, according to Mark Chapman, an independent consultant who works with the city.
Earlier this month, in his State of the City address, Finizio called the city’s fiscal problems “a very real, and a very grave, financial peril” and declared the city was out of money and out of time.
Earlier this month, the City Council sanctioned the bonding of $4.4 million to account for state grant funding the city has never collected, and to pay for vehicle purchases made last year that were originally going to be paid from the general fund.
The fund balance replacement plan the mayor and the finance director have proposed consists of three additional steps, two of which were approved by the council Monday.
First, the city would bond about $1.1 million to replace money the city took from the fund balance when projects ran over budget.
That motion passed 4-3 with councilors Michael Passero, Martin T. Olsen and Michael J. Tranchida in opposition. Because the motion received only four votes, it was passed only in its first reading and will require final council approval.
Passero supported the bonding of $4.4 the council approved two weeks ago but said Monday he did so under the assumption that that would be the extent of bonding to replenish the fund balance.
He sought to have the council reconsider their actions from two weeks ago so he could change his vote to one in opposition of the plan, but his motion to do so failed.
Second, the council adopted a resolution that requires it to budget at least $250,000 in each upcoming fiscal year for fund balance replacement until the fund balance is at least 8 percent of the city’s budgeted expenditure, as mandated by a city ordinance.
Third, the council passed a resolution mandating that proceeds from the sale of city-owned real estate must go into the fund balance until it is restored to the 8 percent level and barring the city from counting projected real estate sales as expected revenue in any budget.
Both motions passed 6-1 with Olsen casting the dissenting votes.
“The good news is that if we do [approve the full plan], we are around the corner,” Finizio said. “We can solve this. If we’re choosing not to, we’re choosing to put ourselves in an unthinkable position.”
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