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New London expects state funds in time to meet payroll

New London - The state's top financial official said Tuesday that the city will receive an advance on educational cost sharing funds today to ensure that it does not default on a $1.7 million payroll payment it must make Friday.

Benjamin Barnes, secretary of the state Office of Policy and Management, said the city's request that the state expedite the $11 million payment due to the city on April 30 was not unreasonable or unprecedented.

"Right before the April 30 ECS payments is a low period for virtually every community for cash," Barnes said. "That April 30 ECS payment is often a significant source of cash for the month of May for communities."

Compounding the issue is the fact that New London has an anemic fund balance - the account that can act as a financial cushion or overdraft protection - and cannot rely on it during cash crunches as a city with a robust fund balance might.

"If the community has maintained some level of a fund balance, they should be able to weather their low cash periods," he said. "But it is understandable given where they are and the depletion of their fund balance."

Other municipalities have in past years requested an advance on ECS funding, Barnes said, though it does not happen frequently.

On Monday, Mayor Daryl Justin Finizio announced that the city has just $400,000 in the bank, not enough to pay its $1.7 million biweekly payroll at the end of this week.

After Finance Director Jeff Smith informed him of that on Thursday, the mayor called an emergency meeting of his staff and the city's financial team. He then called Gov. Dannel P. Malloy to alert him to the city's situation. Since then, state officials have been coordinating with the city to help avoid a situation in which the city could not pay its employees.

"At this point I feel comfortable, though we don't have the money in the bank yet, that we will in fact have cash on hand and be able to make our payroll on Friday," Smith said.

Barnes said that avoiding a default is important to both the city and state, and that expediting the ECS funds was the obvious and reasonable way to do that.

"We would much rather that Mr. Smith and Mayor Finizio are able to dedicate their time to solving the long-standing problems they are facing rather than lurching from one short-term crisis to another," he said.

Over the last few years, Smith said, he has been in contact with OPM "on a fairly regular basis" to keep the state up to date on the status of the city as it struggles with financial issues.

Smith, who as a former chairman of the Municipal Finance Advisory Commission worked with OPM to improve the financial health of struggling cities and towns, asked OPM officials to review the bonding package he and the mayor presented to the City Council two weeks ago.

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.

On Monday, the council voted 4-3 to approve bonding of an additional $1.1 million to replace money the city took from the fund balance when projects ran over budget. Because the motion received only four votes, it was passed only in its first reading and will require final council approval.

"Obviously, the city would rather not have to do this. But it does appear to be a prudent and responsible approach to solving their short-term cash issue," Barnes said. "As a former MFAC chair, (Smith) is extraordinarily well-equipped to understand the types of action that might be necessary to get through the city's current short-term problems and address them in a long-term way."

What's next

The City Council will hold a special meeting at 7 tonight to further discuss the bonding proposal.


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