Resident accuses Portsmouth of withholding $700K ‘deficit’

Officials blame Heidi Drive settlement, deny deficit

By Jim McGaw
Posted 3/27/17

PORTSMOUTH — The ghost of Heidi Drive reared its ugly head again during an often-contentious discussion Monday night about the town’s financial record-keeping.

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Resident accuses Portsmouth of withholding $700K ‘deficit’

Officials blame Heidi Drive settlement, deny deficit

Posted

PORTSMOUTH — The ghost of Heidi Drive reared its ugly head again during an often-contentious discussion Monday night about the town’s financial record-keeping.

Larry Fitzmorris of the taxpayer group Portsmouth Concerned Citizens, who put the matter on the Town Council agenda, accused the town of running a deficit of nearly $700,000 for fiscal year 2015-2016 without reporting it publicly or to the state, as required by law. 

“I didn’t find out about the budget deficit until it was presented as part of the audit,” said Mr. Fitzmorris, referring to the document prepared by Marcus, LLP, certified public accountants. The audit, dated Dec. 30, 2016, was presented to the council on Jan. 23 of this year.

Mr. Fitzmorris said he could find no references to a projected deficit in the months leading up to June 30, 2016, the end of that fiscal year. A quarterly budget report to the state Division of Municipal Finance in March 2016 as well as a monthly budget report in April 2016 to the Town Council, in fact, projected modest surpluses for the town, he said.

Furthermore, Mr. Fitzmorris said there were no further monthly budget reports made to the council up to September 2016, nor did the town report any deficit and submit a corrective action plan to the state — both required by law.

“Obviously, we’d like to know why we didn’t find out as citizens — why we didn’t find out in public about the deficit,” he said.

Town’s response

Town Administrator Richard Rainer and Council President Keith Hamilton, however, said there was no deficit. Mr. Hamilton said the town in fact finished the fiscal year ending June 30 with a $178,400 surplus in its operational budget.

But then came the $800,000 settlement the town was ordered to pay Rhode Island Nurseries in October — more than three months after the fiscal year ended — to resolve the so-called “Heidi Drive” case. 

The nursery had sued the town after a previous council voted, in 2011, to abandon a paper road the nursery said was necessary for the development of a 14-lot residential subdivision on its farmland in the south end of town.

The $800,000 settlement order took town officials by surprise, but they had no choice but to pay up immediately, said Mr. Rainer. The town had already put $200,000 aside in anticipation of a settlement, and had to take the remaining $600,000 from the bond for the construction of the new police station, he said.

“That’s why it’s not reflected in any reports up to the fiscal year, because no one knew about it,” Mr. Rainer said. “This figure was not known until the settlement in October. The fiscal year closed June 30. Where did the money come from? The money came from the bond that was taken out.”

By law, he said, Marcum had to report the settlement in its audit, which it does on page 79 under the heading, “subsequent events.” 

“It’s not revisionist history and it’s not information withheld from the council,” the administrator said.

After the meeting, Mr. Rainer expounded on the financial dilemma the town faced immediately following the judge’s settlement order in October.

“One of two things we thought would happen. Either the settlement wasn’t going to be agreed to for another four or five years down the line or, worst-case scenario, we’d work a deal out with Rhode Island Nurseries to pay it over time. He wanted lump sum, so we had to figure out where we would get the money from,” he said.

Marcum never called the shortfall a deficit, Mr. Rainer said. “It’s a comparison of the expenditures to the budget,” he said.

‘Hard to understand’

Finance Director John Menke, who was not yet employed by the town at the time of the Heidi Drive settlement, agreed with Mr. Rainer’s interpretation. 

Marcum was “required to show that settlement from the prior fiscal year. It’s just how the accounting laws are written,” Mr. Menke said. “It’s hard to understand from some aspects.”

One council member who had trouble understanding was Elizabeth Pedro, who claimed she was misled about how the town would be funding the Heidi Drive settlement back in October. According to Ms. Pedro, former Finance Director James Lathrop said the $600,000 shortfall would come from the budget fund balance but that $200,000 would be put back annually over three years. 

An exasperated Mr. Rainer, who said an $800,000 check to Rhode Island Nurseries was cut in November, said that wasn’t his understanding. “I can only say that’s not what happened. Is there any implication that we shouldn’t have paid this?” he asked.

Council member Paul Kesson, meanwhile, said he could find no record of the town’s payment to the nursery. 

“You can’t financially see these transactions,” said Mr. Kesson, before Mr. Menke assured him he would look into the matter. Mr. Menke also said he would find out why the state hasn’t notified the town of any missing or late budget reports. 

“If we have not been reporting properly in the Town of Portsmouth, they will tell me,” he said.

Mr. Hamilton said he shared Mr. Fitzmorris’ concerns about the lack of monthly budget reports to the council, but Mr. Rainer said those are back on track.

For his part, Mr. Fitzmorris said he still didn’t have any understanding of the town’s accounting procedures. 

“I find it hard to believe we’re spending money in one fiscal year and budgeting it in another, especially back-budgeting it,” he said.

The council took no action on the matter.

Pension inquiry withdrawn

Mr. Fitzmorris had originally requested another agenda item for discussion but withdrew it before Monday’s meeting.

According to an earlier version of the agenda, Mr. Fitzmorris requested discussion or action on “the Portsmouth pension funding level of 52.5 percent, a shortfall below the state required 60 percent of $6,702,100.”

Mr. Rainer said the town’s funding level is at 54.5 percent, and Mr. Menke projected it will exceed 60 percent by 2023.

About a dozen firefighters who were in attendance left the meeting after the brief discussion on pensions.

Heidir Drive, Portsmouth Town Council, Larry Fitzmorris

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