The Warren Town Council and the Town’s new finance director will need to sharpen their pencils as budget season kicks into gear, otherwise residents might experience a tax increase sticker shock this year unlike any in recent memory.

That was the general message coming from Michael Abbruzzi, former Town Manager and Finance Director and current Director of the Warren Housing Authority, when he provided testimony ahead of the Town Council’s first budgetary hearing for Fiscal Year 2025 (FY25) last week.

Abbruzzi said that without making major cuts to the budget — by his calculations at least $1.2 million — the Town could require an override to the 4% tax levy increase maximum set by state law, and the actual tax increase could approach 7 to 10% if action is not taken.

“That’s the reality,” he said. “I’m sorry I don’t have better news.”

Much of the math to get to that conclusion is straightforward, and Abbruzzi showed his work clearly in a document that he shared with the council. The document shows the past four years of budgets and the two most recent years of actual, audited financial data.

Abbruzzi was also up front that his projections involve some unknown variables (such as how much of an increase the school department will ask for this year, and how much the Town will generate in revenue for the remainder of FY24). Further complicating the situation is that the Town has not been able to reconcile their finances since Fung Chan left as finance director back in October. While newly-hired finance director Dave Burlingame has expressed he is up to the task, the Town’s exact financial situation for the current fiscal year still remains unknown.

“Unfortunately your financial records are not up to date,” Abbruzzi said. “Until that information is available, you can’t use that system to make real-time decisions for your next year’s budget. So you’re going to have to look back at the previous two years of actuals, because you don’t have accurate, current financial information.”

However, even utilizing conservative estimates for these variables, the fixed and known costs ahead display a grim financial picture that he argued cannot be ignored.

Abbruzzi pointed out that the Town had created a $405,000 structural deficit heading into this budget cycle due to its use of non-recurring revenue. That includes $225,000 in American Rescue Plan Act (ARPA) money and $180,000 from its unrestricted fund balance to balance last year’s budget.

“So before you even put a pen to a paper to start your budget, you’re looking at a … 1.4% tax increase because of those structural budget deficits,” Abbruzzi said.

On top of that, the Town has been increasing spending over the past few budgets without having a corresponding increase to revenues to balance that spending.

“Over the last three years, the budget has increased by $1.6 million,” Abbruzzi said. “This excludes debt service and it excludes education. This is just town expenditures.”

Factoring in the first $1 million settlement payment which comes due on July 30, 2025 from an $8 million lawsuit that the Town had to settle back in December — the first of three payments that will have to be paid over the next three years — the money they will have to pay to the school department, and contractual increases to employees and healthcare, Abbruzzi’s bottom line was that the Town could see a necessary tax increase in the neighborhood of 10% if no action is taken to cut spending and expenses.

Proposed solutions

As far as avoiding that worst-case scenario, Abbruzzi said the Council would have to look at departments where spending has increased year over year. If the Town restores its budgetary expenses to levels similar to two years ago, and can find $1.2 million in cuts, Abbruzzi said the tax increase required this year could be closer to 2.4%.

But the only way to get to that solution, Abbruzzi said, was to make immediate, significant cuts to the budget, and to immediately stop utilizing non-recurring revenues to fill budgetary gaps and make capital purchases.

Abbruzzi noted that over the last three years, the Town had allocated around $3.7 million of the unrestricted fund balance in order to fund capital purchases, which include things like new Town vehicles and maintenance on the Town’s wastewater management plant.

Not all of the $3.7 million in proposed capital expenditures has been spent, Abbruzzi said, but it is currently unknown exactly how much has been spent, either, until the Town’s financial data has been brought up to date. And while Abbruzzi said that using fund balance to finance one-time capital expenditures, as opposed to going out to bond for those purchases, is not necessarily a bad financial decision, the Town’s current financial situation should preclude such action until they can better assess how much money they have in their savings.

Council President John Hanley said that all capital project spending had been frozen until the financial picture becomes clear. The Council also acted to de-allocate any ARPA funds that had been allocated but not spent yet. However, it wasn’t immediately apparent if the Town would be able to utilize the ARPA money to supplement their budget.

How did Abbruzzi get involved?

Abbruzzi said he was asked by interim Town Manager Roy Borges to volunteer his financial skills to assist the town as it navigates a perilous budget season that has been colored by a lawsuit settlement amounting to $8 million, which was announced last month. The actual lawsuit amount was higher, but the Town’s insurance group (The Rhode Island Interlocal Trust) paid its maximum coverage amount of $5 million.

That Town’s portion of the settlement will be paid through one $5 million lump sum, which has already been paid out of the town’s unrestricted fund balance, and three, one-time $1 million payments in the coming three budget cycles. The Town had a little less than $8 million in its unrestricted fund balance as of the last completed audit by the state.

It was somewhat fitting that Abbruzzi would be the one to delegate over the steps necessary to take to prevent a worst-case scenario for taxpayers. Under his leadership as Town Manager, he set aside funds each year as a precaution while the Town sued the state over how much money they should be required to contribute to the Bristol Warren School District. When the Town emerged successful in that litigation, that money that had been set aside became the large surplus that has enabled the Town to pay the settlement.

But now, with that cushion gone, Abbruzzi made it clear that the council could no longer lean on their savings account to balance budgets moving forward.

“You can’t continue to pull from your savings anymore because at this point, your savings have been depleted,” he stated. “Now you have to figure out how you’re going to balance your budget without using savings to offset your deficit.”

Some council reaction

Asked about Abbruzzi’s presentation and the overall fiscal outlook of the town, Councilman Joe DePasquale recognized the difficult situation they were in, but also said he was hopeful.

“My outlook is hopeful. This isn’t a situation of a continued wrongdoing or something that was intentionally done,” he said, adding that no municipality could prepare for such a large lawsuit settlement. “Once we have the actual numbers, we’re going to have the leanest the budget and there’s going to be cuts made. We’re going to hope it’s going to have the least impact as possible on the taxpayers. But the sad reality is this financial situation can only be resolved by cutting the budget and a tax increase. We’re going to try to make that impact as small as possible. That’s our goal, and we will get through this.”

Councilwoman Keri Cronin said the presentation helped put things in perspective of the work that needs to be done ahead.

“I have great respect and appreciation for the time Michael took to put that sort of thing together in a very understandable way that made it very clear where we’re at, where we were and where we need to go,” she said. “It was sobering for sure. I think that Michael did a really generous thing and has been really helpful to explaining where things kind of went off the rails. But when we were in it, we thought the budgetary decisions we were making were the right ones at the time, or were prudent at the very least.”