Council eyes resolution of East Providence school aid dilemma

City has long been in possession of cash, currently in the amount of $6.5 million

By Mike Rego
Posted 11/6/19

EAST PROVIDENCE — A second attempt at clarifying the matter of outside aid monies in possession of the city owed to the school department shed little new light on the situation, except to once …

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Council eyes resolution of East Providence school aid dilemma

City has long been in possession of cash, currently in the amount of $6.5 million

Posted

EAST PROVIDENCE — A second attempt at clarifying the matter of outside aid monies in possession of the city owed to the school department shed little new light on the situation, except to once again reiterate the former is obliged to the latter currently in the amount of approximately $6.5 million.

Appearing at the November 5 City Council meeting, Ron Nossek of Blum Shapiro, the Cranston-based accounting firm contracted to conduct the annual independent audit of the city’s finances, gave the body some details surrounding the situation, though pretty much left it where it was after a discussion at the council’s previous forum on October 29.

Then, city side Finance Director Malcolm Moore acknowledged the money has long been held in East Providence’s general fund and that the current amount as well as its existence should not have come as a shock to anyone, either elected or appointed officials from both the city and the schools.

Mr. Moore stressed it wasn’t found because a change in the city’s auditors, as some have said or speculated about. Rather, it has always been readily available in annual budget line items named “due to schools” and “due from city.”

“We owe them money,” Mr. Moore said of the city to the schools. “We just haven’t paid them.”

He continued, “This number shouldn’t have been a surprise to anybody. I’m not quite sure how it got to where it was that we were, that I was trying to hide the money. That’s completely false.”

However, to a person, those tenured politicians on the dais, two multi-term members of the council and one a former school committee rep, said they had no inkling the cash was available.

Last Tuesday, Mr. Nossek backed Mr. Moore’s reference to the terms “due to” and “due from,” saying it was incorrect to refer to the monies on the part of the city or the school as a “surplus.”

In accounting parlance, the situation is called an “inter-fund liability” between the city’s general fund and the school’s unrestricted fund.

According to the available records, dating back to Fiscal Year 2011-12, the liability at that time was around $11 million, growing to a high of some $18 million in FY14-15 before falling back to the current $6.5 million as the district has spent it and the city provided it.

Also last week, Mr. Moore said earlier Tuesday morning he sat with Superintendent of Schools Kathryn Crowley and district Finance Director Craig Enos in an attempt to resolve the situation. Mr. Moore said the troika coalesced around the idea of possibly paying out the money over a period of one or two years or “when it make sense to fill the gap.”

He continued, referring to Superintendent Crowley, “She didn’t want to hurt the city by transferring the money and causing another $80,000 in expenses.”

That last figure is key to the entire matter and is presumably why the city has been reluctant to relinquish the money it’s owed the schools for decades.

Two weeks ago, Ward 3 Councilor Nate Cahoon, who for the previous two-plus terms sat on the School Committee, questioned Mr. Moore about the money’s origins and why it was never brought to the attention of either of the city’s governing bodies until recently. Ward 1 Councilor Bobby Britto, now serving his third term on the council, and Ward 3’s Anna Sousa, in her second term, each similarly indicated they were unaware of the matter.

“Why would it ever be spent on the city side at all if only can be spent for school purposes?……At no time did anybody ever say why are you barking for money when there is $6 million available…I don’t know how that can’t come up during budget discussions” Mr. Cahoon asked. “It should not impact the amount we have to borrow, yes or no?”

Mr. Cahoon was alluding to Mr. Moore’s statement earlier on October 29 the city has kept the money in its account, in part, to help lessen the amount it borrows each year to meet its obligations. Because East Providence’s fiscal year (November to October) doesn’t match that of the state (July to June), the city must seek Tax Anticipatory Notes (TANs) each spring in lieu or levy receipts and state aid to meet its bills.

The director said if the city gives the entire $6.5 million to the schools during the current fiscal year, it would mean it would have to borrow that much more in TANs with an expected cost in interest of $82,000.

Mr. Moore added, according to his research, the aid money, from the state and federal governments, has been accruing since at least around 1991. For years, until the school district separated its account, the cash was controlled by the city in its general fund, from which any school department expenses were subsequently paid.

“We never said no to them,” Mr. Moore said, about any requests the city received from the schools. “We have always given them the money when they needed it.”

Reached after the October 29 meeting, Superintendent Crowley didn’t dispute that last statement, although she said she and Mr. Enos “only just found out a few months ago” about the money.

The superintendent said she and her staff looked back on several budgets, noting the aforementioned “due to schools” and “due from city” line items “are not something you would easily pick up on.”

While Mr. Moore said he found the money dates back to around 1991, Superintendent Crowley said it could emanate as far back as 1983 when East Providence, approaching insolvency at the time, requested the General Assembly change Rhode Island General Law allowing the city to receive its share of state aid annually in two bulk sums rather than monthly as the rest of the municipalities did then and still do to this day. The same holds true for East Providence’s arrangement.

“My guess is they (the city) have been using the money to meet cash flow,” the superintendent added.

She continued, it wasn’t until she made the decision to untangle the schools’ accounts from that of the city roughly two years ago did the existence of the money become more readily discernible.

“At that point and time, that’s when they should have said we still have some of your money and given it us,” Superintendent Crowley said.

The superintendent said, upon getting any portion of the $6.5 million, a nice chunk of it, likely in the millions, would be earmarked for the planned replacement window project at Riverside Middle School.

The School Committee has yet to formally way in on the matter, in general. As Mr. Nossak noted last week, it has oversight authority on how the money can and would be spent. The council requested the committee gather for a joint session on November 19 to finally bring the situation to a conclusion.

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