Warren faces fiscal crisis in wake of $8 million lawsuit settlement

By Ethan Hartley
Posted 12/20/23

In settling a case involving the serious injury of an infant, the Town of Warren agreed to pay $8 million; broken up into one initial lump sum of $5 million, and three, one-time payments of $1 million over each of the next three years.

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Warren faces fiscal crisis in wake of $8 million lawsuit settlement


A court case that has been a reoccurring feature on executive session agendas for the Warren Town Council for over a year and a half came to a conclusion last Tuesday night — but the long-term fiscal impact of that result for the Town and its taxpayers is still to be determined.

In the case of “Pereira v. Town of Warren”, Town Solicitor Anthony DeSisto told the Town Council during their meeting last week that through a settlement agreement with the plaintiff, the Town of Warren had agreed to pay $8 million; broken up into one initial lump sum of $5 million, and three, one-time payments of $1 million over each of the next three years.

DeSisto told the council that, after many discussions with their insurer (the Rhode Island Interlocal Risk Management Trust), as well as consultants and other attorneys, the conclusion to accept the settlement deal was made to avoid a possible worst case scenario that could have, in his words, “bankrupt the Town.”

“If this case went to trial, the risk of damages, the exposure to the town, would be multiple times that [$8 million settlement],” DeSisto said during the meeting. By agreeing to the settlement, DeSisto explained, the Town’s involvement in the case was finished.

Other details involving the case are under confidential seal in Rhode Island Superior Court, as they involve a juvenile as a plaintiff and because the case is still ongoing. The plaintiff also sued the manufacturer of a carseat following the original incident, which involved a Town vehicle and which DeSisto characterized as a “very horrific accident that resulted in some severe injuries” to a one-year-old child in his statements to the Town Council.

“I can tell you it is probably the most difficult case I have ever been involved with in 39 years of practicing law,” he said.

DeSisto confirmed in a phone call on Friday morning that the Town had already paid for the $5 million portion of the lawsuit — as well as $183,426.57 in associated legal and consultancy fees during the course of the settlement negotiations — from the Town’s unassigned fund balance.
The settlement puts the Town in a precarious position for a number of reasons.

Who’s flying the plane?
Of immediate concern is the fact that Warren is currently operating without a Town Manager or a Finance Director.

Kate Michaud, who assumed the role of Town Manager in late 2019, departed from the position abruptly last month after taking a job with the newly-elected District 1 Congressman, Gabe Amo. Michaud did not respond to a request for comment on this story.

Fung Chan, Warren’s finance director since November of 2018, also departed without much fanfare in early October. Her replacement, Michael Nolette, also departed from that position last week, less than three weeks after taking the job on Nov. 27. Chan could not be reached for this story, and Nolette didn’t respond to an email requesting comments on his sudden departure.

In addition to working with the Town’s auditing firm (Hague, Sahady, & Co.) to prepare the annual fiscal audit that each municipality must conduct, DeSisto said they had already called in the Auditor General for further assistance, and to alert them of the settlement and the Town’s situation. However, he stopped short of saying that the Auditor General was conducting a fiscal audit into the Town’s financial status.

“The Town is reviewing its finances at this time,” he said. “I don’t think it’s accurate to say that there is any audit going on other than the normal annual audit that a town would perform. Is that audit going on? Yes.”

DeSisto said that in addition to their own auditing firm and the assistance of the Auditor General, the Town was working with James Lombardi, an attorney, CPA and former Treasurer for the City of Providence.

Even still, DeSisto said the Town would likely need to seek an extension from the deadline to submit that annual audit, which is coming up at the end of December.

Some napkin math
Such a large settlement will, at the very least, change Warren’s financial outlook and its ability to be flexible with its “rainy day fund” — the money a municipality has on hand that isn’t tied up into specific endeavors or restricted from use; essentially their free cash — for years to come.

The most recent authenticated financial information that is readily available to the public stems from the Town’s FY2022 Audit Report, which covers a period from July 1, 2021 to June 30, 2022. The report indicates that as of June 30, 2022, the Town had around $7.9 million in its unassigned fund balance.

However, there is likely less than that amount in the fund as of today, since the Town approved the use of $180,000 in unassigned fund balance in both the 2022-23 budget from last year and the current 2023-24 budget that was approved in May.

With at least $5 million more of that gone, and another $3 million coming in the next three years, it remains to be seen what measures the Town can and will take to prevent a complete wipeout of their free cash reserves.

On Friday afternoon, during a special meeting of the Town Council with only Interim Town Manager Roy Borges, Town Council President John Hanley, and Councilmen Joe DePasquale and Brandt Heckert in attendance, the Council approved a request to authorize the transfer of the Town’s remaining American Rescue Plan Act (ARPA) funds to the general fund.

Hanley said the move was vetted by DeSisto and outside consultants as an allowable use of that funding. It was unclear as of press time how much of that money would be utilized to address the situation, as Hanley said in a text message that “depended on how much we needed.”

The Town has already utilized ARPA funding to plug budget holes caused by lower than expected revenue from taxes and fees in previous budgets; including $225,000 in FY23 and $225,000 in the current FY24 budget. It was unclear as of press time how much of the ARPA funds were left (the town received $3,141,808 total in ARPA funding).

Not time to sound the alarm yet?
Without key personnel in place, DeSisto and Town Council President John Hanley both admitted that the Town is currently in a place of financial uncertainty. However, Hanley stopped short of sounding alarm bells.

“I wouldn’t say [residents] should be concerned at this moment,” he said. “We’re waiting to get a full, complete grasp on this, and obviously without finance directors and without a Town Manager, it’s making it a little difficult to get a full assessment of where we’re at. I don’t think we need to pull the fire alarm at this time, but until we get a firm grasp of where we are, I can’t really say which way the future is going to go.”

DeSisto said it was prudent to wait to get verified numbers before speculating on what the financial health of the Town was moving forward.

“The Town is in the process of sorting this out,” he said. “We do have some very good help on this from the Auditor General, our auditors, and we hope to have some other consultants help us out in addition to Mr. Lombardi. As soon as we have an accurate picture of the Town’s finances, that will be shared with the public.”

When asked if the Town was considering halting all purchases and spending until the situation was better understood, Hanley seemed to indicate that was the case.

“We are keeping a very tight ship on any capital expenditures that aren’t mandatory at this time, that’s for sure. But until we get a full grasp of exactly where we are, it’s difficult to make those decisions,” he said. “But we have reigned in any capital spending at this point in time that’s not already committed. But until we get a full understanding of exactly where we are, I don’t really want to take any actions that are not required or will be required.”

What about the school bond?
Not to be lost in the shuffle of this is the recently approved $200 million bond to build a new Mt. Hope High School and fix up school buildings throughout the Bristol Warren Regional School District.

The Town of Warren is responsible for about 38% of the annual debt service accrued through bonds secured for the purpose of school construction. No bonds have been taken out yet, and the total reimbursement rate for the district has not yet been finalized (although RIDE has previously indicated that the district should be on track for an 82% reimbursement rate).

According to the math provided by the school district, Warren could eventually see an annual debt service in the area of $800,000 for its share of the bond. Council President Hanley said that he was hopeful those bond payments wouldn’t be coming due until after the settlement is fully dealt with.

“I’m hoping the majority of the school bonds don’t come due to be paid until the $1 million for the next three years is gone,” he said. “I think the bulk of that school bond will come due in 2027/28, and that should be just about when we get done with paying off the settlement.”

DeSisto said that the Bristol Warren School District was “aware of the situation.”

“I think they’re with everybody else. They just want to know what the exact situation is,” he said. “We’re still in the fact gathering process.”

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