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Panel OKs measures that help raise cash

June 15, 2013

WOONSOCKET – The state-appointed Budget Commission approved a pair of resolutions Friday designed to raise more than $12 million to smooth out cash flow problems, either in the form of an advance in state education aid or a short-term bank loan.
On the recommendation of Finance Director Thomas M. Bruce, the commission unanimously approved both measures, but he said it still remains to be seen which mechanism would be used to raise the cash.
After Moody’s Investor Service downgraded the city’s bond rating earlier this week, Bruce said it would definitely be less costly to get an advance from the Rhode Island Department of Education, but he said some combination of an advance and a short-term bank note might ultimately be the preferred fix.
“Certainly borrowing is going to come with a premium,” said Bruce. “The advancement of aid is the most cost efficient manner for us to proceed into year two of budget commission oversight.”
The good news, according to Bruce, is that the cash crunch approaching in July is far smaller than it was projected to be just a couple of weeks ago, when a cash-flow analysis predicted a shortfall up to $8 million during the first three weeks of the month. That would have left the city without enough money to pay a $4.8 million debt service payment on its pension obligation bond due July 15, plus about $6 million in payrolls for the Woonsocket Education Department and municipal workers.
The latest calculations show the shortfall has shrunk to less than $2 million, according to Bruce.
CVS/Caremark deserves much of the credit for loosening the noose by providing the city with an early payment of $2.8 million of 2014 property taxes this week. “That was huge,” Bruce said.
But the finance director also said the city is getting more benefit from the patience of its creditors than it realized. The city has asked some of its biggest vendors, including National Grid, Blue Cross/Blue Shield of Rhode Island and Durham School Services to forego payment until the city can muster the cash to pay them.
The city normally shells out about $900,000 a week in payables around this time of year, but thanks to voluntary deferrals from creditors, the figure is closer to $100,000.
“We have deferred a lot more account payable than we thought,” said Bruce. “We’re just not paying any bills.”
Approved by the commission with little discussion, the resolution authorizing the advance calls for RIDE to forward all the aid due the Woonsocket Education Department in April, May and June of 2014 early, a figure expected to range somewhere between $12.4 and $12.8 million, depending on what the General Assembly approves in the state budget. The same mechanism was used by the budget commission during the current fiscal year to satisfy creditors who had been waiting months to be paid for services rendered.
The scenario allowed the city to start the current fiscal year with a clean slate, but it guaranteed the city would run out of money again at the end of this fiscal year. The budget commission has approved a 5-year plan to resolve the city’s structural budget problems, but so far the plan is struggling to get off the ground. A $2.5 million supplemental tax bill sought by the commission is still languishing in the General Assembly, which is about to close out its 2013 session, and the commission is still negotiating concessions on health care benefits and pension rollbacks with employees and retirees.
If there’s a downside to the aid advance, Bruce said it’s that education aid cannot be used for municipal expenses. Still, he said, the money would benefit the city indirectly because it will allow the locally-generated portion of the WED’s budget, or about $18 million, to be doled out more slowly during the course of the year.
State Revenue Director Rosemary Booth Gallogly, who attended the commission meeting in Harris Hall Friday, said she would transmit the resolution to Education Commissioner Deborah Gist as soon as possible. Gallogly said she has already been in talks with RIDE about the need for the advance and expects it will be swiftly approved.
The soonest the city can tap into the funds is July 1, the first day of fiscal 2014.

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