Wall Street analysts and state financial monitors are raising questions about the fiscal health of Coventry as its school system grapples with growing debt.
Days after Moody’s canceled Coventry’s credit rating, Rhode Island’s auditor general and chief of municipal finance last week requested a sit-down meeting with town leaders and corrective action plan to remedy a $5-million multiyear school department account deficit.
The problem, according to Auditor General David Bergantino and Municipal Finance Chief Stephen Coleman, is that while the town is still trying to pay off a school deficit from the 2021-2022 budget year, school accounts for the years after that pushed further into the red without a plan to pay them off.
And the town has fallen behind on issuing audited financial statements since the pandemic years.
“Late audited financial statements combined with the inability to provide consistent and accurate unaudited financial reporting has rapidly resulted in a considerably more significant financial issue that must be promptly and comprehensively addressed,” the state officials wrote in a letter to Town Manager Daniel Parillo. “Formalized correctiveaction plans are required to be submitted to address and eliminate the School’s known and projected deficits.”
In the fiscal year that ended June 30, Coventry projected a, $822,000 school department operating deficit and then on Sept. 10 reported that the deficit was actually $2.5 million, according to Bergantino and Coleman.
This month’s call for a remedial action plan comes after Bergantino and Coleman wrote to Parillo in May calling on the town to include money to pay off the school debts in its fiscal 2024-2025 budget and provide updated financial records.
“While the proposed Town appropriation takes into account the existing cumulative deficit from fiscal 2022, it does not take into account current projections by the School Department for fiscal years 2023 and 2024 eitherby appropriation, cost savings measures, or surplus development,” the May 3 letter said. “The inability to have current audited financial statements and accurate School Department projections restricts our ability to make meaningful judgements about the Town and School Department finances and the sufficiency of a deficit reduction plan.”
The latest letter from the state came after Moody’s on Sept. 13 withdrew the credit rating for Coventry and four other municipal entities for what the agency described as failure to report financial information.
The Journal reached out to Parillo for comment. Last Wednesday Town Council President Hillary Lima responded in an email that the Council was “taken by surprise” by the Moody’s announcement and “had not been aware of previous communication with town administration.”
“Moody’s recent decision to withdraw Coventry’s bond rating is deeply concerning and requires immediate attention from town administration,” Lima wrote. “The town council is fully aware of the severe consequences this decision could have on Coventry’s ability to borrow, finance projects, and secure favorable interest rates moving forward.”
Fast forward to the warnings from Bergantino and Coleman, and Lima on Friday put the School Department on notice.
“The over $5 million cumulative deficit recently disclosed by the Coventry School Department is more than just concerning – it’s symptomatic of a deeper, systemic failure in financial management,” Lima wrote in an email. “This isn’t just a blip on the radar; as the largest department in town, absorbing nearly 65% of the entire town’s expenditure budget, the School Department’s inability to get a handle on management of its finances directly jeopardizes the fiscal health of Coventry as a whole.”
She added that the town “will not accept the wildly fluctuating financial reports it’s been handed month after month” from the schools, which “calls into question the integrity of the School Department’s financial management and reporting process.”
The financial health of Rhode Island cities and towns was a major concern after the Great Recession, but recent years have brought an economic expansion and generous pandemic aid to municipal and school departments from the federal government.
In response, the Coventry schools “acknowledges the issues with financial information collection and reporting,” but noted that they had “proactively identified and reported budgetary problems dating back to 2019.”
In explaining the red ink, the statement sent via Superintendent Don Cowart said a deficit reported in March had grown as a result of “under-budgeted lines,” and “unexpected cost increases in areas such as transportation and out-of-district tuition.
“We also uncovered a significant salary budget error, attributable to a human error by the previous finance director,” the statement said.
“It is regrettable that certain town council members have adopted an adversarial stance towards the School Department,” the School Department statement said. “The resulting budget constraints from underfunding Coventry Schools have necessitated difficult decisions, including the historic elimination of numerous teaching and support staff positions. There’s not much left to cut.”
This article originally appeared on The Providence Journal: Moody’s cancels Coventry credit rating over growing school debt
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