Budget spat jeopardizes school bond projects

Warwick Beacon ·

The relationship between the Warwick School Department and the City Council has seen better days, and school department officials are now concerned about being able to fund needed capital projects for the next two summers within a timeline that will satisfy the state’s requirement for reimbursement.

The issue is not that the bond funding requires approval – voters in Warwick overwhelmingly approved the $40 million bond initiative on November’s ballot – but that the school department and city council are currently engaged in a gridlock where the council will not meet with the schools in order to release the first round of funding to the tune of about $6.15 million.

It also appears that the gridlock hinges on the school’s lawsuit against the city.

“The issue is that right now there's an outstanding complaint against the city and they're claiming millions of dollars that they're owed and it's going to cost us a lot of money to defend that,” said City Council President Steve Merolla. “It's putting the cart before the horse to say we can commit to X dollars for X amount of time down the road.”

Merolla said that the schools went forward with a lawsuit despite the fact that Mayor Joseph Solomon had offered to pay the remaining balance for principal and interest for a $25 million school bond that was initiated in 2006. That payment would amount to $1.75 million this year, and in years moving forward, according to Merolla.

“We're in a position right now where we're trying to settle that dispute and they've rejected that proposal,” he said, adding that negotiations were still ongoing with the new school committee.

As things currently stand, the school department has not yet earned a place on the docket for either of the council’s meetings in February (the 4th or the 25th) to advocate for the release of bond funds.

That presents a big potential problem for the hopes to get meaningful projects done – the top priority ones associated with student safety – not only this summer, but for the summer of 2020.

Warwick Public Schools finance director Anthony Ferrucci explained recently that the department is looking to replace six fire alarm systems – four at elementary schools, one at Winman Middle School and one at Toll Gate High School – in addition to conducting three roof restorations during the upcoming summer.

However, Ferrucci is concerned that any bond funds released after February wouldn’t become available until after the summer has concluded. He mentioned in his experience with bond funds, if they were released in January, they typically became available in August. Such a delay would push back all anticipated projects by a year, he fears.

Worse still, the state has a requirement for housing aid reimbursement on capital projects that limits all repairs with bond funding be completed within a five-year time window.

“By delaying this one to two years, we will not achieve all the bond projects the community has been promised within the five-year window,” Ferrucci said. “Whatever doesn’t get completed won't be eligible for housing aid.”

As things stand, Warwick receives about 40 percent reimbursement through the state following the completion of capital projects. Thanks to the $250 million bond passed statewide in November, municipalities in Rhode Island are also now eligible to receive up to 15 percent in capital project costs up front from that pool of money on a pay as you go basis, in addition to certain eligible bonuses which can push the reimbursement rate even higher – as long as the bond money needed for the projects has been released through city council approval, of course.

The reason a delay in February can mean an entire year of setbacks is due to how municipalities must go out for bid on capital projects happening down the line. A project that is slated to occur in the summer of 2020 must actually begin in 2019, with the paying of architectural engineers to design the scope of the work to be included in a bid package, which would need to be sent out with ample time to acquire a contractor and begin work the next year. It also includes the paying of an OPM (owner’s project manager) to oversee the capital projects – a new state requirement.

To date, Ferrucci calculated that Warwick has already charged about $200,000 towards capital costs for the upcoming summer, which was necessary in order to have this summer’s project bids go ahead as planned. Bids for work to occur during the summer of 2020 would need to go out sometime around Thanksgiving this year, Ferrucci said, which means if bond funds are not available until after then, it would delay 2020 projects to 2021.

Merolla said that if the schools were being honest, they could take the $1.75 million offered and use that to fund the necessary costs associated with the summer’s projects.

Ferrucci said the schools had an obligation to utilize the bond funding approved by voters for those projects, and that the $1.75 million offer has, to date, never been formally presented to him. Even further, the money would only fill one known hole within the nearly $5 million deficit facing the schools.

$1.75M won’t fix it

“Where I get confused is how this $1.75 million, from the mayor’s perspective, is supposed to cover two holes,” Ferrucci said. He said the money would cover the $1.75 million hole for principal and interest, but that’s all. It would not open up room in the budget to bring back other cut items, like custodians or the mentoring program.

On top of the current year’s problems, Ferrucci said the department faces 3 percent raises for teachers stemming from the new collective bargaining agreement that will add between $3-5 million more expense in next year’s budget.

Merolla said the schools electing to not take the $1.75 million offer was not the only issue causing the city to pause before committing to going out for bonding. He said the fact that there is a lawsuit against the city could cause more problems, such as the city’s credit rating going down and causing the overall cost of a bond in the long run to be higher.

“If we go out to a bond on this and there's a lawsuit out there saying they're going to sue us, if you have litigation out there, what's that do to the standing or the evaluation of the ability of the city to pay its debts?” he said. “You could have a downgrade and when you have a downgrade your interest rates could go up.”

“They're hurting our bond rating by suing the city, which hurts them,” he said.

Ferrucci wasn’t buying this rationale though, considering comments made on multiple occasions by Mayor Joseph Solomon that the city’s rainy day fund – the amount of money Warwick has on hand to deal with unexpected, unbudgeted expenses that also greatly impacts a municipality’s bond rating – was actually significantly lower than was reported in the audit for the prior fiscal year; by as much as half of what was reported; as much as half of what previous Mayor Scott Avedisian had indicated in the FY18 audited budget summary.

“If the city's financial condition has degraded to that level, the bond rating will be decreased regardless of any lawsuit we have pending,” Ferrucci said.

Although Merolla indicated that talks between the council and new school committee were ongoing, Ferrucci said that school department administrators had not officially sat down with the mayor and city officials since their series of negotiating meetings came to an end last November.