Winchendon cannot pay employees, vendors; deficit estimated at $5.7M

Mr. Kreidler 

 

 

 By Paula J. Owen TELEGRAM & GAZETTE STAFF

WINCHENDON — The state notified the town Friday that it has no money to meet its $550,000 payroll nor the ability to make $1.4 million in vendor payments.

The state's step to shore up town finances comes after selectmen late last month questioned why it took weeks before the town manager provided them with an audit that revealed a multimillion-dollar deficit in town accounts. That deficit is pegged by the state at about $5.7 million, but that may change.

In an email Friday to town officials, Gerard D. Perry, director of accounts with the state Department of Revenue, said staff from his office, along with finance officials from Winchendon and the town's financial adviser conducted a cash flow analysis Wednesday and determined the town could not make payroll Oct. 15 or pay its vendors.

"Secretary of Administration and Finance Glenn Shor, upon the recommendation of this office, has approved a local aid advance allotment in the amount of $2.5 million to meet your two October payrolls, and to make vendor payments that are due," Mr. Perry wrote.

"Arrangements have been made to immediately distribute $2 million for the October 15 payroll and the vendors, and another $500,000 for the October 29 payroll distribution, which will occur in the coming weeks. Please be advised that the Town of Winchendon must submit to Dennis Mountain and Deborah Wagner from the Bureau of Accounts, all payroll warrants for October, and a list of vendor payments that need to be made.

"As you know, we have worked closely with Winchendon officials to determine the extent of the deficit for FY15," the email continues. "Based upon the information to date, it is my opinion that there exists approximately a $5.7 million deficit for the current fiscal year. We will not be able to determine the exact amount of the deficit until mid-November, when your outside auditors complete the FY14 audit. It is possible, if not probable, that this deficit amount will change in either direction, based upon additional information provided."

Mr. Perry asks that officials come up with a plan by Nov. 7 to deal with the deficit that equates to over half of the town's operating budget. That plan should include cuts to expenses and increases in revenue, he said.

"As a result of our preliminary information regarding this matter, I need to require that the elected and appointed officials from Winchendon submit to me on or before Nov. 7, 2014, their plan on how the community will resolve an FY15 deficit in the amount of $5.7 million," he said. "This plan should include, but not be limited to revenue enhancements, expenditure reductions, management efficiencies or consolidations, or any other proposal the town deems appropriate. This will be necessary to certify your balance sheet for free cash as well as approve the FY15 tax rate.

"Should your plan suggest deficit legislation, which at this point may be necessary, the Commonwealth would entertain your public policy thoughts from the appropriate Winchendon officials on the type of legislation to be developed, especially your ideas on the level of state intervention and oversight," he said. "This input would certainly be considered by this office, the legislature, and of course the governor in developing the appropriate language."

When asked for comment about the state's announcement Friday, Town Manager James M. Kreidler Jr. said in a text in response to the DOR's email, "Anything I have to say will be said unfiltered on Wednesday at the public meeting."

Special meeting Oct. 15

A special joint meeting with the Board of Selectmen and School Committee on the issue is planned for Oct. 15 at 7 p.m. at Town Hall. The town accountant and Finance Committee will also attend.

Maryann Merigan, spokeswoman for the DOR, said Friday evening that Mr. Shor approved the $2.5 million local aid advance allotment earlier in the day to help Winchendon meet October payrolls and make vendor payments.

She said the advance of local aid funds to the town is an earlier payment than the local aid schedule normally provides, and it is not additional local aid funding beyond the local aid amount authorized for the town in the fiscal 2015 budget.

When called about the DOR's email, C. Jackson Blair, chairman of the Board of Selectmen, said he sees no way the town can avoid making cuts to services.

"They haven't finished — the FY '15 audit is not done yet," Mr. Blair said. "We will have to start considering changes in services and taxes, any way to collect the money to pay this."

He said it was his understanding that the town must first do all it can to reduce the deficit before going to the state for a bailout.

"We have to present to the state all the ways we will cut to reduce the size we have to borrow," he said. "I don't see how we can do it without cuts."

Following release of the news of the health insurance trust deficit, selectmen voted 3-2 for Mr. Kreidler's resignation, but his contract states a fourth-fifths vote is needed to terminate it.

Subsequently, the School Committee voted to have the school district's attorney probe the town's handling of the school district's revolving accounts and the health insurance trust that school employees are 77 percent holders of and refer it to Attorney General Martha Coakley's office and the state auditor, if deemed necessary. The School Department alleges that about $460,000 of money earmarked for education placed in a trust fund is missing.

The School Committee also voted unanimously to request selectmen again ask for Mr. Kreidler's resignation and if he again refused to resign, to request selectmen not renew his five-year contract that is up June 30, 2015.

School Committee members also took a vote of no confidence in Mr. Kreidler.

School Superintendent Salah E. Khelfaoui said Friday officials need to put their differences aside and work on coming up with a plan to deal with the town's financial situation.

"The problem is very serious and we need to put our differences aside — the town manager, town accountant, business manager and officials — and sit down and do exactly what we were told by the DOR," Mr. Khelfaoui said. "We need to formulate a solution as opposed to tearing each other apart. We do not want to be cut out again of discussions so we know what is happening with the schools. Until now, we were cut out of discussions by the town manager and town accountant and we don't know what they are suggesting for solutions because we are not part of it and we need to be part it."

Contact Paula Owen at powen@telegram.com. Follow her on Twitter @PaulaOwenTG.