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Kirk backs off claim of state deficit warning

Mayor Carolyn Kirk has backtracked from a major finding in the "State of the City" report that led to her conclusion that the recent quality of municipal fiscal management in Gloucester had been extremely dismal.

Expressed with a chuckle as irony or "good news" that "I don't think it can get any worse," Kirk's conclusion elicited chuckles from the approximately 200 people in the Fuller School auditorium to hear her presentation.

But Kirk conceded Friday that one of the five bullet points on the "where we are today" page of her 83-page PowerPoint presentation, on which the "can't get any worse" conclusion was based, was not accurate.

The inaccurate point stated: "In the eyes of the Department of Revenue, Gloucester has been deficit spending for the past six years."

"We've never said that," DOR spokesman Robert Bliss told the Times on Friday after speaking with Gerard Perry, the director of accounts for local services who has been supervising the city's fiscal reporting. Any deficit spending - except to cover winter snow removal and other storm costs - is forbidden by the state constitution.

Kirk later conceded she had misstated the point. She told the Times she had extrapolated or deduced the conclusion from records showing the city has had negative free-cash balances - or made no effort to calculate free case - in each of the past six years, beginning with fiscal 2002.

Bliss, however, said that negative free-cash positions do not necessarily show "deficit spending."

The description of the city's sorry free-cash position and analysis of its bond rating history took up the two previous slides in the 83-slide presentation that earned the mayor strong praise for candor and "transparency."

Shifting forward from those subjects, Kirk - on slide 31 - summarized the case that allowed her to present one of the address' memorable lines - the "good news" line, which she delivered with a chuckle and obvious irony to roughly 200 people in the Fuller School auditorium.

To make the case that "it can't get any worse," Kirk issued findings of: "a $1 million discrepancy (in books for fiscal 2007, which closed this last June 30)," "material weaknesses" in internal auditing procedures, a likely finding that the books were unreliable, the claim that the state has found the city chronically deficit-spending, and an expected bond rating downgrade.

Kirk zeroed in on the $1 million discrepancy as she moved to her next slide, and announced that she might propose using the stabilization fund to finance the hiring of an outside firm to rebuild "from scratch" the previous year's financial reporting record to find the explanation of the "discrepancy."

"The $1 million variance is too big to ignore," she declared in her presentation, which fulfilled the core promise of her successful campaign, to research and report on the status of the city on her 100th day in office.

On Friday, Kirk reiterated her view that nothing should be ruled out or assumed about the $1 million discrepancy.

And while the city's interim auditor, the information technology director, the chairman of the City Council's Budget and Finance Committee and DOR's Division of Local Services agreed that the reconciliation had to be done, they shared an extreme skepticism that the discrepancy highlighted by Kirk was anything other than the city's infamous, poor software in action.

Auditor Barry Boyce said the essence of the problem was that the "treasury has more cash than the general ledger."

"I wouldn't rule anything out," said Boyce, "but it seems like a plus problem, not a minus problem."

Boyce came out of retirement to help sort out the city's fiscal management woes and returned to retirement at the end of last week. He said about 99 percent of the flaws had been fixed, but one remaining involves the roughly $1 million in revenues received that don't show on the general ledger.

He said he was confident he'd solve that problem, too, "if I had time." Pension law allows a retiree to earn up to the level of his or her last salary, but no more.

Information technology director Mike Wells characterized the discrepancy as historic, a problem that has not recurred in more than a year, since a working interface or bridge was constructed between the revenue and general ledger software systems created by the Unifund company as twins unable to communicate with each other.

"Money is not missing," Budget and Finance Committee Chairman Jason Grow said after discussing the problem with members of the mayor's finance team Thursday night.

He did not dispute the need to reconcile the books, but said he was concerned that Kirk was acting like "Chicken Little."

"Let's keep perspective," he said. "It's not like (the money's) going to Mexico."

In all likelihood, said Grow, the discrepancy is "the last vestige of a huge software problem."

Although DOR's Bliss denied that Gloucester has a bad reputation for fiscal management, he said cracking the mystery of the discrepancy "will remove a cloud that's been hanging over the city."

He also said, "We've got lots of confidence in the mayor's ability."

Bliss said no written directives have been sent to Gloucester since Perry's letter in January - commanding Kirk to have the balance sheets for fiscal years 2006, 2007 and 2008 in before the DOR would consider setting the 2009 tax rate. The tax rate is usually set in early December.