Consultant presents balance-sheet review; council weighs audit and outreach steps

The Newport City Council received a detailed balance-sheet briefing July 7 from finance consultant Chip Stearns, who said the city faces multiple legacy shortfalls and will need additional audit work while preparing materials for the Aug. 12 special meeting.

Stearns told the council that several interfund balances and previously-obligated reserves had been drawn down in recent months and that earlier estimates of interfund obligations have declined from roughly $1.4 million to under $1 million after recent adjustments. He said the water and sewer funds have experienced years of underfunding and that the city has been "deficit spending" in those enterprise funds for multiple years. "I believe it was an 8-year lag, not a 5," Stearns said when asked about the sewer deficit.

Stearns also said the city has triggered thresholds that likely require a single audit of federal grant funds and that the FY25 audit remains incomplete; the city will need to complete those audits in the near term. "We're going to need to do another single audit, around grant funding because we've gone over the threshold of the total amount of grant income that would then trigger that single audit," the consultant said.

Councilors asked Stearns and staff about options for closing gaps short of asking voters to approve borrowing. Stearns said some internal reserves and special-purpose accounts include balances that could be consolidated to shore up cash, but he and other councilors also cautioned that many of those balances are already obligated for specific purposes. He described examples including dedicated recreation and Walmart-related accounts and appraisal and records-preservation reserves.

Why it matters: The balance-sheet review provided context for the council's decision to warn the special meeting and explained the narrow options available if voters decline the proposed borrowing measures (including special tax levies or other statutory remedies referenced in state law).

Audit and procurement next steps - The council agreed the time-sensitive FY25 and single-audit work cannot wait for an RFP process; staff will work with the incumbent auditor (KBS referenced in discussion) to complete the immediate audits and then issue an RFP later in the year to solicit proposals for future audit work. - Stearns and staff will prepare a clear accounting of the water-tower project line items and the amounts the city actually spent, to ensure the BAN and bond warnings reflect accurate numbers.

Quotes "This buys us a year. We're asking for the voters' permission to extend what has been a short term solution with the construction line of credit ... while we arrange the bond that was already approved through, hopefully, Vermont Bond Bank," Chip Stearns said, describing the purpose of the $3 million bond anticipation note.

"We have to be clear with the voters about how this happened," said a councilor (Anne), arguing for an explanatory public document on the deficits.

Next steps: Councilors asked staff and the consultant to provide a more detailed run-down of obligations and available reserves and to finalize a plan for the immediate audits. The council scheduled task-force meetings and an informational hearing the night before the Aug. 12 vote so voters can ask specific questions about deficits, grants and how the city arrived at the dollar amounts on the ballot.