I.            CALL MEETING TO ORDER:
The meeting was called to order at 7:30 P.M. by the Council President.

II.            ROLL CALL:

Roll call showed the following members present: Councilwoman Graziano, Councilmen Andujar, Ritz, Traficante, Councilwoman Vaziri, Councilmen Campopiano, Buonanno, Council Vice-President Haroian and Council President Wall -9.

Also Present: Anthony Moretti, Chief of Staff; Nicole Renzulli, Governmental Affairs & Communications Director; John Verdecchia, Assistant City Solicitor, Michael Marcello, City Council Legal Counsel; Thomas Zidelis, Director of Finance; Rosalba Zanni, Assistant City Clerk/Clerk of Committee; Heather Finger, Stenotypist.

Council President asked if there was anyone from the public or online who would like to speak. No one appeared to speak in person or online.

III.            INTRODUCTION OF NEW BUSINESS

DISCUSSION and PRESENTATION of the audited financial statements of the City of Cranston for the fiscal year ending June 30, 2025 as prepared by CliftonLarsonAllen LLP

Steven Gross of Clifton Larson Allen LLP appeared to speak and addressed slide presentation.

Council President Wall indicated to page 16, Management’s Discussion and Analysis, and stated that as he reads it, it shows deficits of $6.5 million in the General Fund and $3.9 million dollars in School Fund. When he read our City Fund monthly reports, as Fiscal Year closed out, that last report showed us at approximately a $4.9 million deficit. In layman’s terms, why is he seeing those two figures and how do we reconcile with that and which is the actual? Mr. Gross stated that there are three different levels of accounting error that are in your financial statements: governmentwide, which is full accrual. Then the City and School deal with the fund level financial statement, which is on modified approved. Then, there is a third level of accounting which is budgetary accounting. Probably most of the numbers that are reported to the City Council are on that budgetary accounting. The difference between both budget to GAP, the majority of your difference is related to GASB 54 so there is other funds that the City does not budget for that are included into your General Fund as side funds and bringing that activity onto that General Fund skews that number relative to what you see in the Budget to actual reports.

Council President Wall asked if there is a deficit of $4.9 million. Mr. Gross stated that that is what is reported on your RSI1, which is the City’s Budget to actual which is the $4.9 million.

Council President Wall indicated to page 52, “Excessive Expenditures”, and stated that if we look at those bulleted areas, he asked if this is basically an assumption we made and did not materialize and that is where the deficit is. He asked if this is accurate. Mr. Gross stated that those are excessive expenditures. Obviously, every year you have to look at historic trends and knowing things that you do know, such as union contracts. If you have a union contract that you are in year one and you have a three year contract, you know what your budgeted increases are going to be on that union contract, but also you have unexpected expenses, such as last week’s blizzard, which will have a big hit to your Public Works Budget for Fiscal Year 26 because it was not expected. You have to assume some things with the Budget.

Councilman Andujar indicated to “Rescue Fund” line and stated that it was overspent by $441,000. We get Medicaid and get that money back. He asked if we received that money already for Medicaid or was that not accounted for? Director Zidelis stated that this is on the Expenditure side. What Councilman Andujar is referring to is on the Revenue side. On that, what we report is what he refers to as the City write offs for the balances and then the billing expenses were the two components that go into the deficit that you see there.

Councilman Traficante stated that in the summary, the City and the School officials were encouraged to consider implementing budgetary constraints and controls for the current Fiscal Year. He asked if this has been done at the present time. Mr. Gross stated that he is not the Auditor General. That was David Bergaintino’s letter. He is the External Auditor. Councilman Traficante asked if the Administration can answer the question. Director Moretti stated that they are in the process of developing very finite definitive identified controls and measures to mitigate the trend. They have instituted some elements, such as hiring freeze unless absolutely necessary, but Department Heads are being scrutinized for spending at this point. He thinks there is going to be more savings as we look forward once those initiatives are implemented over the coming months. Within the next three to four weeks you will be seeing or hearing of those changes that will be coming about. From the School’s end, we have not spoken with them as to what they are coming up with. Councilman Traficante asked if that has been communicated to the School Department as well about putting restraints on the current Fiscal Year. Director Moretti stated that they got the message. They had a joint meeting with the Auditor General, the Department of Administration of Revenue, Schools and the City, Finance and Executives, and there is another set up for next week.

Councilman Buonanno asked where we are most egregiously off in our projections that added up to that $4.9 million figure in this Fiscal Year that is being reported on this evening. Mr. Gross stated that page 52 shows all those excessive expenditures or the RSI1 gives the Budget to actual presentation you are looking for. Councilman Buonanno stated that when there are deficits reported, it can affect the City or Town’s bond rating. He asked if our bond rating has been affected or if it has changed since this news has come out or since this Council was seated a year and a half ago. Mr. Gross stated that that is more of a question for your financial advisor. All he does is report on the numbers to say that you can use this financial report. The numbers are not materially misstated, and you can rely on the information within it. Director Zidelis stated that since this report, nothing has changed. In August, when we issued the $50 million bond, which Mr. Gross spoke to, Standard and Poor’s took us down one slight notch. We are still in an A+ rated community and Fitch maintained our bond rating. Councilman Buonanno stated the reason he asked is because out in the public, the level of concern is that of twenty years ago and twenty years ago, our bond rating fell significantly. He wants to reassure everyone that that is not the case. Director Zidelis stated that we are laser focused on multiple issues. One thing, the Ordinance relative to our reserve level is 5%. To be at our bond rating, we should be at minimum a 10% reserve level fund balance, so simultaneously, while we are operating the City, we need to continually build up the reserve. The second thing that is a drag on our bond rating, which is liabilities, whether it be the Pension Fund or the OPEB Fund.

Councilwoman Vaziri stated that looking at page 10, she asked why we are collecting less property tax when the taxes went up. Director Zidelis stated that this is due to the phase-out. When the Budget was presented to the Council, the personal property exemption calculation had not been finalized and as of June 30, 2025, we kept that up and we taxed. That $1.7 million, which was the personal property tangible reimbursement from the State, was reduced from our tax bill, but we picked it up on State Aid. So, it is an offset.

Councilman Ritz asked Mr. Gross how he would say the City’s financial health is overall. Mr. Gross stated that he is the External Auditor, he does not interpret the City’s data. He is hired to give an opinion on the financial statements as a whole. He would recommend the Council consult the City’s financial advisor or the Administration. Councilman Ritz asked Mr. Gross if there is one area he thinks we should focus on, what would be his recommendation? Mr. Gross stated IT security because we are in an evolving world with the emergence of AI and other third-party actors that are always looking to grab onto your data through ransomware attacks or anything else. Always making sure you have a robust IT security system and that it is properly funded and data penetration and other penetration tests are being performed. As to the financial statements, always look at fund balance. That is an item that bond rating agencies look at as well as any investors who would look to invest in bonds with the City.

Councilman Campopiano asked Mr. Gross how many other cities and towns his firm audits. Mr. Gross stated that they audit a good number of cities and towns in Rhode Island and New England. Councilman Campopiano asked if other cities and towns are struggling the way Cranston is. Mr. Gross stated that each city and town has their own troubles that they face on a daily basis. A lot of cities have been having issues coming off some of the ARPA monies from COVID. Councilman Campopiano indicated to page 52 “Economic Development”, which is overspent by $200,477. He asked if that is in loans that we give out. Director Zidelis stated that, as everyone may recall, in the formulation of the FY25 Budget, $200,000 was  appropriated for loans, so what happened was that was one of those side funds where the money that was ARPA money that was programmed into the Budget to be spent. The accounting of it inflates the over-expenditure because we had to recognize the transfer of the ARPA money from the ARPA fund to the General Fund as an expense. That kind of accounting also occurred in our IT Department and DPW with tree cutting. So, it is an accounting reconciliation.

Mr. DiMaio stated that, for clarification, he thought the $200,000 in funds was for $21,000 grants. He did not think it was for lending. He asked if that is correct. Director Zidelis stated that if he stated loans, he was mistaken, it was the grants. Mr. DiMaio stated that in the current Budget we are in, there was not a tax increase. It was a level-funded Budget. The last tax increase was for FY June 30, 2024 and that was the last Budget where we had ARPA funds. We had $4.9 million in ARPA funds in FY June 30, 2024 and in this Budget, we did not have those funds roll over and there was no tax increase for June 30, 2025. It was a level-funded Budget. Director Zidelis stated that if you go back and look at the detail behind the financials, in the top portion on the Budget estimate in the collections for tax revenues, the Budget contained $1.7 million, which we knew was going to end up in the form of State reimbursement. o, the actual estimated revenue up top is in the taxes. Down in the bottom when the revenue was recognized, it came in in the form of intergovernmental revenue. Mr. DiMaio agreed, but stated that he Just wanted to clarify the fact that he does not want anyone to have the impression that there was a tax increase in that period.

Councilwoman Graziano stated that for some of the line items, obviously, things happen and those line items are going to vary, but her questions lies with the some of the other line items where why weren’t they flagged as they start to go over and you are seeing a differential at certain point? The ones that are concerning to her are the non-emergency services. Director Zidelis stated that the biggest driver on the Finance line was Severance pay. In Finance, they pay the Severance amount for all departments with the exception of Police and Fire. There is a lot of detail behind every line and if the Council would like, he can provide a summary and explanation of why certain things we are in the red.

Councilwoman Graziano indicated to page 124 “General Property Taxes” and stated that there is a differential of $309,000. She asked if that is unpaid taxes. Director Zidelis stated that the final Budget amount, which did not include a tax increase, included an estimate of $1.7 million worth of personal property tax that are budgeted on that line item, but if you go down to the next line item report, you will see an increase of $9.9 million over in the intergovernmental fund. $1.7 million that is budgeted as revenue up in January property tax actually came in the form of intergovernmental receipts from the State. If you look at the June report, you will see reimbursement phase-out coming in at $1.6 million or $1.7 million with no corresponding Budget line.

Council President Wall addressed the Overtime overbudget and stated that perhaps we are just not making the right assumption in our Budget that that line item should be increased because if you look at the historical averages, those numbers should be higher. When he looks at those line items on page 52 and sees some of those items, we underbudgeted those items. Council President Wall stated that we are the second largest City in the State of Rhode Island and we are definitely going to have Overtime in those lines. That Overtime is absolutely going to be necessary. It is how we budgeted. He thinks it is important. Director Zidelis stated that he agrees 100%. You will always have Overtime because of circumstances beyond our control. It is a matter of managing Overtime. That is a whole other conversation.

Mr. DiMaio stated that, for clarification, in that $306,000, there would be a consideration for some portion of taxes not paid for some liens that have taken place or some tax revenue that the City has not done. Some of that money is uncollected property taxes, which could be on real estate or it could be on another item. Director Zidelis stated that on a budgetary basis, the $1.7 million is a component of the $186 million, so that estimate is overstated because we knew, although we did not know what the final amount was with the State, we knew that money was going to be recognized in the intergovernmental line. There are outstanding tax receivables that are to be collected, but would further increase revenues. Councilwoman Graziano questioned why we are so far off in estimates if we were looking back at previous years. Director Zidelis stated that he can go through line by line and provide bullet information.

Council Vice-President Haroian stated that we were at a meeting two weeks ago and Council President Wall asked that this Audit be printed out for all the Council members. It would have been really nice to have it before our meeting this evening. Having it online was not sufficient. The Council should have been given the tools they asked for to do their jobs. Director Zidelis stated that the Auditor sent the box with the binders. We received them, but does not remember what day it was. They were signed for. No excuses, they never made it up to Finance. Once they had the actual Audit report, they were immediately furnished with the intention of getting to the Council. Council Vice-President Haroian indicated to page 8 “Current and Other Assets” and stated that in 2024 it was 127.9 and 2025 it was 88.8, how did that go down? Did we sell off our assets? Director Zidelis stated that that is in the MDNA and he does not have that answer at this time. Council Vice-President Haroian indicated to page 52 “Law” and stated that this line was overspent by $212,210. She stated that Solicitor Millea has always told the Council that the Law Department comes in underbudget every year. Director Zidelis stated that legal expenses are outside legal counsel third party lawyers representing the City, which is the largest portion of that. Council Vice-President Haroian indicated to “Fire” line and asked how many personnel we have out on injury waiting for the State to put them on disability that we are paying them through the Workers! Compensation self-employed, but then we are paying someone to fill their spot as Overtime. Director Moretti stated that he can approximate, Police may have one or two and Fire, approximately five. Council Vice-President Haroian indicated to page 184 “COVID ARPA Money” and asked how far off we are in this year with that. Director Zidelis stated that we have appropriated the entire ARPA money. Now it is just a matter of spending it before December 31" of this year. Mr. DiMaio stated that June 30, 2024 was the last time ARPA funds were used to fund the Budget. In the Audit period we are in now, June 30, 2025, there were no ARPA funds used as lost revenue. The ARPA funds that were appropriated was a portion of it through a settlement with the Mayor and City Council and the remaining funds were used. They were all used for Capital assets. Moving forward, the FY 6/30/2024 was approximately $4.9 million that was used as a revenue line and the Budget we are in now, we had no ARPA funds in the revenue line at all.

Councilman Andujar referred to slide 14 “General Fund” and stated that he thinks the standards is we have to have 17% in our Rainy Day Fund. Mr. Gross stated that GFOA says that you have to have about two to three months of expenditures in your fund balance. Councilman Andujar stated, hypothetically, we give a bailout and we bail out our $4.9 million and we bail out the Schools at their $4.5 million and we drop it down to five. He asked how bad our bond rating would be if we give this bailout. Director Zidelis stated that the $14 million is already net of the draw on $4.9 million on a budgetary basis so getting it back down to that 5.81%, the number in Mr. Gross’s slide already represents that. Going down another drop would be very bad. Substantial drop would be very bad for our bond rating. Councilman Andujar stated that as we are facing these budgetary basis, if layoffs were to be discussed, he asked that the Administration leave blue collar workers alone. They are the backbone.

Councilman Traficante stated Director Zidelis that by taking the $6.5 million reserves, you decreased our City reserves from 8.17% down to 5.3%. He asked Director Zidelis if he was not concerned by dropping down to 5.3% that it would impact our bond rating and if he was concerned, why do we do it? Director Zidelis stated that there are certain things we could not have stopped. Mr. Gross spoke to the GFOA. He focuses right in on S & P criteria for rating, which is the lowest reserve balance level for our rating category is 10 so before getting to 17%, his goal is to get from our existing 5% threshold to a 10% threshold and that will take multiple years. Councilman Traficante asked Director Zidelis if he is confident at this point in time that our bond rating will not be impacted. Director Zidelis stated he did not say that. Standard and Poor’s was made aware that we were going to have a draw and he thinks the prediction last August, he was projecting a roughly $3 million fund balance draw and he believes he was predicting a $2 million fund balance draw on the School side and we were still in the range of our bond level, but there is not one silver bullet.

Councilman Buonanno stated that if there was going to be a draw from the Rainy Day Fund back in August, the Council should have been made aware of it back in August. He asked what our tax collection rate is. Director Zidelis stated it is above 98.5. Councilman Buonanno asked what the industry standard is. Director Zidelis stated that there is no industry standard, but this is a product of us doing tax sales. Councilman Campopiano indicated to page 52 “Salary” line for Schools, which is overspent by $1.2 million. He stated that that is a big number. Joseph Balducci, School Department Chief Financial Officer, appeared to speak and stated that he agrees that this is a significant overspent in that line item. One of the areas that always causes them grief is teacher substitutes. While they try to budget what they believe is an appropriate level, for one reason or another, that area is always overspent. Other areas that they looked at is bus drivers. They do not have a set salary, it is basically on the length of their run. While they try to guesstimate their best to what they believe it is going to be at the end of the year, that is one of the areas that came in overbudget. He can provide a more detailed explanation of that if the Council would like. Councilman Campopiano indicated to “Other” line and indicated that this line was overspent by approximately $840,000. He asked what “Other line” is. Mr. Balducci stated that when they develop their Budget year over year, they make some assumptions, savings from teacher retirements, staff reductions and so forth. When they developed the 24-25 Budget, that line item, as they define it, Budget savings would be determined stood at approximately $3 million, so that was their goal to try to achieve Budget savings. With some additional State Aid that came to the District and some savings from retirements, they were able to get that down to $800,000. The unfortunate thing is, through the rest of the year, they were not able to achieve internal savings to make up that $800,000. That was a Budget deficit that stayed with them the entire year. That is the reason why that line item shows a Budget deficit of approximately $840,000. Everyone needs to understand one thing, their Budget year over year, when they prepare their Budget, they make some assumptions, but it is razor thin from an expenditure standpoint. So, any little hiccup, whether it be from staffing, they guesstimate a certain amount of savings from retirements that are not achieved. At the most recent School Committee meeting, he identified several areas that caused almost 80-85% of the $2.9 million deficit that was beyond their control. They were outside tuition. He identified the pension. They developed their Budget on June 28" and on the next day, he received a new bill from the State Retirement System and that area in his Budget, overnight, was $1.2 million in the hole. When your Budget is razor thin the way the School is, you never recover from those type of last-minute changes.

Councilman Traficante asked Mr. Balducci if they have presently implemented any budgetary and spending controls to try to avoid a deficit in the current Fiscal Year. Mr. Balducci stated, always. The good news is the General Assembly did not surprise the District when they were analyzing the requirement for funding this year’s pension obligation, so what they told the District what the rates were going to be and that is one of the reason he monitors every two weeks after a particular pay period hits the books. Certified pension and non-certified pension areas are running right now approximately $100,000 in the hole, but that fluctuates every pay period every two weeks, so he is not running a $1.2 million deficit in that area. Unfortunately, because their Budget is razor thin, as an example, if teacher substitutes was overbudget by $300,000, year over year, he can’t automatically go increasing that line item by $300,000, so he has to gradually by putting more dollars in that area to hopefully at some point get into the black. To go from a deficit of $300,000 and you try and fully fund it the following year, unfortunately, they are not able to do that. As the Administration stood before the School Committee, one of the things that they did was adopt a -0- based Budget approach as they created their 26-27 Budget. In so doing, he increased that line item by $300,000. In 25-26, he was not able to do so. The goal in 26-7 is to present a Budget of what it cost Cranston Public Schools to run its system. Councilman Traficante indicated that in the Internal Service Fund, the District is experiencing $9.7 million problem. He asked Mr. Balducci how he plans on addressing that. Mr. Balducci stated that that is a significant deficit that they have to achieve. They have been trying to do it with incremental increase in their Budget the amount of money they set aside for their contributions into that fund. For two years in a row, they budgeted double digit increases. In the year they are in, he believes the increase is either a 10% or 15% increase. The problem is the claims outpace the revenues. What is driving their claims is the drug spend. They are with a certain collaborative, the West Bay Health Collaborative. Two years ago, they negotiated an RX Rebate Program where the collaborative, as a whole, they bring in $30 million over three year period, approximately $11 million a year. Of that $11 million, based on Cranston’s current spend of drugs, hopefully their annual take of that $11 million is approximately $4.5 million. They are going to look at trying to maintain their claims, their spend and bringing in rebate dollars so the combination of those two events, hopefully the goal is to get out of the hole within a couple of years. That is not something that they can erase overnight.

Council President Wall pointed out to Mr. Gross that the fact that the Council received this binder so late and does not know whose fault it was. He stated that he spoke to Mr. Gross on the phone some time ago and expressed some urgency about getting this delivered to the Council and apparently it was delivered to City Hall, but the Council was never notified. If it is ok with the Auditing Firm, the Council will probably ask Mr. Gross to come before the Council again, especially it would be great if he sat before the Audit Committee because he knows they will have some questions, but it is much easier to navigate this in written form.

IV.            ADJOURNMENT

The meeting adjourned at 9:15 p.m.

/s/ Rosalba Zanni

Assistant City Clerk/Clerk of Committees