By DONNA KENNY KIRWAN

PAWTUCKET — How did it get so bad?

On a national, state and local level, government leaders and money analysts as well as common folk seem to be wondering how the overall financial picture grew so dark and gloomy so quickly.
As city leaders grapple with the governor’s supplemental budget proposal — designed to address a staggering $357 million state deficit — it can be helpful to look at some of the highlights of an independent audit report of the city’s budget for the fiscal year that concluded this past June.
The city’s Finance Department recently released the annual financial report for the fiscal year that ended on June 30, 2008. The audit report was done by Parmelee Poirier & Associates, LLP of Warwick.
According to Finance Director Ronald Wunschel, the significant point is that to close out the FY08 budget at the end of the fiscal year, he needed to request a reserve fund transfer of approximately $2.5 million.  Of this deficit, around $1.4 million resulted from a reduction in state aid that occurred mid-year. Approximately half of the roughly $900,000 additional shortfall was due to an increase in abatements for property revaluation. The other half came stems from an increase in foreclosures.
“It’s the biggest loss since I’ve been here,” noted Wunschel. He added that the city is now left with roughly $3.3 million in reserves for FY09.
Among the financial highlights, the audit showed that the city’s net assets decreased by $16.5 million as a result of this year’s operation. On a government-wide basis, the city’s assets exceeded its liabilities at the close of FY08 by $85.1 million. Net assets of business activities (functions where costs are recovered through user fees and charges) increased by $5.7 million, or 9.7 percent, while net assets of governmental activities (functions supported by taxes and intergovernmental revenues) decreased by $22.3 million or 53.1 percent.
Also, the city’s government-wide (governmental and business activities) operating expenses were around $267.5 million, an 11.2 percent increase from the prior year, while revenues collected were $250.9 million, a 3.6 percent increase from the prior year.
Additionally, it was found that at the close of the fiscal year, the city’s governmental funds reported combined ending fund balances of about $9.4 million. Over 54.3 percent of this amount, $5.1 million, is unreserved and at the city’s disposal.
The report also states that at the end of FY08, the general fund unreserved fund balance was about $3 million, or 3.9 percent of the total general fund expenditures for the fiscal year. The FY08 revenues and transfers exceeded expenditures and transfers by $295,929.
An analysis of Pawtucket’s net assets show that the city’s governmental activities assets exceeded liabilities by almost $19.7 million as of June 30, 2008. This is a decrease of almost $22.3 million from the previous year.
The largest portion of the city’s net assets, about $143.4 million, consists of its investment in capital assets such as land, buildings, vehicles, equipment and infrastructure, less any outstanding debt used to acquire these assets. Because the city uses capital assets to provide services to its citizens, these assets are not available for future spending.
An additional portion of the city’s net assets, about $29.4 million, represents resources that are subject to external restriction on how they may be used. The remaining balance of unrestricted net assets may be used to meet the government’s ongoing obligation to its citizens and creditors. As of June 30, 2008, the city reported positive balances in all three categories of net assets for the government as a whole.
As to long-term debt, the city maintains an “A3” rating from Moody’s for general obligation debt. The state imposes a limit of 3 percent on the fair value of all taxable city property on the general obligation debt that a municipality can issue. The city’s limit was about $154 million at year-end. The city’s outstanding general obligation debt was around $40.9 million at year-end, which is about $112.8 million under the state limit.
Looking at economic factors and the new fiscal year’s budgets and rates, it was found that the city’s total general fund budget for FY09 amounts to roughly $202.9 million, which reflects a decrease of $638,578 or .34 percent over the FY08 budget of about $203.6 million. Of the city’s 2009 budget, about $94.5 million or 46.6 percent is budgeted for educational purposes and roughly $108.5 million or 53.4 percent is budgeted for other purposes.