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August 17, 2006

Sh*t Falling On Lynch’s Lap

by at 2:02 pm.

The new City Manager has a heap ‘o trouble to deal with, with Lowell reportedly on the “short list” of the Dept of Revenue’s towns with “acute fiscal issues,” the dubious honor shared by less than 15 other communities right now - including deep-in-the-hole Springfield.

Yes, Virginia, we are being audited.

It seems only yesterday certain people were praising former CM Cox for his fiscal abilities and giving him undue credit for the revival of some parts of Lowell. Now, it appears, as Councilor Rodney Elliot states, “we were left in the dark by the previous administration.” Indeed, the Sun reports that the DOR sent a letter to Cox in January and March of this year, but the City Councilors appear not to have been informed.

Makes you wonder if John really jumped ship so he wouldn’t have to deal with this, doesn’t it? After all, rumors abounded that he was planning to resign anyway.

Particularly ominous to me was this (emphasis mine) :

“It is crucial that we act quickly to close out the books on FY 2006 and commence the audit for that period,” Lynch wrote in the memo. “Without DOR approval of a free cash number and a tax rate, we will be forced to borrow funds in order to pay operating costs including salaries and utilities.”

Lynch said the audit should have started early last spring, because it can take up to six months to complete the process.

But no worries. Wally Fernandez assures us this is no big deal: “My view is they are not serious…What it all means is we have to tighten up the budget. There’s just not enough revenue.”

Remember that, next year when you-know-what hits the fan during the confusion of trying to set the right tax rate. Even in a normal year, it’s no small task. Imagine trying to do it with two hands tied behind your back and your head stuffed in a toilet. I think we can safely say no one can envy Lynch the job ahead.

27 Responses to “Sh*t Falling On Lynch’s Lap”

  1. waittilnextyr Says:

    When you first announced the coup d’etat, I commented the following:

    “Why would the council turn so quickly on Cox? Although there are clearly some rifts recently, what has surfaced does not rise to the level of termination. That could be bad news for us, as there may be a more significant problem yet to be exposed. Let’s hope we don’t end up paying the piper.”

    If that assumption is true, then maybe the council has known about this problem. And, if they did, were they open with Lynch when interviewing? It remains to be seen if Cox hid the bad news from the council, or if they managed to postpone the inevitable release. Which is it?

    In any case, the last statement from the quote is likely to happen with the upcoming tax rate, and the only ones to take the fall will be the taxpayer.

  2. Ryan Says:

    Yikes. Good luck with that; it’s especially tough to help rebuild a town when there’s a lot of financial difficulties going on… especially if the populace didn’t know they were going on in the first place. Hopefully what happened to Springfield won’t happen to Lowell because, if anything, what we learn from state involvement there is they can’t fix sh*t either…. rofl.

  3. Mike Says:

    I think this is merely a warning of sorts to get our act together, and not the on-the-brink of a control board situation that some are making it to be. We’ll see though.

    While Cox should have addressed these letters in the Spring, I wouldn’t be surprised if he wasn’t distracted during that time with people trying to get him canned. Not an excuse at all, but it happens during lame duck periods.

  4. Mike Says:

    As for Springfield the control board there reduced a $41 million deficit, I think, in half in less than a year so I wouldn’t be so quick to discredit them.

  5. Lowellian Says:

    C. Elliot’s comment about being “left in the dark by the previous administration” is LAUGHABLE!! The truth is that C.Elliott, although the self-proclaimed fiscal watchdog, never heeded any of the CM Cox’s warnings about spending. Remember the Lowell Sun had to recently remind Elliott about his refusal to believe Cox’s Reserve Fund forecast last year?? I think DECIDING TO STAY IN THE DARK added $2.2M to the tax levy!! Brilliant!!

    I’m sure that several of C.Elliott’s colleagues will be jumping on his bandwagon. They are no doubt hoping to redeem themselves and turn the tide before the next election.

  6. K-R-S Says:

    There is equal responsibility all around, from the former CM, the Auditor, the CFO AND the Council.

  7. waittilnextyr Says:

    I’m not sure you can blame Elliott for the spending itself, but rather the use of reserves to minimize the tax rate increases. That use of reserves usually came in the late Autumn when the council was setting the tax rate, whereas the spending was set in the prior late Spring when the budget was set.

    As far as the CM not responding to DOR, and apparently not letting the council know of the letters, I cannot buy the lame duck excuse. The first letter was supposedly dated 3 Jan 2006, well before the lame duck period. And even as a lame duck, it would be unconscionable to hide the information from the council. So, did he, or didn’t he?

  8. Lynne Says:

    Thanks waittil, that’s what I was going to say…he wasn’t a lame duck when he was supposed to start dealing with this.

  9. Mr Lynne Says:

    From the Sun article: “City Auditor Walter Fernandez said he was unaware of the DOR letters or budget issues until Lynch told him on Monday.”

    Either this is worse than it looks because Fernandez is lying or it is worse than it looks because Cox kept him in the dark too.

  10. Mr Lynne Says:

    I mean… why would a City Auditor need to know about DoR concerns about the necessity of an Audit? What’s really going on here?

  11. Eleanor Rigby Says:

    Rita Mercier was on WCAP yesterday afternoon and in the short time I listened she opened
    the 5 O’Clock hour by downplaying the problem and implying that she didn’t know that
    spending down free cash would bring questions from the state. I’m not a Cox fan or
    supporter, but that IS something he kept telling the council even if he “forgot” to mention
    the state was asking question.

    But more disturbing to me was the fact that in the time I spent listening (admittedly less
    than 45 minutes) NOT A SINGLE PERSON CALLED TO QUESTION HER! Apathy lives.

  12. Mr Lynne Says:

    RM seems oftentimes to be the least informed of the CC members… maybe that is a factor in the lack of peopel calling in.

  13. I81U812 Says:

    Eleanor: Why do you feel it’s necessary to leave your face in a jar by the door, anyways? LOL Remember who ELSE listens to that babble on WCAP. Rita and her supporters. When you start talking about bond ratings, review boards, receivership etc, you may as well be asking them to split an atom. When you put it in the context of “Hey, this bum took my money!!” you’ll get more response. Rita’s people aren’t listening to the radio at 5pm. They’re already asleep.

  14. Lowellian Says:

    I have a feeling that this issue is a lot less significant than certain interests would like us to believe. A convenient story to spin. The Lowell Sun mentions but downplays the fact that the audit currently being conducted is an “annual audit” of city books. and that the DOR “offered” to have it staffers take a look too. It sounds a far cry from the “receivership” and “control boards”- and idea that some bloggers on this site seem to relish!

  15. Highlander Says:

    I wonder if that’s why Pangy, Murphy and Coggins didn’t want the job.

  16. Mr Lynne Says:

    Lowellian… given that this is not yet (and may not yet become) an issue of receivership or control boards, there is still
    the issue of why this was not handled properly (keeping DoR interest from the Auditor or the CC).

    If its no big deal then why didn’t even the City Auditor know about the letters?
    Was this just CM incompetence?

    Its got to be either a sign of willful obfuscation, and therefore shady, or incompetence and maybe no-big-deal. Either doesn’t look good.

  17. Lowellian Says:

    How do you know that CM Cox didn’t handle this “properly”? How do you have any idea what CM Cox did as far as this DOR issue is concerned? If the City Auditor (appointed, retained and supervised by the CC) is as “incompetent” as so many seem to suggest, then would the CM be handling it “properly” by seeking his advice??

  18. Mr Lynne Says:

    Call me crazy… but in my company when something having to do with Audits is brought up, we generally include
    people who’s job it is to handle Audits in on the conversation. If I had reason to suspect that such people shouldn’t
    be brought in (ethics, competence, whatever), I’d bring my boss in on it and explain it. Cox did neither. I don’t know
    that Cox didn’t tell Fernandez about the letter, which is why I left open the possibility that he was wrong in my other
    comment (see # 9 above).

    Either way… this isn’t evidence of something right happening, its evidence of something wrong.

  19. Mike Says:

    There is no evidence of anything other than a late annual audit and still the city’s highest bond rating in history. Cox warned the Council a million times about spending free cash.

  20. Mimi Says:

    So this is how this is going to be played!

    The successful aspect of the ex-CM’s tenure were the result of his talent and leadership; the failures,like the spending of free cash was the result of the Council not listening or failinmg to follow his advice. Wasn’t one of his options to cut back on spending; perhaps lay-off some people; like some of his supporters?

    And Mike, why should we have a late audit? That it itself is plenty wrong.

  21. Mr Lynne Says:

    There is evidence that the DoR was ignored by the Administration. This was either deliberate or a mistake. Either isn’t good.

  22. Eleanor Rigby Says:

    I81 asked: Eleanor: Why do you feel it’s necessary to leave your face in a jar by the door, anyways? LOL
    It was the 60’s version of security cameras! :-)

  23. Eleanor Rigby Says:

    As for Cox handling this “properly” as his supporters are now trying to spin. Cox didn’t tell his bosses,
    or the city’s CFO and apparently the City Auditor that DoR was in contact with his office about the city
    finances. Whatever way you want to spin it, that was just plain wrong! Is it a big deal financially? I don’t
    know yet, but it is a big deal when Cox fails to tell the elected representatives of the people. It apparently
    is a pattern of his administration. Didn’t the CC learn of the drop in Lowell’s rating from Bernie Lynch during
    his interview for CM? Another “oversite” on Cox’s part? I’m sure there is more.

  24. K-R-S Says:

    El…There will be more, so much more, I am quite sure.

  25. JANE Says:

    From the Beatles tune Eleanor Rigby, “wearing a face that she keeps in a jar by the door.” This is a great line to ponder over. The face is the face that she puts on to look beautiful, the jar being the makeup jar from which the face comes. She waits each night by her door, waiting for a caller, all prettied up with no one to notice.

    More FYI:

    Governor Paul Cellucci
    State of the State Address
    Thursday, January 20, 2000
    Following is the full text of Gov. Paul Cellucci’s State of the State address:
    “I am especially glad to see so many of you assembled here in the heart of the historic City of Lowell. It is fitting that we begin a new century of growth in the foreground of the spires and smokestacks of the last great technological revolution….And in Lowell, and across Massachusetts, the state of our state is the strongest it has ever been. Nine years ago, unemployment in the Greater Lowell area was nearly 10 percent. Today it is less than 3 percent.
    Nine years ago we had the highest unemployment rate of any industrial state in the nation. Today it is the lowest.
    We are rebuilding Lowell, and the rest of Massachusetts, from a new position of strength. A short decade ago our bond rating ranked dead last. Just this month Moody’s Investor Services upgraded our bonds again, for the 4th time in eight years, which should save taxpayers $100 million in borrowing costs. “

    2005 Long Term Bond Ratings:

    Chelmsford- AA
    Dracut- A
    Billerica- AA-
    Haverhill BBB+
    Holyoke BBB

    Massachusetts Department of Revenue
    Division of Local Services
    Municipal Databank/Local Aid Section
    Standard & Poor’s Bond Ratings

    Definitions of Long-Term Bond Ratings
    AAA
    An obligation rated AAA has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
    AA
    An obligation rated AA differs from the highest-rated obligations only in small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
    A
    An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
    BBB
    An obligation rated BBB exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
    Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least degree of speculation and CC the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
    BB
    An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
    B
    An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
    CCC
    An obligation rated CCC is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
    CC
    An obligation rated CC is currently highly vulnerable to nonpayment.
    C
    A subordinated debt or preferred stock obligation rated C is currently highly vulnerable to nonpayment. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A C also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
    D
    An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor’s believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized

  26. Eleanor Rigby Says:

    Jane says:
    From the Beatles tune Eleanor Rigby, “wearing a face that she keeps in a jar by the door.” This is a great line to ponder over. The face is the face that she puts on to look beautiful, the jar being the makeup jar from which the face comes. She waits each night by her door, waiting for a caller, all prettied up with no one to notice.

    Yes I know, the ” 60’s version of security cameras” was a joke!

  27. waittilnextyr Says:

    It looks like the “insignificant oversight” could be a $6.3M hit to the taxpayers.

    Hopefully, Lynch can make some recommended reductions to the poorly constructed FY 2007 budget that was passed (and re-passed, after Elliott’s reconsideration failed on a 5-4 vote)this summer.

    If not, that $6.3M could be a 10+% tax rate increase, over and above that which was pre-supposed in the ill-advised budget.

    As stated before, only the tax-payer will be held accountable.

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