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Final numbers from the budget that ended June 30 show that the city finished in the black.

By JOSIE HUANG Staff Writer August 30, 2007

Portland finance officials have closed the books on last year's budget, and the news is not as bad as anticipated.

The school deficit is about $1.7 million -- $800,000 less than feared. Meanwhile, the city is $1.2 million in the black because revenue exceeded spending, countering rumors that City Hall faced financial problems similar to those that led school Superintendent Mary Jo O'Connor to resign on Wednesday.

"Had there been a deficit for the city, it would have taken a bad situation and made it worse," said Councilor James Cohen, who heads the council's finance committee. "Having good news on the city side improves the overall financial picture for the taxpayers of Portland."

Finance officials note that the numbers for the budget year ending June 30 still must be audited and therefore could change. The school deficit, for example, might actually increase once city finance officials take into account grant money.

Ellen Sanborn, the city's budget director, said at a joint meeting of the City Council and school board finance committees that her staff is still trying to determine whether schools overspent grant allocations or mistakenly spent money on programming not covered by grants.

In some cases, money might be recovered if it turns out the schools simply failed to bill foundations that promised the grants.

Sanborn said she hopes to have answers in the next couple of weeks, as people return from vacation.

To avoid future confusion, she advised the School Department to have a policy for administering grants.

"I think there's a little bit of a disconnect about how schools receive awards and how they communicate with the business office," Sanborn said. "In some cases, it doesn't happen very well."

The mystery over grants has helped fuel public outrage over the School Department's deficit, which had grown from a $500,000 projection in May.

School officials also were criticized for deciding to hire more than a dozen special-education teachers and settle employee contracts with 3 percent salary increases instead of 2.5 percent, as projected in the $82 million budget.

Salaries and wages, according to finance officials, were the biggest factors, contributing $1.3 million to the deficit.

The city also spent more than the $139 million in its budget, overshooting by $1.6 million, the city's finance director, Duane Kline, told the council's finance committee and City Manager Joe Gray in a meeting that preceded the jointly held meeting.

Kline attributed much of the overspending to an unexpectedly high volume of material processed by the Riverside Recycling Facility, repair and overtime costs related to the Patriot's Day storm, and workers' compensation costs.

Another major cost driver was the Scotia Prince's lawsuit against the city.

The company is seeking millions in lost revenue from having to evacuate the city's International Marine Terminal in 2004 because of mold and cancel its 2005 sailing schedule to Yarmouth, Nova Scotia.

But the overspending was offset by higher-than-expected state and federal funding for services provided by the city's Barron Center nursing home and Social Services.

Social Services got more MaineCare reimbursement for case management, for example, because of a renegotiated rate and an increase in the number of clients who were eligible for the service.

Other revenue came from collections in interest income, property-tax collections from prior years, recreation program fees, parking and state revenue sharing.

Councilors asked whether any areas of this year's budget are raising red flags yet.

"Obviously, winter always presents its challenges," Gray said. "But being two months into it, it's too early to predict anything."

Also on Wednesday, the finance committees discussed dates for approving the city and school budgets.

In response to a new state law that requires communities to put school...