As the Portsmouth Caruolo action entered its third day in Superior Court, testimony from the expert accountants began to converge on a deficit number around $900K, Judge Indeglia showed an increasing interest in finding dollars to close the gap, and the PCC spin machine started cranking up in anticipation of a stinging defeat.

"The Town has failed to make a vigorous defense," PCC President Larry Fitzmorris told several reporters at the end of today's session. See how this works? You're supposed to try to get to a quote in the second graf, and he's got 'em. And they sound like sentences, except that they don't jibe with the actual facts we spent the rest of the day hearing about.

The PCC has consistently refused to face reality. They slashed blindly at the budget with no plan. They didn't believe the School Committee. They didn't believe the auditors. They didn't trust Kevin Gavin. They got their outside attorney, who seems to have taken one look at the numbers and decided that the best strategy was to ensure that the judge doesn't shortchange the schools and force the financially strapped town to try to make up the difference.

At least they had a cheap lunch. But more about that later.

Court convened at 11:21 with B&E accountant Walter Edge on the stand, explaining Medicaid reimbursements under cross examination by Town Council attorney Denise Myers. According to an estimate by the medicare billing company, Portsmouth should be getting 200K through June, but Edge defended using a more conservative figure of half that. "This process doesn't turn around that quickly," he said, "You'll see that money next year."

Judge Indeglia came back to the question he's been asking all week, with added emphasis. "Assume you are about to have your qualifications reevaluated by the state. How would you go about cutting 1% of this budget. Your certification depends on it."

Cutting 1% of the total budget of 32M, $320K, Edge said, was not possible. "We have progressed through 3/4 of the year, so that only leaves us $8 million, the rest is spent. We know that 80% of the budget is salaries [and other contractual items] which leaves us 20% of 8M, or $1.6M. One percent of that is $16,000. I believe there are no material areas to cut, and no $320K. You could close a school, but then you would be sued. There's just no money here, judge. At $32M, yes, but not 3/4 of the way through the year."

At Judge Indeglia's request, B&E's Thomas Sweeney retook the stand to explain the line items for the approximately 5 anticipated Individual Education Plan (IEP) and students tuitioned out of district (ODP), at a cost of $17K each.

"This wouldn't even happen until April 1," said Indeglia. "What real educational value could be given to these kids until June? Shouldn't they begin in September?" Sweeney responded that Portsmouth would have no latitude due to state and Federal regulations.

Myers lobbed a hypothetical. "Assume -- you contemplated only two [students] as ODP. There's nothing that says no more than two. What happens if there are more?"

"The money is not there for additional students," Sweeney replied.

"That would lead to another Caruolo action," suggested Myers. But Judge Indglia stepped in, indicating that this was not in the cards. "I intend to monitor this situation very carefully," he said. I could see some very subtle WTF glances being exchanged around the room.

The School Committee rested, and the Town Council began their case by recalling Superintendent Lusi to the stand, and picked up the question of Little Compton tuition. The per-pupil charge of $7,315.97 had been calculated on 157.5 full-time students, and Myers wanted to know how solid those numbers were for the fourth quarter.

"For the purposes of litigation," asked Myers, "I'm trying to figure out if there's a crystal ball." "Absolutely not," Lusi replied. "If they leave after the 3rd quarter, we lose the revenue." All this would seem to be academic, except that the numbers were calculated in October, and Little Compton has yet to make ANY payment, so there is some uncertainty.

Myers questioned uncollected Blue Cross fees from retirees, and Indeglia probed on how much could be saved by not replacing the current part-time finance director until the end of the year (Answer: about 12K, if I did the math right.)

Then John Parmelee of Parmelee, Poirier & Associates, the CPA hired by the Town Council took the stand. He reviewed his credentials, was accepted as an expert, talked about the deficit (projected as of February 21 at $1.1M) and began to review his firm's audit methodology.

Myers got in one question, "Did you find any inaccuracies in the [B&E] reporting methods?" To which Parmelee replied, "No." Then the judge called the attorneys up for a lengthy discussion at the bench. A VERY lengthy discussion, after which court broke for lunch, and the two sides went off to huddle.

So did the PCC contingent, down to just 3 folks today, plus their attorney. All of whom, you will be happy to know, dined most frugally at the Coffee Plus Snack Bar in the first floor of the courthouse. You can get a hot dog for a dollar, or go large and try the chicken salad grinder for four bucks. While I didn't sit and watch them eat (I mean, really, that would be tacky) I did check the trash just after they left. Even with an extra bag of chips, they probably all got out for under twenty dollars. So all you PCC folks, if they're attending on your dime, you can rest easy. Except, of course, for the continued presence of their attorney, Thomas "Doesn't know the difference between it's and its" Wigand. (See: Page 19, Amicus Curiae Brief of Portsmouth Concerned Citizens, 2/6/07)

Testimony resumed after lunch, and Parmelee was reviewing the progress his firm had made in refining the deficit number when he mentioned warrant items. Now, anybody who has been following this story realizes that these are capital expenditure monies which have been moved from the operating budget into a revolving 5-year bond. But Judge Indeglia hadn't been at all the meetings, and he hit the roof. "This is the first time I'm hearing about this," he said. "Somebody better bring me up to speed."

So Walter Edge was recalled to the stand to explain why this money was not available to move into the operational budget to lower the deficit. "Warrant money maintains capital items," he said. "Because of how warrants work, and the partial reimbursement from the state, [the town] would lose 30% of state funds. We concluded that use of warrant money would be unproductive."

After reviewing documentation, Indeglia was still not satisfied. "Instructional materials? That's not a capital item. What you're suggesting is the town and school committee are placing items in warrants that in other places would be part of the budget. It's not a bombshell, but it would make it hard for me to render a decision."

Finally, we got back to Parmelee, and got the total number from the Town accountant: the amount required to finish the year is $889,617. Judge Indeglia asked the inevitable question: "Where would you cut 1%?" Usually, said Parmelee, you'd look at discretionary items like supplies, but given cuts by the Town Council, and the prior work of B&E, "This budget accounts for this 1% cut. In fact, the cuts were pretty close to 1%."

By about this point in the afternoon, I suspect the PCC's cheap lunch might have been churning violently in their stomachs.

Myers called the final Town witness, Finance Director Dave Faucher. He reviewed the history of the past two years, when the Town Council had to cover school committee deficits out of their fund balance, and explained why that would not be possible this year. "The Tent Meeting reduced the town budget by $632,797," he said, putting the town's fund balance (their assets compared to liabilities; essentially, their equity) below the critical accepted threshold of 8% of the budget.

In fact, Faucher noted, things got so bad in February that he contacted the town's bond counsel because he was concerned about making payroll. "That's a big valley before March 1," he said, referring to the quarterly property tax date. Fortunately, a lot of people paid early and the crisis was averted. But there is nothing available in the fund balance.

Myers went hypothetical. "Assume a ruling of 800K," she said. "Would the town have capacity?" No, Faucher replied. The town would have to issue a supplemental tax bill.

Nonetheless, Judge Indeglia was pursuing every option. "Are there any areas you could cut?" "No," Faucher replied. "Not after we sustained that $600K cut. I've lost all flexibility."

On cross examination, Robinson picked up the question of warrant items. These were created, said Faucher, "At the advice of auditors, for items so substantial that they should be capitalized to reflect our asset position." The five-year serial notes, used for items costing more than 5K or with a greater than 1-year lifespan, are actually part of the operating budget of the town, rather than the school department.

"So could these warrant items be converted to cover salary?" Robinson asked. "That's not possible," said Faucher. "We'd have to report to the state, and give money back."

Judge Indeglia, still looking for any possible dollar, asked the auditors and Faucher to assemble documents by 2 pm tomorrow with the actual dollar amounts for all warrant lines, budgeted, spent, and encumbered.

With that, the Town rested, and another prolonged discussion ensued at the bench before adjournment. Like a shot, Loudy was up and working the reporters; when I left, he and Wigand were still bending their ears at the elevator bank.

I'm still wondering about just what kind of "monitoring" Judge Indeglia is thinking about. Maybe we'll hear more tomorrow, but the general consensus from chatting with the auditors is that decisions in Caruolo cases tend to be written, and may not be delivered for a week or more.