Smithfield Passes 2027 Budget
Article QuoteBFRB member Ken Sousa was less optimistic. He said the town is relying on its fund balance to balance the budget. In 2020, he said Smithfield had a fund balance of $20 million. By the end of next year, that balance could be as low as $7.6 million. Clarification and Details
It is unclear the source of the $20M value. The June 17 analysis of the Town’s fund balance was in front of me at the podium. It could have been a mistake on my part. The FY2020 fund balance was $15,073,626. This value is consistent with the Town’s CAFR document as well as the RI Auditor General’s report from October 2025.
The other clarification relates to the “next year” value. The last two columns on the analysis are FY2026 (which just ended last week) and FY2027 (which will be 6/30/27).
Since at the time of the analysis, the Town’s final surplus or deficit is not known since the current fiscal year (FY2026) has not been completed. In the analysis report, the ending fund balance was imputed as $7,633,665; the same ending fund balance for FY2025. This value was used as an assumption that the Town’s ending budget (revenue – expenditures) would be $0, no change to the fund balance.
This analysis was compiled to estimate that if the Town’s recommended budget (submitted on March 1) were adopted, there would be a $1.260M loss which would have reduced the fund balance to absorb the operating loss.
In non-accountant’s terms (sorry CPAs 
) … the fund balance is the same as a household’s savings account. If the family does not have the funds in their checking account to pay the month’s bills, a transfer from the savings account would be needed to pay the difference. The same process works for cities and towns.
If (repeating IF), the FY2027 ending surplus/loss was $1.26M, then our fund balance would be reduced to $6.37M.
The discussion at the Council meeting was to point out the difference in the Town’s financial position (fund balance) would decrease by $8,699,961 since FY2020, a 57% decrease in fund balance.
Based on research on how Moody’s Rating Service would view this decrease, the research said:
Moody’s would view a 50% fund‑balance decline as a major negative credit event. It strongly signals structural imbalance, weakened liquidity, and reduced financial flexibility. In most cases, this triggers a Negative Outlook and often a downgrade, especially if the town is small or has a concentrated tax base.
The research continued to report why a 50% decline is so serious …
Moody’s evaluates fund balance inside the Financial Performance factor (30% of the total score). A drop of this magnitude almost always indicates:
- Structural budget imbalance (recurring revenues no longer covering recurring expenses)
- Weak financial management or forecast errors
- Reduced ability to absorb economic or revenue shocks
- Higher likelihood of cash‑flow borrowing
- Erosion of reserves needed for emergencies or capital needs
Moody’s places heavy weight on multi‑year trends. A one‑year 50% drop is treated as a trend inflection point, not a blip.
The budget adopted by the Town Council removed any structural deficit. However, assuming FY2026 and FY2027 have no impact on the fund balance (revenue – expenditures = 0), the FY2027 fund balance of $7.63M will remain.
Ultimately, the Town must change the mindset to change the fiscal results to re-build the fund balance higher WITH spending less than revenue. Otherwise, an emergency or other unforeseen circumstances will create a more difficult fiscal situation.
Future members of the Town Council will have difficult fiscal decisions. Taxpayers and residents need to understand this issue will not “wish itself away.”
Our future leaders (elected and appointed) must be courageous and honest to face this challenge successfully. This task will not be easy. However, whether elected or not, I will be honest and transparent about the situation before the budget process begins.
Download a copy of the analysis that that I read at the Council meeting by clicking here.
Thank you for reading. Appreciate your support! Ken