New London - Without steps to reduce spending, the city could be looking at a $1.4 million deficit in the current $40.8 million general government budget, according to a midyear report by Finance Director Jeff Smith.

With revenues for 2013-14 projected to be about $410,000 less than expected, and expenditures trending to be in excess of $1 million more than what was budgeted, the city would nearly have to deplete its savings to balance the books at the end of the fiscal year on June 30.

Shoring up the budget with fund balance money would leave about $30,000 in the city's reserves. According to a City Council policy, there should be about $6 million in the fund balance.

Departments with projected overruns include police, $486,000 more than its $7.5 million budget; fire, $182,000 over its $5.5 million budget; and public works, $315,000 over its $7.4 million budget.

In a memo last week, Smith cautioned that the end of the year projection is "no more than an educated guess." He asked department heads to underestimate revenues and overestimate expenditures.

'Worst-case scenario'

"By doing so, this is the worst case scenario - not the best," he said in the memo, which was addressed to Mayor Daryl Justin Finizio and City Council President Wade Hyslop. "... Let me reiterate one more time that these are estimates based on preliminary data. This is not what will happen because we are making changes to ensure that it doesn't happen."

Smith said the city intends to make mid course corrections so the budget will be balanced at the end of the year.

"It is imperative that the City begin to include a contingency in its budget," he wrote.

The Finance Committee is expected to review the report at its meeting 5 p.m. Tuesday at City Hall. A City Council meeting will follow at 7 p.m.

Last January, the city was looking at a potential $1.4 million deficit in the $41.3 million 2012-13 general government budget. But a draft audit released in December, which also showed a $4.9 million savings in school spending, left the city with a net surplus of $200,000 for the fiscal year that ended June 30, 2013.

The finance committee also will discuss a request from Public Works to spend $250,000 to clean up a closed-off room in the first floor of City Hall where a steam pipe broke and mold has grown up the walls and across the ceiling. Ledge Light Health District ordered the city last week to address the leak and clean up the room.

The money also would be used to create a plan to correct other problems in the 100-year-old municipal building, which include a 5-foot hole in the ceiling of a vacant second-floor office where a sewer pipe had ruptured overhead, chipped and peeling paint throughout the building lack of hot water in some of the bathrooms and potentially high moisture levels in the basement where documents are stored.

The funds would come out of the state Local Capital Improvement Project grant. Each year, the city is eligible for about $280,000 in LoCIP funds that can be used only for building and road projects. The municipality completes the work and then is reimbursed by the state. The finance director has said there also might be some remaining LoCIP funds available that were not spent during previous years.

k.edgecomb@the day.com