Eight municipalities in northern Rhode Island have lost their fight not to cover a $1.6-million debt left when a state and federally financed job-training program went belly up more than eight years ago.

A Superior Court judge ruled that Pawtucket, Woonsocket, Central Falls, Cumberland, Burrillville, Lincoln, North Smithfield, and Smithfield are liable for any unpaid bills left by the Northern Rhode Island Private Industry Council.

This summer, the towns and cities returned to the negotiating table with the council’s former directors and officials and the organization’s former accounting firm to resolve the outstanding debt, which, with interest, now exceeds $2 million, according to William J. Delaney, the court-appointed receiver for the council.

“The municipalities are on the hook for everything,” said Barry Kusinitz, the lawyer representing Delaney. “While we don’t care where we get the money from, the towns and cities will be held liable.”

The Northern Rhode Island Private Industry Council was one of three regional training programs in the state that counseled and assisted unemployed people with finding new avenues of work.

The council, which at one point had as many as 40 employees working out of its three offices in Lincoln, Pawtucket, and Woonsocket, hired contractors to run job and computer training sessions for hundreds of people looking to break into the customer-service, hospitality, food, and other industries.

But the managers of the council overspent the $3 million in federal and state money that kept the organization afloat, because, they say, they relied on flawed auditing reports by KPMG Peat Marwick, the accounting firm hired to formulate the annual budgets.

The state shut the operation down in 1998 after a $200,000 budget shortfall was discovered. That led to the full-blown investigation of the company’s finances that disclosed a bigger financial mess.

For years the council spent money it never had, concluded a 1999 report from the office of state Auditor General Ernest A. Almonte.

Subsequent investigations by the state auditor general and the U.S. Department of Labor found no evidence of criminal wrongdoing. The officers and directors of the organization were cleared of any allegations of embezzlement or financial misappropriation.

But when the debtors came looking for their money, council officials pointed to the municipalities that benefited from the organization’s services to foot the bill.

A legal battle played out in state Superior Court, with the municipalities, the managers, and KPMG Peat Marwick all trying to pass off responsibility for the unpaid bills.

Then in May 2005, Superior Court Judge Michael A. Silverstein ruled that the cities and towns were liable for debt accrued by the council because of an agreement made with the municipalities in 1983, which said that the towns and cities would “bear equal liability for the improper or inappropriate expenditure” of funds by the NRIPIC.

The judge rejected the municipalities’ argument that the council’s accounting firm and chief officers should be liable for the total amount since it was their mismanagement that caused the problem.

Armed with Judge Silverstein’s ruling, Delaney returned to the negotiating table with the legal teams of the three parties this summer.

Delaney would not comment on how much the individual towns and cities would be expected to pay in a potential settlement, but it is expected to be divided up proportional to the size of each municipalities’ population.

“We are trying to get a number that all parties can live with,” Kusinitz said.

The final debt is also to be determined by Silverstein, who must ultimately decide whether any or all of the unpaid bills have merit and whether the final amount of debt will include interest accrued the past eight years.

With about 100 claims to be resolved and pension and 401K contributions for at least 10 senior managers outstanding, Delaney is recommending that all bills be reconciled with interest.