PROVIDENCE –– For the first time in modern accounting history, the State of Rhode Island ended a budget year in the red because of overspending.

State leaders must now confront a $33.6-million deficit for the year that ended June 30, according to a report by the state controller’s office obtained by The Journal yesterday. The controller attributes the majority of the shortfall –– $27-million worth –– to overspending by state departments, including Governor Carcieri’s office and several departments under his direct control.

“We tried very hard to maintain a balanced budget,” the governor’s budget officer Rosemary Booth Gallogly said yesterday. “I don’t think we ever threw up our hands and said we would end the year in the red … We have never closed with a deficit.”

The governor thought he had filled last year’s budget hole. Now, Carcieri will ask lawmakers for permission to dip into the state’s rainy day fund.

In May, he signed a deficit-avoidance plan, addressing the last budget year’s shortfall of $151 million by cutting health-care and welfare benefits for thousands of children, forcing six unpaid days off on the state’s work force, and ordering an across-the-board 2.7 percent cut of departmental spending.

But things did not go as planned, Gallogly said yesterday. The forced furlough days died in union negotiations and several departments that answered directly to the governor missed spending targets.

They include the Department of Human Services (overspent by $18.6 million), the Department of Mental Health Retardation and Hospitals ($7.8 million), the Department of Corrections ($3.2 million) and the governor’s office ($184,152).

Carcieri will ask the General Assembly in January to scoop $33.6 million from the rainy day fund to plug the hole, Gallogly said, arguing that a provision in the state Constitution supersedes a state law that places strict limits on the use of the reserve account.

The state’s rainy day fund may be used “in the event of an emergency involving the health, safety or welfare of the citizens of the state of Rhode Island or in the event of an unanticipated deficit in any given fiscal year,” according to Article IX, Section 17 of the Constitution. As of June 30, there was $102.8 million in the fund.

“This is exactly what we didn’t want to have happen,” said John Simmons, executive director of the Rhode Island Public Expenditure Council. But “I am not sure what the other alternatives are … I am not sure where else the state is going to have an opportunity to go to have a balanced budget.”

Taking money out of the rainy day fund would require Assembly approval. It may also require a change in state law.

Current law says the money can only be used to plug a deficit “caused by a general revenue shortfall.”

The state has had to dip into the account just once before in the decades since Rhode Island adopted modern accounting practices, according to Gallogly. An auditor’s finding just a few months ago required the transfer of $19.4 million to close out the 2007 budget year.

It is unclear whether yesterday’s news will have a negative effect on the state’s credit rating, although several officials yesterday acknowledged that it may. Gallogly said the deficit did not substantially interfere with the state’s ability to pay its bills.

But if the Assembly agrees to let Carcieri use the rainy day fund to cover last year’s shortfall, the fund would have to be replenished at some point this budget year. Lawmakers assumed they would have to retool the budget when they return in January if dubious personnel savings and human-service cuts don’t pan out.

This is what they expected. Now, lawmakers face a hole of $33.6 million, even before addressing the other issues.

“This puts a lot more pressure” on future budgets, House Finance Committee Chairman Steven Costantino said yesterday. “What’s important is that [the governor] lives within the numbers he’s given. I have tremendous concern that that has not happened. And I’m hoping that as we move into this next budget process, that they do manage to their budget.”

News of the deficit surfaced in an unaudited closing statement issued late last month by state controller Marc A. Leonetti. A final audited version will be released next year.

The Carcieri administration posted the report on the state controller’s Web site yesterday after The Journal obtained a copy from the House fiscal office and began asking questions.

Although the state operates as if its Constitution specifically required a balanced budget, that is not precisely the case.

The Constitution says: “The General Assembly shall have no powers, without the express consent of the people, to incur state debts to an amount exceeding $50,000, except in time of war, or in case of insurrection or invasion.”

Further, state law holds state workers personally responsible for missing budget targets intentionally.

The law allows a 30-day suspension and imposition of a $1,000 fine on any state employee who “knowingly and willingly encumbered, obligated, or authorized the expenditure of state funds in excess of amounts appropriated … or entered into contracts without proper authorization.”

Gallogly said yesterday that the administration projected a deficit of more than $30 million as late as May 15. But she said the governor thought he could close the gap before July 1 by adopting a virtual hiring freeze and placing strict limits on discretionary state spending.

“I think it would be hard to finger someone at a state agency saying they knowingly and willingly overspent their budget,” Gallogly said, adding that the governor’s efforts cut the deficit by at least $5 million. “I think [the governor] was probably as hopeful as I was … because we were trying these alternative actions. He was certainly aware of the challenges and risks we were facing.”

Asked yesterday if the Carcieri administration’s over-budget spending had broken any state laws, Michael Healey, spokesman for Attorney General Patrick C. Lynch, said “this is a good question and a fair question and we don’t have an answer because no one has ever asked us before. We are going to have to research it and get back to you.”

The first sign that the year ended in red ink surfaced last month when the Carcieri administration — responding to a Journal inquiry — acknowledged that it had been charging off portions of the salaries of top people in the governor’s office to other state agencies since mid-June.

Even after charging off those salaries, the governor’s office — with a budget of $4.7 million — ran $184,152 into the red.

“Well, certainly these are extraordinary economic times and the situation illustrates the governor’s position for the past 5½ years –– that the state needs to systematically change the way it does business,” Carcieri spokeswoman Amy Kempe said.

She blamed Carcieri’s shortfall in part on the legislature’s decision to trim the governor’s contingency fund by $487,113.

The governor’s office yesterday did not make available Gary Alexander, the head of the Department of Human Services, which led all state departments in overspending.

Gallogly could not provide a detailed accounting for why DHS overspent by $18.6 million. She said the department had indeed cut health and welfare benefits for children, but that it could not meet the across-the-board 2.7-percent spending cut.

The controller’s report notes that many state departments did not overspend. They include the Department of Children, Youth and Families, the Department of Health, and non-executive departments such as the attorney general’s office, the judiciary and the legislature.

The secretary of state’s office, however, ended the year $646,253 in the red.

Spokesman Chris Barnett said: “Given the budget we had to work with, it was unrealistic to think we could break even given the duties the law gives us in elections, public access and business services.” He cited, as examples, “unrealistic estimates from the state budget office related to revenues from the historical records trust fees as well as the unforeseen cost of accommodating the record turnout for March’s presidential primary.”

kgregg@projo.com