09/21/10 — Town has juggled checks to pay bills

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Town has juggled checks to pay bills

By Steve Herring
Published in News on September 21, 2010 1:46 PM

MOUNT OLIVE -- For 13 of the past 15 months, the town of Mount Olive has been forced to hold onto checks or otherwise face bank overdrafts of anywhere from $3,264.39 to $86,744.69.

In May, for the second time in as many years, the town had to borrow $200,000 to meet payments on its bonded indebtedness.

Town officials had discussed a second loan in July to help with cash flow, but the Local Government Commission said no, Town Clerk Arlene Talton said.

Town Manager Charles Brown said the town had been looking to secure a second loan and that the bank had been willing to loan money. However, the commission told the town it could not seek the loan. The denial came because of regulations and not because of the town's financial situation, Brown said.

In some cases, checks are being held up to three weeks, reflecting a negative balance on town books. Since the checks were paid once the town had the money, the bank account was not actually overdrawn.

For the most part, the checks that were held were for routine expenses, Mrs. Talton said. However, there were some exceptions.

For example, in February, 205 checks were written and the apparent negative balance was $84,890. The checks include several expenses the town would normally not have, including $6,460 for work on an outbuilding at the fire station and $14,627 for lights for a new police car. It also included a $5,000 contribution to WISH and a $5,384 payment to the Wayne County for foreclosure on property.

In July, 134 checks were written and the apparent negative balance was $86,744.69. That month included $8,333 to Mount Olive College for the final payment on some property the town has bought next to the Housing Authority. It also included a $15,432 payment for workers compensation insurance and $12,680 to Blue Cross for health insurance.

Mrs. Talton said she has seen a few instances over the years in which the town's monthly bank statements reflected a negative balance, but nothing as bad as what she has witnessed over the past 15 months.

"We have just never had cash problem like we have now," Mrs. Talton said.

In previous years, the negative balance average was closer to $3,000 and not the tens of thousands of dollars it has been in recent months. Also, those earlier negative figure were more often than not the result of bookkeeping procedures, she said.

In those cases, a number of bills would show up at the end of the month for purchases. Even though the checks might be written at the end of the month to get them on the monthly printout, the checks would not clear until the following month. The checks were not held and the money would be in the bank before checks were signed and went out, she said.

"I am holding checks (now) because I cannot send them out," she said. "I manually sign these checks and I use the mayor's stamp, but I will not send out checks that there is not money in the bank to cover. The condition is such that I have to key into the bank each morning when our funds get low to make sure we have funds to cover what was going out.

"Aside from the bills, every Wednesday I don't leave here until we have $40,000 for the payroll. We have to assure ourselves that we have the payroll. People are not going to work if they don't get paid."

Making payroll is a reason why checks are being held, she said.

"We have got to have money for utilities, fuel for town vehicles and at the same time we have got to be real cautious of Wednesday to make a payroll deposit of about $40,000," she said. That is expected to fall to about $35,000 since some jobs have been eliminated.

She said department managers have tightened spending and that the reduction in positions will help some, but that "we have never had it like this before, never."

Mrs. Talton said she likes to have checks out by the 10th of each month.

The way the balance is calculated at the end of the month, the checks show up as if they have cleared, even the ones that are still being held on Mrs. Talton's desk.

It is necessary to operate that way to provide a true picture of monthly expenditures, she said.

"Otherwise (department heads) will think they have more (money) than they really have," she said. "With my name being the only one in ink on that check, I am not sending out a check that is not covered."

"It is the same thing that I would do at home if I wrote a check on Friday and I didn't get paid until Tuesday," Brown said. "I might hold the check for a day or two to make sure I had enough money in the bank. Again, I think that is the prudent thing to do. I would hope that most people could understand that."

In some cases, companies including Wal-Mart, Time Warner Cable and NCIS, an Internet provider, have denied credit to the town because of late payments.

She said that one employee had attempted to use a town credit card at Wal-Mart, but was turned down.

Time Warner Cable discontinued services for a brief time following a late payment. The town used its credit card to pay the bill, and the service was back on within just about 15 minutes, she said.

Mrs. Talton said she understood the businesses' situation.

"They have all been really nice to us. The businesses are suffering just like the town. I have learned the ones that will cut your credit off and I try to make sure their checks go out, but that as a whole, vendors have been understanding and good to work with."

Holding checks isn't the town's only problem. Over the past couple of years the town has almost completely drained two $300,000 savings accounts to just over $2,500, including one set aside to meet LGC requirements that the town set aside 8 percent of its budget.

Brown said the town had been able to keep that reserve until the current crisis, when it had to draw down on the funds to help make payments on its bond debt.

One of the savings accounts is set up for the town's ad valorem taxes and used to help with operations bills that average about $50,000 a month. As of June 30, the account balance was $952.68. The second fund is used to satisfy the 8 percent reserve requirement. As of June 30, the balance was $1,626.88.

Replenishing the $600,000, plus paying off the $200,000 borrowed in May, would consume $800,000 of the town's estimated ad valorem taxes of $1,059,154, she said.

"Maybe I sound selfish, but I will not be satisfied until that $300,000 is restored in each account, plus have the loan paid off," she said. "If we have $300,000 on June 30, then we have July, August, September, October, and November -- we have almost six months and that gives us about $50,000 a month to pay on our accountants payable."

The bad economy, reduced state revenues and the cost of the town's new $14 million sewer plant play into the town's budget woes, but so do budget miscalculations and budget overspending over the past three years, Mrs. Talton said.

Brown agrees that the economy in general, and erosion of state funding in particular, have fueled the town's financial problems, but added that overspending has not.

"All I can tell you is the almost five years that I have been here we have never spent more than we budgeted for expenditures," Brown said. "Have we had revenue shortfalls? Yes, we have had revenue shortfalls. We have never overspent the budget in the four and one-half years that I have been here. The implication the town is spending more money than it is taking in is inaccurate."

Mount Olive is in financial difficulty and so is every other small town in the state and probably in the U.S., Brown said.

Mount Olive receives about $500,000 in sales and use taxes, $350,000 in franchise taxes and $25,000 in beer and wine taxes for a total of about $875,000 annually.

Brown said he has spoken with small town mayors and managers from across the state, all of whom are facing the same problems as Mount Olive.

"They are all scared to death that something big, such as a water line, is going to break, a major expense and they will lack the ability to deal with it," he said.

Brown said he sees no end in sight and that he is concerned next year will be even worse.

"I will tell you this, we have never had to borrow money for our bonded indebtedness until last year," Mrs. Talton said. "The reason we had to do that was that we did not have the money. Another thing, too, we can't get away from the fact that the town has upgraded the sewer plant so that has brought us on additional bond payments.

"It has been really tough. It almost makes me cry to think about that $600,000 in those two savings accounts and it takes a long time to get that amount of money saved. The town is really a big expensive business. You have to be careful with the money because you won't have enough if you are not."