Columbus general obligation fund chart sources: Years 2010-2017-State Auditor's Office; 2018 previous reporting; 2019 report by city CPA consultant Mike Crowder.
March 21, 2019 11:00:35 AM
If the city's contracted financial consultant is to be believed, Columbus will be out of money and overdrawn at the bank by Sept. 30.
Mike Crowder, a certified public accountant tasked with reviewing city finances, presented councilmen the grim prognosis Tuesday evening. At current spending rates, he projected the city's general fund will be more than $338,000 in debt at the end of the fiscal year.
A cash flow analysis that was part of Crowder's presentation projected the city's revenue for the next six months at $10,915,010, while remaining expenditures will track closer to $14,165,310. That difference, Crowder projects, will entirely wipe out the $2,911,419 general fund balance and put the city in the red.
"I don't see how that deficit's going to be made up," Crowder told councilmen. "I don't know how the magic numbers will just come forward without more debt and I don't like debt. I'm against debt right now."
The report rattled several councilmen, who are now scrambling for ways to avoid the city's bank account going bust.
Mayor Robert Smith, on the other hand, said it's not yet time to panic.
"It's definitely a problem, but I wouldn't call it a crisis yet," Smith told The Dispatch. "... (Crowder's report is) just projections, and you can't get a true picture until you get to the summer months. By then, if you see things are looking rough, then you have to start thinking about layoffs and things like that, even though we're going to look at every measure we can to keep from layoffs.
"What we really need is a month-by-month analysis (instead of the six-month projection Crowder presented)," he added. "That will give us a better idea of where we are."
Councilmen like Ward 2's Joseph Mickens aren't terribly confident in the mayor's "wait-and-see" approach.
"The time has passed for 'let's wait and see,'" Mickens said. "It's time to react, and we need to react now."
Among the bigger issues Crowder reported, the city owes $50,000 more to Columbus Light and Water than the budget initially reflected. And he noted a $37,000 expenditure listed as "former CFO errors," referring to budget mistakes blamed on former Chief Financial Officer Milton Rawle, which Crowder was hired to fix.
One of those errors, Smith said, was a misunderstanding of the city's ad valorem tax needs.
Smith said the city should have raised the property tax rate by 2 mills in September (which would have raised about $384,000 this fiscal year), to cover debt from general obligation bonds. Since the council didn't, that money must come from the general fund.
He blamed Rawle, who resigned in February, for the council not taking proper action. Next fiscal year, the council must raise the millage 3.84 mills to cover the debt payment without dipping more into the general fund, Smith added.
Crowder also counted a $100,000 expenditure in his report the council approved to pay Path Company to study the feasibility of installing almost 4,300 LED street lights in the city.
Smith said that line item was a mischaracterization because the city could roll the study cost into a bond to pay for the project, a debt which a projected $400,000 in energy and maintenance cost savings would more than repay. But if the city doesn't go forward with the project after Path completes the study, the city must pay the $100,000 from its general fund.
Crowder's report doesn't even count what the city will pay to mitigate the $4 million in damage a February tornado caused its streets and other property.
"We know we're going to have to borrow money to do what we need to do with storm cleanup," Smith said. "Then (the Federal Emergency Management Agency) will pay us back."
FEMA reimburses 75 percent of those costs typically, while the state chips in 12.5 percent. The city will still shoulder the remaining 12.5 percent (about $500,000 if the projection is correct).
'We spent too much money'
Over the past two fiscal years, Columbus has carried deficits of more than $800,000 in its general budget. But if Crowder's numbers prove true, that deficit this fiscal year would be closer to $2.5 million.
"How did we get here?" Ward 6 Councilman Bill Gavin said. "We spent too much money. That's how. ... We've not been working off of realistic budgets, and that's been a big part of the problem."
Mark Crigler, president of Bank of Commerce, where the city places its accounts, said if the city ran out of money by year's end, it would likely have to borrow funds to pay its remaining bills. By bank policy, he said, it would be unlikely to grant the city special overdraft privileges.
"Our official policy is if there aren't funds available, we don't honor the check," Crigler said. "It's not customary to honor an overdraft without a solution discussed prior to that happening. ... And an account cannot remain in the negative for more than 30 days or it's closed. When that happens, the account holder owes the whole amount (of the overdraft) at once."
Borrowing to avoid an overdraft would most likely take the form of a tax anticipation loan (TAP), Crigler said. The city is required to allow all financial institutions to submit proposals for that loan, which the city would repay with the next fiscal year's tax revenue.
Gavin believes needing a TAP loan by September is all but inevitable.
"I don't think we'll have a choice," he said. "But it's like anything else, I want to exhaust all other options before we get to that point, even if that means cutting our expenses to the bone."
Four councilmen The Dispatch spoke with for this report -- Mickens, Gavin, Ward 3's Charlie Box and Ward 5's Stephen Jones -- openly favored leaving the Baptist Health Services Clinic for city, county and Columbus Light and Water employees and their dependents.
It opened in 2017 and treats those patients without a copay. In turn, the program is meant to keep the city's, county's and CLW's insurance premiums down.
Still, the clinic is costing the city between $22,000 and $25,000 per month.
"We need to eliminate that," Box said. "We've got to. We can't afford that anymore."
Smith, for his part, disagrees.
"I wouldn't pull the plug on the clinic right now, but if that's what the council wants to do, I'm not going to fight them," he said.
Beyond that, the city is looking to sell the old Gilmer Inn property on Main Street -- the mayor said the lot is already listed and undergoing appraisal.
Plus, some councilmen, especially Gavin, believe building and infrastructure projects need to be curtailed, which would reduce fees to firms like city project manager J5 and the city's engineering firm, Neel-Shaffer.
Projects like the new fire station on Airline Road -- a $700,000 project for which the city approved final bids Tuesday -- are necessary, Gavin said, because the city has already heavily invested in it. Others, like a planned roundabout on Main Street and the LED study, could have waited.
Smith opposes significant cuts to J5 or Neel Shaffer, especially during storm relief efforts for which they will be helping coordinate.
If it comes to it, the mayor and most of the council said work furloughs, and even layoffs, could come into play.
The city's bi-monthly payroll averages about $412,000, according to Human Resources Director Pat Mitchell. But that includes essential personnel like police and firefighters that it could become a safety hazard to furlough.
Jones suggested implementing a temporary 32-hour workweek strategy to save money.
Smith said there's currently a hiring freeze that includes all positions except chief financial officer, which he hopes the council will select later this month.
If work furloughs come to pass, Box and Gavin both said they would be willing to forgo their own council stipends ($17,500 per year) to share the burden with affected employees. Mickens said he would consider the same.
"That's a tough question, but it's a fair question," Mickens said. "If everything else is on the table, that should be there, too."
Jones said he would consider giving up part of his stipend, in those circumstances, while Ward 4's Fred Jackson said he couldn't "answer yes or no to that."
Ward 1 Councilman Gene Taylor did not return calls from The Dispatch by press time.
Even the mayor said he would give up some of his salary if other workers were furloughed.
"I hope it doesn't come to that, but it starts from the top," he said. "I will do everything I need to do to make our (general fund) balance out. If the council is willing to (forego pay), I certainly will, too."
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