Friday, February 12, 2010

February 12, 2010 Administrator Cox: City Cash Runs Out in May 2010. $2 Million Bank Loan Needed To Pay City Bills

The Mayor and City Council got a picture of just how well Jim Crumley managed the city's finances yesterday. They took it all to heart. The Mayor and Council also found out why they need to ask questions and act as a "check and balance" in the handling of city finances to protect the voters and taxpayers. Time will tell if they got that part of the message.

New City Administrator Tony Cox presented the sad tale in a power-point presentation in the Mayor's little conference room. [The Mayor and Council and Administrator and the local "news"paper reporter sit around a conference table and city staff and citizens and a representative from McGill and Associates stand around the wall or in the hallway and try to see and hear what's going on.] 

Nutshell: The City had negative cash balances at the end of FY 07, 08, and 09. Jim Crumley--and perhaps others--covered it up by creating unauthorized "loans" or "payables" and "receivables" to hide his use of sewer fund monies to pay general fund payroll, debt, and other basic expenses in each of those years.

Today, the City is again going to be out of cash before the end of the budget year. There will be a negative cash balance in May 2010 ---and that's with the cuts that were made during the summer 2009 budget process and with the additional cuts that were made a few months ago.

To take care of its lack of cash and lack of a fund balance or rainy-day fund to get the city through to the end of the budget year, Cox recommends that the City get a short-term bank loan of about $2 Million Dollars to pay debt, payroll, and other operating costs in May and June 2010.

The City is not going the illegal route that was taken in 2007, 2008, and 2009 when Crumley, et al, hid the cash problems/lack of rainy day funds and instead used took sewer rate-payer monies to pay general government expenses without getting council or state approval as required by state law.

Cox said that the long-time city auditors (Craine, Thompson, & Jones) did not point out or alert the council to the negative cash flow in past years. Cox added that the information about the negative cash situation was "in" the past audits IF you looked for it. 

If you are a CEO (Mayor and Council), wouldn't you expect your auditor--to whom you have paid big bucks-- to let you know that you have a serious cash flow problem?  Wouldn't you expect your auditor to inform you that your Administrator has been illegally using sewer fund money to pay general fund expenses without informing council of this action and without getting inter-fund loan approval from council and from the state as is required by state law? If you reviewed the audit or even if you didn't, wouldn't you at least ask a few simple general questions, like How are we doing? How does our rainy-day fund balance look? How much of our fund balance is available for an emergency?

Instead of an honest audit presentation or questions being asked, it looks like the auditors provided the audit (late), cashed their check (quickly), and then pretty much told the Mayor and Council to go and figure out for yourself if you are in good shape or bad shape.  Don't ask and we won't tell.

There are several groups or individuals who are responsible for the mess the city is in.

1. The Mayor and Councilmembers for failing to ask even basic questions of the auditors and of the former City Administrator Jim Crumley and for failing to monitor and provide some kind of check on the city's finances.
2. The auditors for failing to point out to the Mayor and Council basic and important post-audit financial information --such as, you have a serious cash-flow problem! The auditors for failing year after year to note that unauthorized switching of money from the sewer fund to the general fund was taking place to cover up the cash-flow problem.
3. Jim Crumley and all his confidantes who knew what was going, who helped him cover up the unauthorized money switching, and who failed to inform council of the financial problems.

To help "fix" what has been created by a total financial failure at the city, Cox gave council a number of  choices for next year's budget. Raise revenue by increasing property taxes. Raise revenue by charging a garbage fee.  Cut expenses.  Who pays for years and years of mismanagement? Taxpayers and Ratepayers.

[During the meeting, Cox only briefly mentioned the upcoming 2010 sewer rate study (another cost of $18,000 or so) to tell the City how much more needs to be added to sewer rates---over and above the increases that were tacked on last year after the summer 2009 sewer rate study. How many sewer rate studies can the city afford? When is the city going to "study" the different costs for sewer customers who live outside the city v. inside sewer customers?]

Just for old times sake, take a brief stroll down memory lane to see who sat by praising Jim Crumley and fiddling while the city finances burned.

Click Here. Here. Here. Here. Here.  Those who didn't have a clue and thought Jim Crumley was "railroaded."  Those who didn't have a clue and didn't look at audits for years and years. Those who didn't have a clue and who fiddled and spent and are still spending today because it sounds like such a "nice" project.

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