Cash flow fades

Published 5:43 pm Monday, July 31, 2017

Last of a series

AHOSKIE – In addition to the near $2 million it faces in annual debt, Town of Ahoskie officials are facing another dilemma – lack of cash flow.

Newly hired Town Manager Kerry McDuffie explained that the summer months are traditionally the slowest time of the year for local government entities to generate cash flow. That’s basically due to the fact that the new bills for property tax are not mailed until September. Between that time and early January, the cash flow drastically increases as taxpayers pay their annual assessments on property.

“Back around June 20, right before we adopted the new budget, I had our finance officer put together a cash flow sheet and it showed that by the time we had to meet (town employees) payroll on June 30, there would not be enough money to cover it,” McDuffie stated.

That projected cash flow report, a copy of which McDuffie supplied to this newspaper, showed an ending balance of minus $24,356.32 by June 30.

The cash flow even gets worse from that point until the end of the report on Aug. 15.

By July 31, the town’s cash flow is expected to be nearly $76,000 in red ink. And with a trio of debt service payments totaling nearly $286,000 that are on the books to be paid during the first two weeks of August, Ahoskie’s projected cash flow is a shade over a quarter-million dollars ($255,427.31) in arrears by Aug. 15.

“With the property tax bills going out in September, we’ll begin to experience positive gains in cash flow, and by January those payments peak at their highest level,” McDuffie noted. “But as usual, January is our highest month of cash flow while August is always the lowest.”

By state statute, local government entities cannot borrow money to fund normal operations. So, how can Ahoskie find the money just to meet its payroll and make debt service payments during this lean financial period?

“Our saving grace was we had $500,000 that we had put in Southern Bank,” McDuffie remarked. “That amount was placed there so the town could quality for no fee checking and banking services. We didn’t have a choice, we had to pull it out cover our expenses.”

McDuffie referenced that $500,000 as fund balance. However, the majority of that money is tied to $146,000 in the Tourism and Development Authority account, $55,000 in Powell Bill funds and the $195,000 set aside as contingency funds as required by the USDA for the loans the town has with that organization.

By state stature, Ahoskie is required to have a minimum fund balance totaling eight percent of its annual General Fund. That equates, in Ahoskie’s case, to $480,000.

After pulling out the $500,000 and meeting all expenses by Aug. 15, the town will be on the plus side of Fund Balance by approximately $245,000. However, that amount is less than the eight percent required by the state. And, as noted above, the town’s financial “paper trail” by the end of the current fiscal year (June 30, 2018) needs to account for a combined $400,000 in TDA funds, Powell Bill money (set aside for street repairs) and the USDA required contingency. That leaves Ahoskie’s finances in the red to the tune of $645,000 – which includes its state-mandated fund balance shortfall of $480,000.

“Once we cover those items, we come up short of the required fund balance and we’re still not putting any money aside any money for vehicle replacement or any infrastructure improvements,” McDuffie said.

That latter statement will serve as unwelcomed news for local proponents of a new public library in town. That group has worked for years, through fundraisers and donations, to raise over $100,000 that has been used for design of the proposed new library. But the town, to date, has not included the construction of an approximate $1.7 million library in its operating budget.

“I’ve spoken with the Local Government Commission (LGC) and was told, based on our current debt, they will not approve any new loans for the town,” McDuffie said. “They told me they were very concerned about our current situation.

“I know there are people here that want the town to build a new library, but that’s not going to happen,” he added. “It’s not an option at this point based on what I was told by the LGC.”

McDuffie did say there will be money available to make repairs to the air conditioning system and the poor lighting at the existing library. That money was freed up after McDuffie shut down the town’s Recreation Department last week in a cost-saving measure.

Another slice of the former budget to operate the Recreation Department will be used to purchase a 15-passenger van to transport low-security prison inmates to perform odd jobs in the town.

“Using the inmate labor is cheap ($1 per day, per inmate) and we can use them for general labor,” McDuffie stated.

Cutting back

As he looks to maintain a balanced budget without making drastic cuts to the remaining general services, McDuffie did study a plan to merge the Town of Ahoskie’s Fire Department with the Ahoskie Rural Fire Dept. However, that plan is now off the table.

“We’re looking at other options,” McDuffie said referencing lowering the town’s operational costs. “The back end of that is doing what I prefer not to do unless absolutely necessary and that’s cutting staff.

“Whatever we do, I feel the best option is the sooner you make a decision to lower operating costs, the easier it will be rather than waiting until you’re forced to do that,” he added.

McDuffie says he knows there’s no magic solution to solve Ahoskie’s financial situation.

“We’ll just simply roll up our sleeves and look through the things we do to operate this town, to include our service contracts, and figure out why we do it that way and if there is a better way in an effort to save money,” he stressed. “Sometimes that’s tough to do because people get use to one certain way how things get done and they do not embrace change.”

McDuffie said a good rule of thumb to go by when determining the number of employees needed to operate a town is one per 100 residents. If that’s the case, then Ahoskie, with roughly 5,000 residents, could operate with a staff of 50. McDuffie said the town’s full-time staff numbers 58.

‘This is not going to be easy,” McDuffie said in reference to making and instituting cost-saving decisions. “I have some ideas of some areas where I’ve seen us spending more money than we should. But it’s important for me to first understand why our departments work the way they do.”

The Ahoskie Town Manager knows that the decisions he’s about to make will upset some, especially those with emotional ties to the town.

“I can’t make emotional decisions; I have to make business decisions, and it’s going to get worse before it gets better,” he concluded.

About Cal Bryant

Cal Bryant, a 40-year veteran of the newspaper industry, serves as the Editor at Roanoke-Chowan Publications, publishers of the Roanoke-Chowan News-Herald, Gates County Index, and Front Porch Living magazine.

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