County OKs borrowing up to $2 million

‘Might not have to,’ says Parrish

At an special public session last Friday (Oct. 18), Rappahannock County’s supervisors voted unanimously to authorize doubling the county’s $1 million line of credit to meet this Friday’s payroll and other obligations.

The supervisors listened to a number of apologies (from the county administrator and treasurer, principally for failing to note sooner that the well was almost dry, and for tax bills going out two weeks later than last year) as well as to citizens’ questions, complaints, suggestions and at least one compliment.

It wasn’t clear Friday whether the county would need to use the credit line to meet its Oct. 25 payroll, which totals about $300,000. Last October and November, the county took in about $4 million in property tax revenue, said Treasurer Frances Foster (who was seated at the supervisors’ table Friday, along with county auditor Randy Jones).

On Tuesday (Oct. 22), Stonewall-Hawthorne supervisor Chris Parrish said tax payments were coming in at a brisk rate. “We might not have to borrow the $2 million,” he said.

As he did at the board’s regular monthly meeting Oct. 7, when supervisors first heard about the county’s cash flow problem and voted to authorize an initial $1 million in short-term borrowing (which it has since borrowed), County Administrator John McCarthy started the meeting with an explanation. He noted how, for some 15 years, a reliable, $3- to $4-million general-fund surplus had enabled the county to cover its annual revenue gap — between the July 1 start of its fiscal year and the arrival, usually by November, of most of its real estate and personal property tax revenue.

That surplus is now gone, McCarthy said; it was notably used over the past three years to cover large, unexpected increases in the county’s share of the state Comprehensive Services Act, which provides foster care and other family services. In May, the supervisors added two cents to the property tax rate to cover those increased costs for fiscal-year 2014 — which began July 1, and for which tax bills went out Oct. 15 (two weeks later than last year).

“But we don’t get that revenue until December,” said McCarthy, who reported that several factors could affect whether any part of the second $1 million in credit would need to be used. One is that the county’s tax collection is underway (“We were busy today,” said Foster) and its delinquent rate is under 3 percent (most counties and cities in Virginia run between 4 and 5 percent in arrears, McCarthy said). One unnamed mortgage company that pays its mortgage-holders’ tax bills en masse typically sends a payment totaling about $1 million in October or November, McCarthy said. “I wish I could tell you that that particular mortgage company is going to pay this Monday,” he said.

“Would it be, um, inappropriate to call those people?” asked Parrish, prompting a delayed but extended laugh to ripple across the room.

“What I want to know is, where was the red flag that jumps up and says you’re running on empty?” asked board chair Roger Welch, of Wakefield district. “Something should have come to the board and made us aware of when that account went to zero. We didn’t hear that until it was too late.”

“That’s my fault,” said Foster.

Foster said a new state-mandated computer system, and particularly training time that took staff away from everyday duties, was the main reason the county administrator stopped getting monthly trial balance updates this summer. (The trial balance report indicates how much cash is in the county’s checking and money-market accounts at any given time.)

“Ms. Foster has indicated that additional staff should be needed in her office,” McCarthy told the supervisors, whom he said would meet in closed session to discuss it after Friday’s meeting. McCarthy said Monday the supervisors took no action and will discuss it further at their Nov. 4 session.

Jackson supervisor Ron Frazier asked if the bank — the county is borrowing from Union First Market Bank, at 3.24 percent interest — was “working with us — no fees? No lending fees, underwriting fees, no insufficient-fund fees?”

No fees, McCarthy said. “The total monthly cost of borrowing $1 million is $2,708.33. If you increase this to $2 million, and we borrow through next month [November], the total in interest would be a little over $6,000.

“This is not a situation where money’s been spent on something illegal, or there’s money missing, or anything like that,” McCarthy said. “It’s a cash flow problem. You need to address at a later time how we’ll deal with it.” Auditor Jones confirmed McCarthy’s assessment.

The ways to deal with it, McCarthy said, including moving to twice-yearly property tax collections — something that’s not possible until fiscal-year 2016. “Most jurisdictions around the state do twice-yearly collections, and all of our neighboring counties, with the exception of Culpeper, which maintains a 20 percent surplus so it doesn’t have to borrow.” Many other jurisdictions, McCarthy said, also budget for the interest costs of short-term borrowing July through November.

“By the way, this is completely legal,” said county attorney Peter Luke, who had presented a graph of sharp peaks and deep valleys — a representation of the county’s bank balance over two years. “The Code of Virginia allows for borrowing in anticipation of tax revenue, as long as it’s done in the same year you expect to receive the revenue.”

The supervisors unanimously passed the borrowing resolution, and prepared to adjourn. Jim Gannon of Flint Hill stood at his seat among the courthouse pews and asked if the public might be able to ask questions. A brief flurry of comments passed among the head table; Frazier made a motion that a public-comment period be added to the agenda, Hampton supervisor Bryant Lee seconded it (saying, “But please, limit comments to not more than a few minutes each”), and the measure passed 5-1 (Parrish voted no.)

“This came as a total shock to me,” said Gannon, “and I still don’t understand how it happened. I heard Mr. Luke say it kind of snuck up on us. I heard the chairman ask where was the red flag, and I didn’t hear an answer to that. I think I heard the treasurer say it’s my fault, but I didn’t hear any explanation. I think I heard Mr. McCarthy say that for several months he didn’t receive any reports on the balance, but not how that happened. I heard him fall on his sword, like a gentleman, but can anyone explain how this happened?”

“I think the brief answer,” said McCarthy, “is that we maintained a 10 percent surplus for so many years, and we’ve been gradually drawing down that surplus because people keep saying, ‘Don’t raise our taxes’ . . . and it finally it got to the point where there was no surplus to save us. It happened once about 20 years ago, and the following year the supervisors fixed it by raising taxes for two or three years in a row to get the surplus back up. We could do the same thing. I think taxing twice a year will do it, but at some point there’s also going to have to be a tax increase.”

“I’ll say what I think happened, and stand to be corrected,” said Parrish. “The state required the treasurer’s office to go to a new computer system, and that system turned out to be slightly overwhelming, and a huge distraction to the employees in the treasurer’s office. With all that, the treasurer missed the deadline in giving Mr. McCarthy the usual red flag.”

“And we’re still dealing with it,” Foster said.

Sperryville attorney Bill Fletcher stood.

“You all are running this county like a business, and I think you’re doing it well,” he said. “And if there’s only a cash shortage that costs you less than $7,000 in interest — out of a budget of $22 million — then I think you all are brilliant. I want you to manage my accounts.

“Frances has worked here for 51-plus years, and maybe she forgot to tell somebody something,” he added. “I wish I could say I made so few mistakes even in . . . one day, let alone 51 years.”

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Roger Piantadosi
About Roger Piantadosi 535 Articles
Former Rappahannock News editor Roger Piantadosi is a writer and works on web and video projects for Rappahannock Media and his own Synergist Media company. Before joining the News in 2009, he was a staff writer, editor and web developer at The Washington Post for almost 30 years.

1 Comment

  1. Let’s blame it on the “NEW” computer system. Over the past thirty years I have managed to transition several businesses from one computer system to another.

    Not once was the financial reporting interrupted due to the planning, installation and training for the new system.

    This is a poor excuse for not knowing the cashflow status, could the real excuse be that we were hoping the revenues would come in on time and we could get by without asking for a credit line increase, as that is the practice that I have observed over the years.

    Either way someone should be held accountable for the lack of information during the process of bringing the new system online.

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