The Progress – Index (Petersburg, Virginia)
BYLINE: FM Wiggins, F.M. Wiggins (Staff Writer)
DATELINE: Petersburg, VA
8/7/2012
SMITHFIELD – The city is working to fix its finances after a report found that the city has virtually no savings and has been borrowing money to meet short-term obligations.
The financial picture of Petersburg that was unveiled on Friday is much different than it has appeared. But the city is working to address the financial issues it is facing and City Council authorized the city manager to restructure the city’s finances.
Davenport and Company, consultants hired by the city to analyze the city’s financial position, presented their findings during the morning session of the Petersburg City Council Advance on Friday.
According to the consultants, the city’s savings are virtually nonexistent and the utility fund, which is supposed to be self- sufficient, is borrowing money from the general fund. And the general fund has historically been dependent on short-term, revenue anticipation notes.
Despite the criticism, the consultants praised the current management of the city and the 2013 budget that was recently approved, but said that it will take more work to improve the picture for the city.
“We need to do the restructuring,” City Manager William Johnson said of the recommendations by the consultants, including weaning the city off revenue anticipation notes through refinancing of current debt obligations, reporting to Standard & Poor’s the true financial position of the city and creating financial policy guidelines.
“This is long overdue,” said Councilman Ken Pritchett before City Council unanimously approved authorizing Johnson to restructure the city’s finances per the recommendations of the consultants.
“It could be bumpy along the way,” said David Rose, a manager of public finance with Davenport and Company. “It’s an ongoing struggle, but Portsmouth is stronger today than when they started. You see all the historic assets, the fact that you’re here today shows the engagement of City Council.”
David said that the finances will be a work in progress. The first step he said will actually be talking to Standard & Poor’s to alert them to the true financial picture of the city. He earlier told City Council that the municipal rating organization doesn’t have a true picture of the city’s finances.
“They think you have 19 to 20 percent,” he said explaining that the bond rating organization – essentially a city’s credit rating – has the impression the city has cash reserves equal to about 20 percent of the city’s budget. The reality is the city doesn’t have that much. Rose said that doing so could in the short term cause a downgrade of the city’s bond rating. But he said the city will still be viewed as an area to invest in, especially if the city is proactive in their discussion with the bond-rating agency.
“Show them what’s going on and what’s planned,” he said.
Johnson said that the city will be able to show the transformation that is ongoing in the city.
Cash flow issues have affected the city in such a way that Finance Director Irvin Carter Jr. said that he was concerned in his first year here when after the second quarter it didn’t appear as though the city would meet revenue projections. “But the treasurer told me we would,” Carter said.
Carter said that by June 28 though, the city did meet the revenue projections and had cash in the bank. “By June 30 it was gone again,” Carter said, because the city had to pay back the revenue anticipation note that had been taken out early in the fiscal year.
Mayor Brian Moore said that while the city has used the revenue anticipation notes, the interest rate is low due to market conditions. Rose agreed that the interest rate is low on the loans – a $6 million revenue anticipation note currently may have only $100,000 in interest over a year’s time period, he said. Rose said that under previous market conditions the interest might have amounted to up to $500,000.
Roland Cooch, also with Davenport and Company, said that the city also needs to develop a five-year capital improvement plan. “The city doesn’t have a five-year capital improvement plan matched between revenues and expenses,” Cooch said.
Later in the meeting during a discussion on the city’s strategic plan, the city discussed developing a five-year capital improvement plan by March 2013.
“What we learned and the action that council has taken today, we will be headed in the right direction,” Johnson said. “We will begin to enhance some of the things that were taken during the most recent budget.”
Johnson said the action will also help to ensure that the needs of the city, including new facilities, will be met.
- F.M. Wiggins may be reached at 804-732-3456, ext. 3254 or fwiggins@progress-index.com
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