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Annapolis City Manager Unaware Of $4 Million Of Debt

| May 20, 2011, 01:18 PM | 2 Comments

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UPDATE 05:03pm May 20, 2011: City Hall just sent out a press release addressing this issue. It can be found at the bottom of this post.

If the finances of Annapolis were not in bad  enough shape already, it was just announced yesterday that City Manager Michael Mallinoff and Finance Director Bruce Miller were unaware of a $2 million dollar increase in health insurance costs and a $2 million payment now being demanded by June 30th.

So, the logical solution, go borrow more money once again. Only this time it will be more expensive since the City’s bond rating has been downgraded.

The Capital reports that Mallinoff and Miller are requesting $10 million to settle these obligations and to handle some day to day expenses until property taxes are in hand in October. Miller warned the Council that the City would be broke before the end of the fiscal year without the infusion of the cash.

Particularly worrisome is the comment made by Mallinoff to The Capital about the administration’s lack of awareness of the one debt.

“Frankly, there was no one on staff who knew where it was and how much of it would be offline,” said City Manager Mike Mallinoff of the TIF oversight. “We’re kind of getting tripped up a bit.”

Meanwhile, the Mayor is proposing to increase the budget along with a laundry list of fees for services. Alderman Ross Arnett (D-8th Ward) has warned of falling assessments and falling tax income for several months, but the administration and most of the Council seems to be ignoring his concerns.

Last year, Cohen asked for a loan to make ends meet and presented it as a temporary solution to a cash flow problem that would be resolved.

We encourage citizens to make their voices heard. The City Council is holding a meeting on Monday night at 7:00pm. Speak up and be heard.

If you are interested in hearing the opinions of Alderman Ross Arnett, the Annapolis Sound has a lengthy series of videos of Arnett’s presentation Monday night at Maryland Hall. They also have some commentary by Paul Foer who spoke with former Mayor Dean Johnson and community activist Randy Landis.

Here is a response from City Hall which was just released:

Mayor Joshua J. Cohen announces that he will introduce legislation on Monday that would request an additional $10 million in short-term borrowing, a move necessitated by the City’s continued lack of cash reserves.

The administration will seek $10 million in the form of tax-anticipation notes (TANs), a vehicle commonly used by municipal governments. The City’s ability to pursue TANs is not restricted by the $10 million credit limit established in the City Charter. If the City Council adopts the TANs legislation (O-27-11), the City will in effect borrow against a portion of the property tax revenues it expects – or anticipates – to receive this fall.

The City is drawing on a $10 million line of credit (LOC) that the City Council authorized in February. So far, $7 million has been spent – $5 million for a reallocation of bond proceeds and $2 million for operating expenses. The remaining $3 million is expected to be spent before June 30, the end of the fiscal year. Higher-than-projected insurance costs and a forthcoming $1.75 million payment toward the financing of the Park Place project are among the contributing factors to the drawdown of the LOC and the need to retain additional cash for the City’s lower-revenue period between now and mid-October, when the City will receive about half of its $34 million in property tax revenue for fiscal year 2012.

Without additional borrowing, the City is expected to run out of cash for operating expenses by July 1, according to financial projections presented yesterday at the monthly work session of the City Council.

The administration had projected a $2 million surplus for the end of FY 2011, but because of insurance cost overruns and other expenses, this surplus may not be realized. Cost overruns in FY 2011 for health care, liability, unemployment and workers’ compensation insurance are projected at between $1.5 million to $2 million.

“TANs are a well-established mechanism in municipal finance that allows cities to match receipts to the expenditure cycle,” Finance Director Bruce Miller said. “Our need for short-term borrowing does not indicate that our budget is out of balance. Our budgeted expenses are higher than average this time of year because of temporary hires and lower revenues. Under normal circumstances, our reserves would be adequate enough to bridge the revenue gaps between operating cycles. But because our reserves are lacking, we must rely on short-term borrowing in the meantime.”

A special meeting of the City Council will be held on Monday, June 6, and a vote on authorizing the use of tax-anticipation notes is expected to occur that evening.

The need for short-term borrowing has arisen again even as the administration has held the line on spending. The Mayor and City Council passed a FY 2011 budget that reflected a 13 percent cut over the previous fiscal year – the largest percentage cut by any of Maryland’s municipalities. Through 83 percent of the FY 2011 (10 months), the City’s departments have spent just 76 percent of the budget. In addition, 80 percent of the government’s overtime budget has been exhausted.

Despite this new fiscal restraint, the City has been reliant on short-term borrowing because cash reserves were spent down in prior years. In fiscal year 2008, the City’s general fund held an unreserved fund balance of $9.1 million, but because of deficits and pay-go spending for capital projects totaling $5.8 million in the following fiscal years, that reserve declined to $3.5 million at the end of FY 2010.

The City took out a $10 million LOC last year to cover operating expenses; that borrowing was repaid to Bank of America in late November. The City Council again authorized the City to borrow $10 million on Feb. 17.

In response to the lack of adequate reserves, Mayor Cohen has proposed a budget for FY 2012 that would increase the fund balance to $9 million. His spending plan calls for increasing Enterprise Fund fees for water, sewer and stormwater by a total of $5.4 million to again make those funds self-supporting. It also fully discloses all expenses and transfers between funds and grant spending.

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  1. Bill Kardash says:

    I call this “the dog ate my homework” defense.

    There is so much “Cohen spin” in this article that my head aches. I was told by Bruce Miller several weeks ago the City would NOT end the year with the “projected $2MM surplus”. His explanation THEN had nothing to do with the just-discovered TIF liability … just over-zealous projections by the Mayor’s FY 2011 budget. That “balanced” Budget was based on (1) settling the lawsuit against the contractors for the Annapolis Police Dept; (2) getting reimbursed by the Feds for the 2010 snow removal and (3) “projected savings” of $1.5MM in the Annapolis Transportation Dept. Only the snow removal cash was ever realized. The APD lawsuit continues to languish and the bus company “savings” are yet another unfilled dream of the Cohen Administration.

    If the City is “only $4MM short of cash” it is because they are NOT paying City vendors and suppliers (mostly small, local businesses); these bills are, reportedly, more than an additional $2.5MM. It’s easier for the City to push the burden on small businesses than to CUT SPENDING.

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