Bad timing, a few budget oversights and a tough economy combined to leave the city short on cash as the year draws to a close.
Tega Cay's City Council unanimously approved first reading of a $400,000 loan against anticipated tax revenue at a specially called meeting last Thursday night. The vote came after two hours of occasionally heated discussion, finger-pointing, self castigation and a barrage of questions from residents.
The second reading will be Monday, Dec. 15.
According to city officials, Tega Cay has enough available cash to meet its payroll and expenses until mid-December. Without the loan, they said, the city, which operates on a $5 million budget, would be broke until tax revenue starts rolling in after Jan. 1, 2009.
City Manager Grant Duffield asked the council to approve the loan, called a tax anticipation note, to cover the shortfall.
"Where we find ourselves, and where the city finds itself every year, is we don't get the payment of tax revenue until the year following the start of our budget year," Finance Committee member Stewart Staples said.
The city's fiscal year began Oct. 1. The problem arises every year, but in previous years, the city was able to borrow money from the Tega Cay Utility Department. This year, Duffield said, TCUD does not have the money because drought-related water restrictions cut monthly bills and there is very little new construction in the city generating tap fees.
The Town of Fort Mill also faces the same issue every year, but Town Manager David Hudspeth said the town has not had to take out a short-term loan to cover expenses in at least the last 12 years.
"Our revenues are just like theirs; We have the same fiscal year, we always know that's our low revenue period, when our fund balance is at its lowest," Hudspeth said.
The town also tries to delay as many purchases as possible until after tax revenues start showing up in January, he said. Some things such as payroll and monthly bills can't be avoided and that is where the healthy fund balance comes in.
The $400,000 loan follows another - for $250,000 - the council approved in October. Initially, Duffield asked for $500,000 in October, but the council reduced it to $250,000. On Tuesday, the Finance Committee held a special meeting and suggested Duffield increase a second loan request from $250,000 to $400,000 because of an additional $150,000 in payments the city has coming due.
The Finance Committee was not consulted prior to the October request.
"Shame on the staff and shame on the council for not going to the finance committee in the first place," Jane Myers said during a question and answer period before the vote.
Council members blamed themselves for reducing the amount of the loan in October, but also said at the time, they didn't know the depth of the cash flow shortage they would face two months later.
The city will be paying approximately $750 per month in interest (3.5 percent interest rate) on the October loan, which it intends to repay in full in January, however the council gave itself until March to repay that loan. Repayment of the new loan will be set for January if it is approved on second reading, adding about $900 to the total amount of interest the city will owe on both loans.
According to information provided by the city, Tega Cay used $98,000 from its fund balance to balance the 2007-08 budget. Also, $17,481 expected for the Turner Trail Extension has not arrived yet. Tax revenue collected in November was $28,000 less than collected in November 2007. Business license fees totaling $138,000 have not been received yet either, they are due by May. Also during the budget process earlier this year, officials neglected to reduce the amount of money left from the bond used to build the Glennon Community Center which resulted in an overestimation of interest that would be generated by that account totaling $37,828. And last year the city spent $81,117 more on legal fees than it had budgeted. All told, the city lost $400,426 in cash it was counting on.
As of Dec. 2, it had $66,680.56 on hand. The December payroll will cost $143,317.99. It expects to collect $210,000 in tax revenue in December, but has $390,000 in expenses budgeted for the month, in addition to payroll. That totals $256,637.34 more in spending than cash on hand.
In addition to the December spending, the city owes Cope Construction $107,007 by Jan. 9, and it needs to pay AMEC $35,000 for a study it performed on the Tega Cay Water Service system for the city.
The Finance Committee added all those numbers together and came up with the $400,000 loan suggestion to cover a $398,644.34 negative cash flow.