News From Terre Haute, Indiana

Local & Bistate

May 24, 2014

May a ‘tight’ month for Terre Haute city finances

TERRE HAUTE — Would you rent a room to the City of Terre Haute?

The answer depends upon whom you ask. City officials believe their credit worthiness is sound and they would make fine tenants. Others are not so sure.

Rumors have been swirling around City Hall for weeks that the city government was not paying its bills in a timely manner. Leslie Ellis, city controller, agrees there was a backlog of “claims” (bills) recently, but that was due to a large increase in the volume of bills and also some absences in her office, she said. Paying a claim requires several steps and a lot of oversight, she noted.

“Government is not like a business where you can get a check out the same day,” Ellis said. “There are a lot of checks and balances.”

Adding to the recent unease were allegations last week from Cliff Lambert, executive director of the city’s Department of Redevelopment, that the city was using tax increment finance (TIF) money to meet payroll. TIF money is, by law, restricted to expenditures to benefit TIF districts, according to Indiana’s State Board of Accounts.

The city controller recently withdrew money from Redevelopment TIF accounts on dates that “coincide” with city employee pay periods, Lambert said.

Was the money taken to meet payroll?

“No,” Ellis said in an interview in her office Wednesday. “The timing was just the timing. We pay bills every week.”

Lambert also called attention to the city’s need for a $5 million loan to help meet its cash flow needs. In an email to the Tribune-Star, he called that a “payday loan” strategy of meeting the city’s financial obligations.

The city government has taken a one-year loan of approximately $5 million each of the last few years to meet general fund expenses until it receives property taxes from the state, something that happens in June and December. In late 2013, Mayor Duke Bennett asked the City Council to approve taking a $5 million loan, but for a period of three years, not one.

However, the loan, which was obtained through First Financial Bank on Jan. 30, is for just one year after all, according to the document, which was obtained through a public records request. The loan has an interest rate of 2.01 percent, meaning the city will pay about $100,000 in interest this year, Ellis said.

Why a one-year loan?

Tax anticipation loans are often obtained by local banks, said Chou-il Lee, city attorney. Locally, “a lot of banks were uncomfortable with the three-year term,” he said. That was “because none of the banks had done that before.”

In addition to all this, May is typically a “tight” month for the city government, Ellis said. This has long been the case, she added.

As of May 15, the city’s general fund, which is used to pay most city salaries and other day-to-day expenses, was in the red by $7.6 million. But that’s just a snap shot, she said. Because the city receives revenue at many different times of the year, a fund balance on any given day tells you only so much.

Additionally, Ellis said, the City of Terre Haute general fund has had a negative balance every May 15 going back to at least 2004, when it was negative $4.5 million. It was as much as -$9.1 million on May 15, 2012, she said.

A low, even deeply negative general fund balance does not mean the City cannot pay its bills, Ellis said. The city “pools” its various funds (there are dozens) into a smaller number of bank accounts. Once all the money is together in a “pool” it is available to meet payroll and other immediate expenses, she said. In fact, the State Board of Accounts encourages “pooling,” she said.

Just what money should be available in the pool is in some dispute. The city administration contends Redevelopment Commission funds can be added to the pool as long as Redevelopment’s bond obligations continue to be met, something the mayor and controller contend will always remain the case.

Lambert, however, disagrees that Redevelopment funds should be a part of the “pool” in the first place. Lisa Lee, a lawyer for the Redevelopment Commission, in an email obtained by the Tribune-Star through a public records request, told Lambert that unscheduled withdrawals of funds from Redevelopment Accounts need to be “disclosed” and reported to Standard & Poors, a ratings service.

The City’s S&P bond rating, established in 2013, is currently A+. However, if the city requires Redevelopment funds for purposes other than its bond and TIF obligations, “that would reflect financial difficulties,” Lee wrote. Disclosures of that nature, “could potentially have a significant impact on the City’s bond rating,” she further stated.

City officials, including the mayor, remain optimistic. At their meeting last Wednesday, Ellis, who was in attendance, told the Redevelopment Commissioners their “position hasn’t been lost. You still have the money.”

But times are tight right now. According to a May 15 City of Terre Haute balance sheet, many city funds are in the red. Others, such as “non-reverting funds,” are restricted, meaning the balance available to pay bills is well below the balance sheet’s bottom line, which was $34 million on May 15.

Adding to the difficulty, in April, the City sought an advance on its bi-annual property tax disbursement from Vigo County, something allowed by state law once the county receives the money from the state after property taxes have been paid. In 2013, the county provided a $3.8 million early disbursement for the city’s general fund, Ellis said. This year, the city received an early disbursement for its general fund of just $362,000.

“The failure to get the [larger] advance came at the worst possible time,” Ellis said. Still, “We have been able to make all our payments.”

Reporter Arthur Foulkes can be reached at 812-231-4232 or arthur.foulkes@tribstar.com

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