City releases over $1 million in checks to vendors today
Over a million dollars in payments to vendors, money owed by the city of Cairo, will begin to flow today after the Cairo City Council Monday night voted unanimously to draw down $1.2 million from a reserve account to cover the checks.
Vendors have not been paid since June 4 and $1,210,813.56 in undistributed accounts payable checks have been held by the city until sufficient funds could be deposited to make the checks good.
The city processes accounts payable checks each Wednesday and all checks processed since June 4 through July 23 have been held.
“Checks have been written in anticipation of cash coming in so that we could release the checks, but the money’s not there,” Council Finance Committee Chairman James H. (Jimmy) Douglas said Monday.
This is not the first time the city has had to borrow from its reserves to cover operating expenses.
In December, the council approved drawing down $1 million from its competitive municipal trust account with the Municipal Electric Authority of Georgia to cover operating expenses until ad valorem tax revenues began to be deposited.
The city paid back the million dollars to its reserve account with MEAG shortly after the first of the year when ad valorem taxes were collected. City officials now say that the city should have paid back the loan to itself over time.
“We took the tax money and paid back what we owed, but we should have used that money to get through the end of the fiscal year. Now, we’re in a cash flow situation for the last two to three months. I’ve talked with (City Manager) Chris (Addleton) about a short-term and a long-term fix. The biggest draw on cash flow is the bond payments for the CNS Cable and the combined utility bonds. On top of that is the increased environmental cost on electricity that we are behind on recovering. The CNS bonds will be paid off in 2017 and if we can get to there, that will relieve a tremendous amount of cash flow on the city,” Douglas said.
The city is paying just over $900,000 annually in principal and interest on the CNS bonds and approximately $1 million annually for the combined utility bonds. The combined utility bonds will be paid off in 2024.
According to City Manager Chris Addleton, it takes approximately $600,000 to $700,000 per week to cover operational costs of the city, which does not include capital expenses or bond payments.
The city currently has approximately $9.2 million deposited in the municipal competitive trust account and another $1.2 million that is in a restricted account for new power generation.
Addleton met with the finance committee Monday prior to this week’s council meeting to brief the committee and Mayor Bobby Burns on the cash flow situation. Addleton and Chairman Douglas put forth a recommendation to borrow $1.2 million from the city’s reserves and pay it back over a four year period.
Even with the injection of cash, Addleton warned city councilmen that the city still may be approximately $150,000 short of being able to make the bond payments in December.
Addleton said he, along with the city staff, will be closely monitoring all expenses through the end of this year and would be delaying purchases, unless necessary. The city manager is also anticipating collecting sufficient ad valorem taxes during November and December to make up the shortage.
The city is now also collecting from utility ratepayers the additional costs of environmental compliance which are the result of federal regulations. Half of the new environmental compliance cost recovery fee per kilowatt hour went into effect in April and the other half will be added to monthly bills next April. Addleton says the new environmental fee will generate approximately $1.1 million in new revenue during the 2014-2015 fiscal year.
Chairman Douglas said that the city staff will be monitoring expenses monthly on a cash basis to make sure all bills are being paid.
“We are also going to be looking at any overtime that we can reduce. We used to get a report on that, but we haven’t gotten one in a while. There will always be some overtime, but we need to make sure it is being kept to a minimum,” Douglas said.
City Manager Addleton said the city has already reduced the amount of materials and supplies it keeps in inventory.
Chairman Douglas stressed that the city is borrowing from itself, and that the interest being earned on its reserves is less than one percent.
“June and December have become really tough months with regard to cash flow. Maybe we should have reacted sooner, but we were anticipating higher sales of electricity would generate enough revenue to help us make it through June, but it did not,” Addleton said.
“I know the folks who should have been paid in June would like to get their checks. I know I would,” Douglas said.
City Manager Addleton said the funds from the reserves would be available within 24 hours and checks would be distributed beginning today.
The city has not missed paying payroll or paying the monthly wholesale power bill, according to Addleton. Other expenses that were required to be paid have also been paid, but nonessential payments were delayed.
“What the public needs to know is that we are borrowing from ourselves. This is the city’s money we are using to make up this shortfall,” Councilman Kermit Gilliard said Monday night.
While city officials say they are glad the city has reserves to cover these expenses, City Manager Addleton said the purpose of the reserves in the municipal competitive trust is not to cover operations.
“That money is set aside for catastrophic events or major capital projects. I hate to see us using that money for operating expenses. That’s not a very good use of those funds, but, hopefully, this is a temporary situation,” Addleton said.