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The Cairo City Council met in a hastily called special meeting last Thursday to authorize a line of credit of up to $500,000 to provide the city with resources to cover expenditures as utility revenues are down nearly 15 percent since April.
Cairo’s city manager, Chris Addleton, apologized for the short notice since the council had just met three days prior and no financial issues had been discussed. “I appreciate everyone being here on short notice,” Addleton said. Only Councilman Demario Byrden, who was not present Monday night, was absent Thursday.
“It’s the end of the month and the end of the fiscal year and we have some costs we have got to meet,” Addleton explained.
According to the city manager, utility revenues for April, May and June of 2020 compared to the same time period in 2019 have been cut by 15 percent due to lack of usage in part due to COVID-19 and this has created a cash flow situation for the city.
Compounding the issue, the city self funds its employee health care insurance and two employees were diagnosed with COVID-19. The claims from those two cases were significant, according to Addleton, and while anything over $50,000 is reimbursed with stop loss coverage, the city manager said the health care account has to be fully funded at the close of the fiscal year, which was Tuesday, June 30.
Addleton said that the city would be reimbursed approximately $150,000, but that it would likely be in August before that reimbursement is paid. The city manager also said that he had anticipated receiving federal aid through the Coronavirus Aid, Relief and Economic Security (CARES) Act, but that money has not been forthcoming. Since the meeting last week, the city has learned it is eligible for $147,134 in Phase One CARES Act funding.
Addleton said he drew down $300,000 of the $500,000 line of credit last Friday.
Councilman James H. (Jimmy) Douglas, who chairs the council’s finance committee, said that the topic of a line of credit had been discussed previously in finance committee meetings. He said that he had previously recommended that the city seek a line of credit at the beginning of each year and to put it out to bid to all local financial institutions. “That way you have it in place and can use it if you need it and if you don’t then you don’t,” Douglas said.
Addleton said that he had not solicited bids for this initial line of credit due to the fact he needed to move quickly. The city manager said two financial institutions had been contacted and the city elected to go with United National Bank at a rate of 2.5 percent fixed up to $500,000 payable by Dec. 31, 2020.
“Why not longer?” Councilman Lannis Thornton asked. Addleton said that the banks want all such loans to be paid off by the end of each year.
Douglas said it was better to arrange for a line of credit before you need to borrow money rather than waiting until you had to have the cash and were forced to borrow money.
“Cities and counties are notorious for having cash flow problems during certain times of year. This is certainly not uncommon,” said Douglas, who also previously served as the finance director for the City of Camilla.
Mayor Pro Tem Jerry Cox noted that lines of credit are also commonly used in the private sector by businesses.
Addleton said he is hopeful with the warmer summer months utility revenues will rebound and the city would not have to borrow any more against the line of credit. Cox requested the city manager provide regular updates on the amount and date of any future draws, which Addleton committed to doing.