Franklin County has cash flow problem

MALONE – Franklin County may take out a short-term loan to pay its bills and make payroll due to what county officials are calling a “cash flow issue.”

County Manager Tom Leitz told legislators Thursday that the fund balance has been depleted to the point where he’s concerned about being able to meet financial obligations. He suggested the county take advantage of relatively low interest rates and borrow money short-term.

“You have to make payroll and pay your vendor costs,” Leitz told the county board’s Finance Committee. “In my judgment, this is prudent. What’s not prudent is to not pay your vendors timely and to not honor your obligations timely.”

County Treasurer Bryon Varin said the county currently has an undesignated fund balance of about $1.35 million and about $8 million in cash flow. The county spends about $7.5 million to $8 million a month to operate, he said.

“The rule of thumb is, that’s what we should have in fund equity,” Varin said. “That’s why we need to address that.”

Leitz said the county has spent roughly $15 million in fund balance over the past decade, although he said he’s lately tried to slow the use of it in the county budget.

“We’re not back where we were before the recession, and no county is, where we have lots of fund balance, so we’ve got to manage on thin margins,” Leitz said. “There’s a couple ways to improve your margins. The first way is easy: Just raise taxes and put that money toward the fund balance. Obviously that’s a difficult thing to do, and our taxpayers are not in a position where they can pay more. So the question comes with regard to the cash: Is it prudent to raise taxes to raise your fund balance to give you that stability, or is it prudent to do short-term borrowing?”

Leitz said other counties in similar situations have opted to take out loans. Last year, St. Lawrence County borrowed $12 million to help offset a projected cash flow shortage. Given Franklin County’s current credit rating, Leitz said it could take out a one-year loan of $2 million at 1 percent, or $20,000, in interest.

In addition to being short on fund balance, the county has some significant bills coming due soon. It has committed to helping fund a natural gas distribution pipeline in the northern end of the county, and a more than $1 million obligation on that is due by May 1, Varin said.

Varin also said it’s going to be difficult for the county to meet its roughly $10 million tax obligation to school districts and villages in the coming months. The county typically covers the unpaid local taxes levied by school districts and villages, which is often referred to as “making them whole.”

“I’m working with school districts as we speak to spread our obligation to them over a period of time,” Varin told legislators. “I believe they’ll all support this county. As treasurer, I was there to help them in their difficult times.”

Although Varin said he wants to avoid “needless borrowing,” he said the county may have to take out a tax anticipation note to cover some of these costs. He asked the board to pass a resolution at its next meeting authorizing him to borrow up to $4 million, although he said he hopes the amount he may have to use will be less than that.

Leitz said there is a proposal in Gov. Andrew Cuomo’s executive budget that could save the county some money, but not immediately. It would lock municipalities into a fixed amount on their share of employee pension costs. This year, the county set aside $4 million for pension costs, or about 20 percent of its payroll. Under the governor’s proposal, the county could lock in at 12 percent for five years. That would have saved about $1.6 million this year, and pension costs are expected to rise next year, Leitz said.

“That’s one way this year to improve cash flow and add to the fund balance, but that doesn’t help short-term because that bill is not paid until December,” Leitz said.

County officials said a big part of the cash flow problem is the lag time in getting reimbursed by the state for programs and services it mandates the county to provide. Varin said “state reimbursements are lagging worse than they have been,” in some cases six to eight weeks, something he’s asked the county’s state representatives to help address.

If the county is going to take out a loan to deal with its cash flow problems, Legislator Tim Burpoe of Saranac Lake suggested Varin also borrow for the pipeline project and several highway projects the county is planning.

“I’m thinking that maybe we should be rolling into a short-term note all of these projects, so that we can start making your job a little bit easier in the way of cash flow, but also we need to get these projects done anyhow,” Burpoe said.

Other legislators said they’d like to avoid borrowing as much as possible.

“I would basically have a lengthy discussion with our treasurer before I’d get into any decision like that,” said Legislator Guy “Tim” Smith of Fort Covington.

The county Finance Committee plans to meet next week to discuss how to move forward.