Jan. 26 -- NATCHEZ -- In the last decade, the City of Natchez has borrowed and repaid nearly $4.7 million in tax-anticipation loans, a habit city leaders have said for years they want to break. That habit has cost city taxpayers more than $50,000 in interest on the short-term loans in the past 10 years, according to figures from the city clerk's office. That interest money could fund starting salaries for two Natchez police officers or two firefighters for a year, as well as pave approximately 2,000 feet of a road. The Natchez Board of Aldermen voted to take out up to a $600,000 tax-anticipation loan in November. City Clerk Donnie Holloway said last week the city has borrowed all of that money, which must be repaid by March 15 . This fiscal year's loan more than doubled from the 2012-2013 fiscal year's tax-anticipation loan of $245,000 , despite increased gaming revenue with the opening of Magnolia Bluffs Casino , new oil revenue and increased sales tax revenue. Holloway cited increased insurance costs because of illnesses and during the city's switch from being self-insured to fully insured as well as payroll expenses as the need for the tax-anticipation loan. The city's payroll costs run approximately $600,000 a month. In 2012, the city's payroll costs were approximately $510,000 a month prior to giving raises to employees and hiring new personnel. Mayor Butch Brown said new equipment for public works and the traffic department, public properties and other expenses also likely account for the increased tax-anticipation loan. Brown said with low interest rates, now is the time to take advantage of "cheap money," such as tax-anticipation loans, that will allow the city to make public infrastructure repairs instead of putting them off, which he said would cost more than paying interest on short-term loans in the long run. While some city officials have said they are committed to breaking the borrowing trend in the past, they have also contended that tax-anticipation loans are common in government and not problematic if the loans are paid off within the same fiscal year. Demery Grubbs , financial adviser for the city, Adams County and several other municipalities and counties across the state, said tax-anticipation loans are common options for entities needing cash to make it through lean months, which are usually October, November and December. "Those are the lean months in terms of tax receipts because that's the end of the year as far as tax purposes, but not as far as the city's fiscal year," he said. The city's fiscal year begins Oct. 1 and ends Sept. 30 . Municipalities and counties primarily receive the bulk of their property tax, or ad valorem, dollars in January and February, Grubbs said. Tax-anticipation loans allow the city to borrow money in the lean months against its projected ad valorem tax revenue yet to be received. The loan cannot exceed 50 percent of those projections and must be paid back by March 15 . The loans are low-risk for the city, Grubbs said, since a municipality generally has a good idea of the history of its ad valorem tax revenue, which is also more consistent year over year than revenue such as sales tax. Grubbs said ideally a city would have a reserve fund to hold it over in lean months and avoid a tax-anticipation loan. "Obviously, you're better off if you have the cash and could build up the reserve," he said. "The ideal situation is to have plenty of reserve funds, but that takes time to build up." It took the City of McComb three or four years of fine-tuning its expenses to build a $4 million reserve, City Administrator Quordiniah Lockley said. McComb made a decision, Lockley said, to not give raises, make big purchases or take on new projects until it built its reserves up after having to take out a tax-anticipation loan in 2009 when the recession hit. The Government Accounting Standards Board recommends building a reserve that is at least one-third of an annual budget, Lockley said. McComb's annual expenses are approximately $12 million . The City of Natchez's budgeted expenses are approximately $36.4 million , up approximately $13 million from the previous year's budget. Several city departments increased their budgets this fiscal year, some by just a few thousand dollars and others by much more. In September as the city approved its budget, Brown said the bulk of the increases were because of a large number of grants the city expected to receive this fiscal year. With streamlining departments and cutting costs wherever it could, McComb was able to build its reserve, Lockley said. "It requires a mayor and board to understand that if you're going to make your city financially sound, you need to make hard and tough decisions," he said. Continually taking out tax-anticipation loans inhibits a city from getting ahead of its finances, Lockley said. "All you're doing is digging yourself in a hole," he said. Natchez Ward 3 Alderwoman Sarah Smith likened tax-anticipation loans to "living beyond your means." Smith said she would like to see the city build a reserve fund that could help the city avoid taking out a tax-anticipation loan. With new revenue coming in, Smith said, the city needs to find a way to save and spend in a smart way. Smith said she would like to have department heads propose ways to save money before budgeting for the next fiscal year begins. Cutting costs could allow the city to begin to build a reserve that could prevent it from taking out tax-anticipation loans. The challenge, Smith said, is finding a balance of saving money for a reserve and keeping up city infrastructure. "I would hope we would have (the extra revenue) to do both," she said. "You might not save as much as you want every year, but getting the balance right would be key. "You have to be smart about putting some away and yet spending some to upkeep your infrastructure so you don't have bigger problems down the road." When costs were cut in the past, it meant public properties, roads and other infrastructure needs went unmet. The current board of aldermen is playing catch-up on some of those needs, Smith said. City officials have said the $1 million annual rent payment from Magnolia Bluffs Casino could help the city avoid a tax-anticipation loan. The board elected, however, to spend $500,000 of its $1 million casino annual lease payment to make street repairs last year and plans to spend another $500,000 on streets this year. Grubbs said by using new revenue to make capital improvements it saves the city from having to borrow money in the form of bonds. Smith said to get to the point where the city is saving money for a reserve, the board of aldermen will need a clearer picture of the city's finances, which means more timely and accurate reports from the city clerk's office. Smith said she has met with the city's new accountant and was told providing more detailed and timely reports should not be a problem. Smith said she would also like to see those reports available to the public on the city's website. Ward 4 Alderman Tony Fields , Ward 1 Alderwoman Joyce Arceneaux-Mathis and Ward 6 Alderman Dan Dillard said they do not have an issue with borrowing a tax-anticipation loan as long as it is paid off in the same fiscal year. Arceneaux-Mathis said she wants to see the city set up a reserve fund and use it for infrastructure projects. With cuts at the federal level, Arceneaux-Mathis said the city cannot count on federal funding to handle large infrastructure needs. Fields said finding a balance between spending and saving will be tough. "I just think the taxpayers want to actually see something tangible for the tax dollars, like when they can see sidewalks and public buildings fixed," he said. The second-term alderman said when he took office the city was borrowing tax-anticipation loans and not paying them off until the next fiscal year. "I believe we're acting more responsibly by keeping it in the same fiscal year," he said. "I think that shows we're making an earnest attempt to stay within our budget." Ward 6 Alderman Dan Dillard also said when he first encountered tax-anticipation loans the city was borrowing funds in June or July against ad valorem funds it would not receive until January or February, after another fiscal year had started. Dillard said he still does not believe the aldermen fully know the financial state of the city because the board cannot depend on the reports and records it receives from the city clerk's office. Dillard said with the additional gaming revenue and $1 million lease payment from Magnolia Bluffs Casino this year, he did not fully grasp why the city needed a $600,000 tax-anticipation loan. "Sales (tax revenue) is up, you've got money coming in from oil and money coming in from the (new) casino, it's an awful lot of money," he said. "It really doesn't make a lot of sense." Brown said, as he has in the past, that tax-anticipation loans do not bother him. "Making a tax-anticipation loan does not frighten me," he said. "We've got the money. All we're doing is borrowing what we anticipate we will get. It's not so much taking out the loan that bothers Dillard, he said, it's not fully understanding the need for it and the overall financial state of the city. "If you don't have the right information, you're never going to be able to tell, and right now, you can't rely on the records we're getting," he said. ___ (c)2014 The Natchez Democrat (Natchez, Miss.) Visit The Natchez Democrat (Natchez, Miss.) at www.natchezdemocrat.com Distributed by MCT Information Services
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