Aug. 31--PETERSBURG -- By continuing to borrow short-term loans to meet expenses, the city is going against the advice of financial consultants hired in 2012 to assess its monetary standing. The loans are referred to as Revenue Anticipation Notes, a form of short-term borrowing available to municipalities.
A 2012 report by Davenport and Consultants advised the city the borrowing was fiscally unsound practice because interest would have to be paid on the loans. The consultants also said the city had virtually no available savings.
City Council was scheduled to be in recess during the month of August, but still called an Aug. 21 special meeting to approve the use of a $5 million loan. The meeting wasn't attended by the public, but was advertised in The Progress-Index on Aug. 18 and the city's website.
Council voted July 1 to give City Manager William E. Johnson III the authority to negotiate the terms of the loan, which has an interest rate of 1.5 percent plus a fluctuating interest rate dependent on market conditions. The one-month London Interbank Offered Rate stood at 0.16 percent as of Friday. The city will also have to pay bank fees of $7,500.
The city anticipates that revenue from personal property and real estate taxes will allow the loan to be repaid by June 30, 2015.
Irvin Carter, director of finance, said the city has been borrowing the loans since 2003.
Johnson said the city is working to break the cycle of short-term borrowing by working to reduce the amount by $1 million dollars or more if possible, until the loans are no longer needed.
The city borrowed $5 million last fiscal year and paid $60,967 in interest and $5,000 in bank fees. In fiscal year 2013, $6 million was borrowed and $50,099 was paid in interest with another $5,000 in bank fees.
Johnson said the city would continue to consider ways to eliminate borrowing during its regularly scheduled meeting Sept. 2.
- Leah Small may be reached at 722-51721 or firstname.lastname@example.org.
(c)2014 The Progress-Index (Petersburg, Va.)
Visit The Progress-Index (Petersburg, Va.) at www.progress-index.com
Distributed by MCT Information Services