City crowds into council chambers for questions

To be continued.

That’s about all that’s certain after Henderson’s first-ever public forum on an annual city audit Monday evening before the regular City Council meeting.

Nearly 100 people crowded into and out of the council chambers at the Municipal Building for the 5:30 session, drawn by the prospect of learning how Henderson’s undesignated general fund balance fell from more than $4.5 million and 41.37 percent of the next year’s budget at the close of fiscal 1999 to $464,163 and 3.46 percent of the next year’s budgeted spending five years later, according to the figures City Manager Eric Williams used during a half-hour PowerPoint presentation.

It was a unique situation for the city: A standing-room-only crowd that stretched through the doorway strained in the darkness to watch a computer slide show about a financial audit. All of the City Council except Ranger Wilkerson followed the presentation, along with the city financial staff, a live radio audience on WIZS-AM (1450) and an in-person crowd that was a cross section of the city.

The people in the room included Embassy Square leaders Sam Watkins and Kathy Powell, Flint Hill Neighborhood Association President Eugene Burton and his granddaughter, pastors C.J. Dale and Harold Harris, businessmen such as Robert Fleming and Bill Lloyd, former “Town Talk” host and Rose’s executive Tom Hannon, Gateway leader Cornell Manning, and Clean Up Henderson Committee Chairwoman Lynn Harper. The event even drew folks from outside the city, such as Vance County Board of Education member Robert Duke and Shank Street resident Samuel Smith, whose front porch is on the city line.

Not in attendance was Curtis Averette, who audited the city’s books for accounting firm William L. Stark & Co. That made it impossible for the public to learn why the city government didn’t receive the audit until Jan. 28, almost seven months after the fiscal year ended and more than 10 weeks after the date on a management letter about the audit.

Williams said the date on that letter represented when Averette completed the fieldwork on the audit. Williams said he received the letter and the audit on the same day, Jan. 28, and the documents went out to City Council members at that time.

“We have a public hearing on the budget each year,” Mayor Clem Seifert said as he opened Monday’s session. “There’s seldom anyone here for that.” Nor, he noted, do the annual audit presentations make much of a splash.

The difference this year is something that Seifert said surprised him and that struck a nerve with a public fearful of paying the price for the city’s aggressive construction campaign: the drop in the fund balance to less than half the 8 percent level the state’s watchdog Local Government Commission sets as its suggested minimum.

The fund balance is the essentially the city’s accumulated savings account and serves as a reserve to prevent cash-flow problems when taxes haven’t been collected yet or in tough times when revenues fall or emergencies occur. Williams said the LGC’s 8 percent benchmark represents about a month of spending.

According to the LGC, other North Carolina cities comparable to Henderson — those with 10,000 to 49,999 residents — have an average fund balance of about 35 percent. The LGC in January 2004, after reviewing the 2003 city audit, advised measures to boost a fund balance that then was more than $1.3 million, better than 10 percent of general fund spending.

In a letter responding to the LGC last year, Seifert noted that the City Council had an official policy of building up its fund balance during the fiscal year that ended June 30, 2004, and it amended the budget in the first months of that year to eliminate any use of the fund balance.

The city management had projected a final fund balance for the year of more than $1.2 million; it was off by some $800,000.

After Williams’ presentation, which he never finished because of a lack of time, and after more than an hour of questions and comments from the audience, the council and the mayor, it’s still not clear what happened to the money.

There’s no question that $400,000 of the lost fund balance is attributable to Embassy Square’s cultural side, the part of the project south of Breckenridge Street, but even that part of the equation is hazy.

The city’s capital improvement plan for the cultural center — bordered by Breckenridge, Wyche, Winder and Chestnut streets and slated to contain a 40,000-square-foot library, a gallery space and a 1,000-seat theater at a total cost of more than $18 million — called for spending just under $1.4 million on land acquisition and other upfront costs, but that total rose by $395,000.

For purposes of the audit discussion, the source of that overage is less important than how it was approved and how it affects the city’s bottom line.

Previous City Councils approved the Embassy project, the land acquisition, the initial use of city money and, in one of the final acts of the last council and Mayor Chick Young, the transfer of the land deed to the Embassy foundation on a temporary basis.

At the time of that land transfer in November 2003, the city expenses associated with the project had already risen to $1,794,455. But the council never passed a budget ordinance amendment to reflect the increase of $395,570.

Williams said later Monday night that the land transfer was the triggering event that forced the city to account for that deficit in the capital budget. The deed transfer closed the books on the city’s capital budget for the cultural center, and the auditor said the city couldn’t carry a deficit in that budget. That, Williams said, forced the city to transfer almost $400,000 from the general fund to balance the Embassy budget.

The council never authorized that move, which accounts for half the audited decline in the fund balance.

“Staff research indicates a ‘mechanical’ oversight occurred by not amending the CIP budget for the Embassy South Project to the actual amount of the Project,” Williams wrote in his Monday presentation.

He and Seifert played down that oversight, but it angered council member Elissa Yount. She argued that such legal requirements as budget amendments exist for the purpose of protecting the people’s money and allowing the elected council to ensure spending is proper.

(By comparison, the council Monday night approved a budget amendment to cover the addition of $189 to a police grant fund.)

Yount hammered at Williams with a series of questions about proper process in city spending. Loud applause, though not necessarily insight into the audit, rewarded her grilling of the city manager.

“Mr. Williams, is it illegal to appropriate fund balance without council approval, yes or no?” she asked to open her questioning.

After some clarification on the question, Williams drew audience laughter when he said: “I would tend to answer more yes than no.”

Seifert expressed frustration at being out of the loop about the falling fund balance, which the LGC, in its letter on the issue Feb. 21, said it discussed with “city officials” in a phone conversation Oct. 13. Williams was among those officials; Seifert was not.

Williams reported on that phone call to the council’s Finance and Intergovernmental Relations Committee on Oct. 22, when he warned that the audit was likely to find a poor fund balance — in fact, he has said since, he expected it to be lower than $400,000.

Seifert said the big question from the audit is how the fund balance dropped so far so suddenly.

“When it comes to unappropriated fund balance, this council was caught a little bit off-guard by the reduction in the amount of unappropriated fund balance that we thought we would have” and what the audit revealed, he said. “I don’t know why it dropped.”

But no one asked such a direct question, and in interviews after the forum and after the council meeting, Williams couldn’t pinpoint the source of the $400,000 hole that wasn’t tied to Embassy Square.

“We’ll probably have to go through the budget line by line,” Seifert said after the meetings.

Given a first chance at that process Monday night, the speakers at the forum didn’t look much beyond Embassy Square and Williams’ management of the city.

Eleven people from the audience stepped up to the microphone, starting with Hannon and ending with Dale.

Hannon set the tone by asking about the timing of the audit information and the timing of the Embassy foundation’s repayment of the city’s $1.8 million. The audit says repayment is expected in three to five years.

“We need to resolve that once and for all,” he said.

Seifert addressed that issue by reading from the November 2003 contract for the land transfer from the city to the foundation. The agreement specifies that “when the entire project has been completed, all of the properties shall be reconvened to the City (or its assignee) and the City shall be reimbursed from the remaining funds (then available to the Foundation) for the cost of the land purchased by the City and any other expenses incurred by the City relative to the development of said Embassy South Project.”

But there’s no contracted timetable for the project’s completion, and there’s no assurance the foundation will have any money left. The city will get a library and gallery, and possibly a theater, but not necessarily any cash.

Next to speak was Smith of Shank Street, who has a dispute with the city after he was improperly charged a monthly sanitation fee for up to 18 years. “How can you give the Embassy Square $2 million and not take care of the people who make a hard-earned living?”

Melissa Lemmond sought answers on what, if anything, the city management has done to address the fund balance problem since it came to light in the fall. She went away unsatisfied. “If we had this kind of information about the fund balance … it’s a serious problem. Everybody needs to know where their money’s going.”

Harris, the pastor of Mount Zion Christian Church, said he knows Embassy Square is a good cause, but “we have too many other problems” that should take priority, such as crime and housing.

When Ray Hight took the floor, he had one question, posed as a poll of the council: “Do you approve of the manner in which our city manager has handled the financial affairs of our city?”

Reminded by City Attorney John Zollicoffer of the legal tightrope of personnel issues, the council declined to answer.

Iris Dethmers won applause by looking beyond the city manager: “If Mr. Williams has been incompetent, that’s one thing. But if the leadership here has been incompetent for not questioning or wondering how come the deadlines have come and passed, you need to take responsibility for your actions.”

Anna Hannon, Tom’s wife, also got applause after she returned to the issue of Embassy Square and the operational costs of both the library and the publicly financed police station. “I know it has cost y’all a lot more to operate the Aycock recreational facility than you thought it would. What makes you think it won’t cost a lot more for these other facilities?”

Timmy Baines and WIZS representative John Charles Rose shifted the discussion toward the future, including how to find the $388,325 Williams said is necessary to raise the fund balance to 8 percent. That sum is equal to about 6.5 cents on the property tax rate. (It was not clear how the fund balance at $464,163 could be less than 4 percent but the addition of a smaller amount would push the total to 8 percent.)

The creation of a plan to restore the fund balance will be part of the budget process, FAIR Committee Chairman Bernard Alston said. “We don’t have that plan yet.”

But he said his committee will start in March to work on the budget for the year beginning July 1, instead of waiting for Williams’ annual proposal in May. That extra time should allow more scrutiny of the details and allow the council to consider the big picture.

The public will be a part of that process, Alston said.

Burton made a pitch for his budget priority: “We need to come up with some solution to come up with money for these run-down communities.”

Burning Bush Christian Church’s Dale closed the discussion about 7:20, leaving the council time for a break before its 7:30 regular meeting. He criticized the lack of organization on the part of city officials: “In my opinion, y’all should have had your stuff together. … Y’all need to work together for the benefit of the whole city.”

The next step in getting the city’s stuff together might be much like Monday’s first step. Seifert suggested during the audit forum that the council consider holding another session before a council meeting in March. At the end of the night, he raised the possibility of creating a citizen committee, modeled on the Clean Up Henderson Committee, to tackle the budget.