City ready to respond to state about fund balance

The city of Henderson could send its official reply to the state’s Local Government Commission as early as today after the mayor and seven of eight City Council members signed the letter Monday night.

Only Bernard Alston did not sign the letter, and that was because he missed the council’s meeting while recovering from a minor motorcycle accident over the weekend. Council member Lonnie Davis said Alston avoided any broken bones and suffered only scrapes and bruises, but the Finance and Intergovernmental Relations Committee chairman did not make the meeting.

The LGC requested a letter signed by Mayor Clem Seifert and the entire council in response to a letter the agency’s T. Vance Holloman sent Feb. 21. That letter chastised Henderson for allowing its general fund balance to fall below 8 percent and asked for a plan for rebuilding the city’s savings account.

City Manager Eric Williams prepared a draft of the letter after the city enacted its 2005-06 budget. He revised the letter after council member Elissa Yount pushed for more details, although Alston said the only detail the LGC will care about is 8.13 percent, the estimated level of the fund balance as of June 30.

The city lifted its general fund balance from 5.36 percent June 30, 2004, to 8.13 percent at the end of last month, pending its annual audit, by holding restricted Powell Bill road money and drug-seizure funds, as allowed under LGC calculations. The new budget projects that the fund balance will be 9.65 percent June 30, 2006.

The letter to Holloman, who heads the LGC’s Fiscal Management Section, is on Seifert’s official stationery. It is dated today and reads as follows, allowing for a few corrections of typographical errors that council members and Williams spotted during discussions Monday night:

Dear Mr. Holloman:

As you know, the City is in receipt of your February 21st letter (returned copy attached), which analyzes our last audited financial statements for the year ending June 2004 and describes several concerns, particularly that our General Fund Balance dropped below the 8% benchmark. We fully understand and share your concerns and, accordingly have taken a number of steps, most of them in concert with our ’05-’06 budget reviews. I am pleased to be able to favorably correspond with you in that regard.

I understand our City Manager, Mr. Eric Williams, has already conferred with you by phone and generally described what I have outlined below and indicated this correspondence would be forthcoming. The contents had been similarly reviewed by the entire City Council and, as evidence of that, each of them has co-signed this letter with me and formally endorsed this action at our regular meeting held on July 25th.

Specifically, our budget actions(s) this year included adjusting our tax rate from 64 cents to 67 cents per $100 valuation, adjusting water rates upward (for the Regional System by 5% and for City customers by 10%), sewer rates by 15% and sanitation charges from $25/month to $27/month. Further, we implemented a number of other actions to both reduce and/or delay expenditures and, where possible, enhance other revenues. Work continues in those areas and will receive considerable focus throughout the year. Final budget action also specifically appropriated $47,981 in a budgeted contingency appropriation. We have also, with regard to our General Fund Capital Projects, in the case of the Library/Embassy (South) Project specifically, amended that Capital Projects Ordinance to reconcile revenues versus expenditures. This action fully budgeted and accounted for cash expenditures, from available and unrestricted fund balances in prior years, for the purchase of land and certain professional services associated with the Library/Embassy (South) Project. Discussions are ongoing between the City and the Embassy Square Foundation on the matter of land acquisition and/or other related expenditures for this critical initiative as it relates to the City’s cash reserves.

With regard to General Fund Balance (both restricted and unrestricted), for both the period ending 6/30/05 and estimated for 6/30/06, our percentages have been enhanced, and we estimate (still subject to audit, of course, which is now underway), that the 5.36% of total General Fund expenditures (which we understand includes restricted Powell Bill reserves and, for us next year, Federal and/or State seizure funds which have certain restrictions respecting the supplanting of normal and expected City resources) will be increased to 8.13%.

As requested, you will find attached the following, which include certified copies of ’05-’06 budget-related Ordinances (approved by Council action at a special meeting on Wednesday, June 29th):

a. An interim Financial Statement. Please note the cover note on certain receivables and expenses still subject to audit.

b. Our Ordinance adopting the overall FY ’05-’06 budget.

c. An Ordinance adjusting our Schedule of Fees and Charges for Water and Sewer Service.

d. Budget Ordinance #51, regarding the Library project (Embassy Block South).

e. General Fund Balance calculation sheets (detailing both restricted and unrestricted funds).

The tax collection rate utilized in our ’05-’06 budget is, as you can see, 93.4%, which is a slight increase over the collection rate for the ’03-’04 fiscal year noted in your letter. We understand this concern and, accordingly, have communicated several times in prior years with the Vance County Commissioners and their Tax Office regarding this same issue. As you know, they collect for all properties within our jurisdiction. While the collection rate is still below the statewide average, trending is moving in the right direction, and we will continue to take every opportunity to discuss these concerns with the County as they make efforts to address this as well.

We will submit to you regular reports when they are prepared for the Council and pledge ourselves to continue working as diligently as possible to improve the City’s overall financial strength. Obviously, the work is challenging, but we are firmly committed to that primary goal.

I trust this information is sufficient at this time, and, of course, as soon as our audit is ready for your review, it will be provided to your office by our auditors, William L. Stark and Company. Our staff is always available for particular questions, but also please feel free to contact me directly at 252-431-6007 if I can provide anything additional at this point, or our City Manager, Mr. Eric Williams, at 252-431-6006. Thank you and with best regards, I am


Donald C. Seifert Jr.