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April 27, 2014

Cash flow changes lead to City Hall financial juggling

DUNCAN — The city treasurer said she’s “alarmed.”  The city manager said he’s “concerned.”

Whichever anxiety level applies, the upshot is there’s a cash flow problem at Duncan City Hall.

The city’s two top administrators acknowledged on Thursday that  $922,000 was “borrowed” from its capital improvements budget to pay its operating expenses -- an unorthodox move that was not shared publicly until now.

“I had to borrow that to make payroll,” said Patti Clift, who has no less than three titles at City Hall --  treasurer, finance director and city clerk.

Her boss, City Manager Jim Frieda,  insisted all is fine because the city has received a legal opinion that states as long as the city pays back the money it borrowed, nothing untoward has occurred.

Now, in effect, the city owes itself nearly $1 million, along with the sizeable debt it already carries.

To make its capital improvement fund “whole,” the city will cash in its Treasury Inflation-Protected Securities, commonly known as TIPS, which have reached their maturity date, Frieda said.

Before Frieda  assumed the city manager’s job in January 2010, the administration of his predecessor had been criticized in two outside audits for “comingling” city funds that should properly stay in separate accounts.

 Despite repeating the auditing sin of comingling city funds, Frieda said the financial health is good.

“We’ve never missed paying a bill,” he said.

Nevertheless, on March 11, what appears now to be an early warning signal was run up the flag pole.

On that night, during a regular meeting of the City Council,  water rationing was under discussion when Clift strode to the lecturn and unexpectedly announced,  “Cash flow is what keeps me awake at night.”

She went on to explain city revenues from its water sales had declined $1.5 million since 2011. Moreover, she said, sales tax receipts dropped $143,000 from the previous month.

Now, almost two months later, more detailed statisics from the Oklahoma Tax Commission show where sales taxes are lagging -- the department store sector.

From February to April, sales tax revenue from that single sector declined $66,115.77, a  20.11 decline, Clift said.

Why?

The best guess is people are shopping more at new stores that have opened in Lawton, notably Target and Dick’s Sporting Goods, and less shopping at WalMart, Duncan’s biggest retail store, Clift said.

That’s not a big surprise to many, but if it’s a trend, it’s an unwelcome one.

Cities in Oklahoma depend on sales taxes receipts for a large chunk of their operating revenue.

They also rely on “use taxes” and utility revenues. The early trends on those revenue streams in Duncan are on a downard path, too, statistics show.

From February to April, money generated from the city’s use tax declined $155,038.37, a 72.1 percent drop, Clift said.

“That’s quite a bit,” she said. “Something’s going on.”

The two biggest payers of the use tax in Duncan are Halliburton and Duncan Regional Hospital, Clift noted.

The third revenue stream  in decline is the money flow from water sales, which is understandable but perhaps ironic because the City Council invoked mandatory water rationing because of the drought.

The citizenry has observed rationing so diligently it has cost the city more than  $1.5 million in revenue since 2011, according to Clift.

As the chief number cruncher at City Hall, Clift has concluded that rates for water, sewer and electricity will have to be increased. Water rates were last increased three years ago.

Frieda won’t concede that, yet, but doesn’t dismiss it either.

He said the city “is running as lean as we can.”

Last week the City Council signed off on a new one-year collective bargaining agreement with the police union that will provide officers a 3 percent pay hike, but management and labor could not agree on a new schedule of “step increases” and “pay for performance increases.”

Duncan cannot match what comparable-size departments in Oklahoma are paying, Frieda said.

“It just doesn’t work for us,” Frieda said. “We decided not to address that.”

 The officers and the city have agreed to continue negotiations on a new pay plan and classification schedule for 2015.

A new collective bargaining agreement with firefighters has not been brought to the City Council.

 General employment city workers get a  2.5 percent pay raise this year.

The city has been trying to cut costs since Frieda took over management of the city’s affairs.

By design, in the current budget, there are no plans to hire workers for 19 unfilled city job.

The police department recently hired a new officer but won’t fill four officer vacancies, Frieda said.

Some of the debt that Frieda inherited from his predecessor, Clyde Shaw, has been refinanced to a lower interest rate and a quicker payout, but it’s still an albatross because of its annual $5.5 million cost.

The only new money the city has borrowed since Frieda took over as city manager was the $9.3 million it needed to exercise its water rights to Waurika Lake, the city’s prime water source. That move was considered prudent because the rights would have been quickly sold to Texas interests had Duncan begged off.

Frieda said the financial situation may require some projects that are in the capital improvements budget to be amended or postponed altogether.

“There’s not a department that doesn’t have a project they want that hasn’t been been eliminated,” he said. “When there’s a change in the sales tax, that’s troubling. I’m not going to commit funds we don’t have.”

 

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