County budget: ‘borrowing from Peter to pay Paul’
Published 12:14 pm Friday, June 16, 2023
The Claiborne Commission will be reviewing during the June 20 meeting a seemingly last-ditch effort to build enough reserves in the Claiborne County new fiscal year budget to tide things over. County Finance Officer Eric Pearson is asking the Tennessee Comptroller for permission to ‘borrow from Peter to pay Paul’ by transferring funds from two budget fund balances until new revenues can be realized.
Pearson wants $1.8 million in “interfund” borrowing so that expenses can be funded until money from property taxes comes in. Pearson says the county’s Annual Budget Appropriation resolution gives the okay to borrow on tax and revenue anticipation notes. The practice is a method of managing cash flow from one fund to another that has a cash shortage.
Once the borrowing Fund has sufficient cash, it must pay back the lending Fund by the end of the fiscal year, Pearson states in a written report directed to the 21 commissioners.
According to his plan, $1.2 million will be transferred from the Debt Service Fund (Fund 151) along with an additional $600,000 from the Highway Fund (Fund 131). This money will be dropped into the General Fund (Fund 101) coffers that will go toward paying wages and vendor invoices, according to Pearson.
The plan, he says, is to borrow from the Debt Service Fund “as needed” and to borrow from the Highway Fund only if the Debt Service Fund is “insufficient to maintain a positive cash balance in Fund 101.”
The goal is to borrow as little as possible from the Highway and to repay the loan as quickly as possible.
To avoid operational disruptions, Pearson says he will work closely with Ronnie Pittman, who is the Road Superintendent, on the timing and amounts transferred.
Pearson states in his report that the commissioners will not need to take action on this plan other than to be aware that it will be occurring if the Comptroller gives his permission for the county to move forward with it.
On July 1, a cash balance of $1.7 million will be resting in the coffers of Fund 101. According to Pearson, the Fund balance will run out of coins in September.
Addressing the cash deficit on a temporary, short-term basis is permissible through the Tax and Revenue Anticipation Notes (TRAN) via the Annual Budget Appropriations Resolution, Pearson says.
“However, the General Fund will be permanently short of necessary cash until the amount of cash in the General Fund is replenished. This involves increasing tax revenue,” concludes Pearson’s report to the commissioners.
In a separate report, Pearson states that the Comptroller will be “concerned” that the county must borrow to make sure sufficient cash is in the General Fund.
“Governments that have too little cash reserves and have large reductions in available cash are identified as being in fiscal distress. Based on the Comptroller’s metrics, the county’s available cash and reduction in cash reserves are trending towards fiscal distress,” concludes the Report on the General Fund Cash Reserves.