Local Government Commission tells city its fund balance is too low
By Ethan Smith
Published in News on May 24, 2015 1:50 AM
Goldsboro received a letter from the North Carolina Local Government Commission on Monday warning the city that its available fund balance, as of the 2013-14 fiscal year audit, did not have enough funds to support current city operations.
Finance director Kaye Scott said the city has known the letter was coming since March.
"We have told the city council about it," Mrs. Scott said. "We've been talking to the LGC, and we were just waiting for official word, so it's not that the council wasn't notified before the letter came."
A potential consequence of receiving such a notice from the LGC is the inability to take out more loans until the fund balance is replenished.
The city is currently attempting to take out a loan for the financing of the construction of a new W.A. Foster Center and the renovations to the Goldsboro Country Club.
But City Manager Scott Stevens said he does not believe the fund balance will be a problem once the city is able to meet with the LGC.
"We expect the Local Government Commission to approve our request to borrow money for the W.A. Foster Center and for Goldsboro Country Club, but I can't say for sure that they will," Stevens said. "I think the next time they meet is June 2, and we're working on getting on their agenda so we can meet with them to talk about this."
The reason the city's fund balance had dipped to dangerously low levels -- $645,905 -- was due to a settlement paid out by the city in the amount of $2.7 million in June 2014 to Dwayne Dail for a wrongful conviction. Dail spend the better part of two decades behind bars for a crime for which he was later exonerated.
The total settlement paid to Dail was $7.5 million, with the city paying $2.7 million and the city's insurance company paying $4.5 million.
"This all has to do with the police settlement (with Dail)," Mrs. Scott said. "It all kind of stems from that. The reason we had a drop in the fund balance was because (the settlement) crossed fiscal years."
The LGC recommends that a city the size of Goldsboro keep an average fund balance that is 49.97 percent of the city's total general fund expenditures.
Prior to last year's settlement, the city's fund balance was $3.3 million, or 10.03 percent of its fund expenditures.
After the settlement, the city's fund balance was only 1.79 percent of its total fund expenditures.
"What the Local Government Commission does is they look at other cities our size and they look at each city's fund balance and average them," Steven said. "So they say we ought to have a fund balance that's upwards of 40 percent or so, which would be about $15 million for our city."
Mrs. Scott said the city's own financial regulations say the fund balance is to hover around 15 percent consistently, and not dip below 10 percent of its fund expenditures.
The city council makes the regulations, and the LGC does not have to approve them, Mrs. Scott said.
Legally, the city must keep its fund balance set to at least 8 percent of its fund expenditures. To abide by this law, Mrs. Scott said the city keeps $4,572,888 set aside to stay in line with the state statute.
The city responded to the LGC's letter on the same day it was received, notifying the LGC of how it expects to replenish its fund balance by the close of the 2014-15 fiscal year.
Following the settlement with Dail, the city took out a two-thirds loan in November 2014 in the amount of $1,683,000 to replenish its fund balance.
This amount is two-thirds of the total settlement paid out by the city -- $2.7 million -- which is why it is called a two-thirds loan, Mrs. Scott said.
Money to replenish the fund balance by the close of this fiscal year will also come from reimbursements to the city for Streetscape engineering and utilities, operating surpluses and reimbursement for the purchase and renovation of the Goldsboro Country Club.
This would bring the city's fund balance back up to $4,870,957 by June 30 of this year, putting the city's fund balance back at solvent levels.