The notion that the City of Bay St Louis was experiencing financial problems is not by any means new. Just over a year ago the citizenry heard lots on the topic during the municipal election with Mayor Fillingame unequivocally proclaiming the City was in good shape financially. The irony is by that time, the City was already using its trade vendors as its financier. You see folks, when the bills don’t get paid the trade vendors become an unofficial bank. Even worse, it is the kind of unofficial bank that must make forced loans that bear no interest. It was a sign of things to come in a fools game where the passage of time is the ultimate enemy.
The warning signs were literally everywhere and yet for month after precious month the City Council did nothing. Worse, it appears certain members of the Council were simply going along with the Mayor because it was easy. Last October the City Council, at the request of the administration, finally took action on utility rates to fix the problems the administration identified in the Water and Sewer operations. The increase was targeted at high volume water users which it turns out was the very segment of the City’s customer base that was in decline. Now the Administration claims the rate increase was insufficient.
Last January Slabbed published a detailed analysis of the irresponsible budget practices that lay at the heart of the City’s financial decline. Since then the City has spent money it was legally required to set aside for debt service on municipal operations. Broke, the city made a loan with a local bank that it lacked statutory authority to make. The proceeds of that loan, mistakenly called “a line of credit” by the Mayor and Council, was split between the water and sewer fund and the general fund. Despite being at every meeting the City Attorney was evidently checked out MIA allowing the Mayor and City Council to step out making what Councilman Lonnie Falgout now terms an illegal loan. I fear it’s gonna take the elected officials here to have to pay big dollars out of their own pockets before they’ll learn the value of operating within the law.
Unable to make the scheduled debt payment on Water and Sewer debt due in July 2014, the City Council again kicked the can, refinancing debt dating from the 1990s that had already previously been refinanced. The City, caught in a downward financial spiral incurred hundreds of thousands of dollars of debt issuance costs that could have been used to pay for City operations. From a financial management standpoint, the performance of the City’s elected officials really can’t be much worse.
The last City Council meeting drove home the misplaced priorities folks when the council spent over a half hour planning how to place banners early for Harbor Fest, saving disclosure of the fact the City’s auditors were considering issuing a going concern opinion for the last hour of what turned into a four and a half hour meeting. Now we have a special meeting on tap for the Thursday of this week to tackle what should have been the most pressing business of the last meeting. I wonder in advance how the agenda will be constructed by Council President McDonald and the Mayor to torpedo any meaningful conversation. Planting rumors with the library folks worked like a charm last meeting as over an hour was spent explaining why the citizens of Bay St Louis should not be paying twice for the same service. What’s a few more weeks on the road to bankruptcy?
Now some lovely music.
When I met Councilman Falgout for the first time I told him I held no envy for the job he has as a City Councilman. Once, long ago sitting in an executive session of a school board far away, the School Board President, referring to the Superintendent who was not in attendance, told me they were at his mercy and they were depending on me as the District’s auditor to shoot straight with them on the District’s finances, which indeed turned out to be very shaky. Whether it is a City Council or School Board, the Board is only as good as the information the Chief Executive furnishes them. And when the Chief Executive is a spendthrift, problems will follow. At the end of the day though, it does not absolve the Board of their duty to provide oversight.
I mention this because while it is good the City is finally addressing the financial structure of the water and sewer fund, what the City needs is a comprehensive discussion of the entirety of the City’s financial operations. Simply put, the financial problems in the Water and Sewer fund do not exist in isolation. If I may be so bold as to suggest that the City Council consider doing additional consulting with its auditing firm along those lines. It would absolutely be money well spent in my opinion.
There is something else happening that those of you at home are just beginning to see in the multiple media outlets examining the City of Bay St Louis and its operations. We’ve always had the Echo. Obviously there is Slabbed New Media but we are now also seeing the Sun Herald devote significant resources to the City beat. This is a good thing because sunshine is a good thing, the more the better in fact. I look forward to seeing the work Jennifer and Justin are putting in translate to even more substantive stories as I hear there are some in the pipeline.
Finally, it is not a foregone conclusion that the City will file for bankruptcy under Chapter 9 of the U.S. Bankruptcy code. Should the City Council take a detailed look at both the revenue and expense sides of the equation and make some hard decisions the current financial crisis can be solved. I’ve seen enough of the City’s financial operations to know that blindly raising taxes or water rates is not the answer. This fiscal year, the City balanced its original budget using fantasy revenues it would never collect. The City’s cost structure must be right sized to what it actually generates through property and sales taxes along with the utilities.
However, should a bankruptcy come to pass, this is where I know I’ll have some fun as the nice employees on 2 are a hoot!:
Intervention/Right of Others to be Heard
When cities or counties file for relief under chapter 9, there may be a great deal of interest in the case from entities wanting to appear and be heard. The Bankruptcy Rules provide that “[t]he Secretary of the Treasury of the United States may, or if requested by the court shall, intervene in a chapter 9 case.” Fed. R. Bankr. P. 2018(c). Further, “[r]epresentatives of the state in which the debtor is located may intervene in a chapter 9 case.” Id. In addition, the Bankruptcy Code permits the Securities and Exchange Commission to appear and be heard on any issue and gives parties in interest the right to appear and be heard on any issue in a case. 11 U.S.C. §§ 901(a), 1109. Parties in interest include municipal employees, local residents, non-resident owners of real property, special tax payers, securities firms, and local banks.