October 30, 2013

Varnell finances come under scrutiny as Election Day approaches

Charles Oliver

— The city of Varnell isn’t broke, says Mayor Dan Peeples.

“I’m offended by any suggestion we are. Broke is when you can’t pay your bills. We have paid all of our bills. We haven’t missed a payment to any of our employees. We have never missed a power bill or any other bill, and we are in no danger of not paying our bills,” he said.

The status of Varnell’s finances has become an issue in this year’s election for City Council. Businessman Jan Pourquoi said the city’s lack of a rainy day fund and large debt relative to its annual revenue leaves it in a precarious financial situation. Pourquoi is seeking Seat 2 on the council in Tuesday’s election against Michael Willocks.

“I am not pointing fingers,” Pourquoi said. “I am not blaming anyone. I would have supported many of the decisions the council has made in the past. But I am saying this is the situation, and we have to deal with it.”

Pourquoi said if the city was a household it would be living paycheck to paycheck.

“Is that a problem? I guess it’s a matter of opinion,” Pourquoi said. “A few years ago, many people were buying houses that they strictly speaking could not afford. They were doing it on the assumption that not only would they not lose their jobs, they would continue to get raises. And they were doing it on the assumption that the value of their house would grow. But all of a sudden, they are out of a job, and the value of their house has depreciated, not appreciated.”

Pourquoi said Varnell may not face any financial problems now when times are relatively good, but he said he worries what would happen if there were another downturn or other unexpected economic shock.

Pourquoi has proposed that the City Council begin to save 5 percent of its revenue each year and begin building a fund balance that could get it through any potential cash flow issues.

Willocks said he doesn’t think the city’s budget is in quite as dire shape as Pourquoi does.

“It looks bad in the summer, but that’s because the city gets a big share of its revenue at the end of the year,” he said.

Varnell officials say about 35 percent of the city’s revenue comes in during the final two months of the year, largely because that’s when property tax payments are due.

But Willocks said he, too, would like to see the city start building a fund balance.

“We’ve finished some big projects, and now we can start putting some of the money we’ve been spending on them in reserves,” he said.

Peeples said the city not having a fund balance isn’t unusual.

“We didn’t have a fund balance when I became mayor five years ago. I don’t think we’ve ever had one,” he said.

But he also said it might be wise for the city to start building one.

Peeples said the city had some unexpected expenses building its new City Hall, which opened earlier this year. For instance, most of the work on the building was done by inmates from the Georgia Department of Corrections, who worked for free. But Peeples said the city had to hire contractors to perform some specialized work. All told, the city had about $60,000 in unexpected expenses that came out of its general fund.

“But we’ve finished City Hall, and we won’t have those expenses next year,” Peeples said.

Peeples, who isn’t seeking re-election this year, said that if the next council chooses to use all or part of that money to begin building a fund balance he would support the decision.

The city’s current long-term liabilities stand at about $650,000, or about 74 percent of its $875,000 in projected revenue for this year. That debt was incurred to build the new City Hall and other projects.

Pourquoi notes that most local governments in this area have a much lower share of debt to revenue. But Peeples said the amount of debt should not be considered in isolation.

“There’s good debt and bad debt. Why did you borrow that money? What did you do with it? If you borrow money to build a house or to expand a business, that can be good debt. In Varnell, we borrowed that money to build a new City Hall,” he said.

Before moving into the new City Hall, Varnell city offices were in a modular building that Peeples said the city was paying about $1,500 a month to rent.

Varnell borrowed $500,000 to build City Hall, and it currently pays about $3,300 a month on that loan.

“In 14, years we’ll have that paid off and in the meantime we have a nice, new City Hall,” Peeples said.

Pourquoi said the city should be proud of its new City Hall and its new senior center, but he said the city now needs to focus on shoring up its finances.

“I’m not saying anyone made any stupid mistakes. I’m not saying there’s any corruption or a great deal of waste,” he said. “The fact is Varnell doesn’t have reserves. The fact is that for very understandable decisions the debt ratio has gone up dramatically. The fact is that cash flow is precarious. The fact is that we need to do something about it.”