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Tuesday, May 21, 2024

Land deal could rescue Southport’s low fund balance, depleted after years of financial troubles

A $650,000 check could help pull Southport out of a bad financial spot. The city has struggled for years, and now, is maintaining a post-hurricane fund balance of about 12 percent, with an estimated $706,676 in savings.

Southport Marina offered to buy Southport's old waste treatment plant for $650,000, a deal that could help relieve the city of its low fund balance. (Port City Daily photo/Johanna Ferebee)
Southport Marina offered to buy Southport’s old waste treatment plant for $650,000, a deal that could help relieve the city of its low fund balance. (Port City Daily photo/Johanna Ferebee)

SOUTHPORT — Southport is a financial bind, and it has been for several years.

The small coastal city claims it was on its way to repairing its financial health, but then, Hurricane Florence hit. Officials now say a land deal — although contentious — could be instrumental in repairing the town’s finances.

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According to a mid-year financial update, presented to Southport’s Board of Alderman last month, Southport is working with approximately $700,000 in its general fund. A land deal might change that, providing a much-needed monetary buffer from a private marina.

Southport is left with an estimated 12.2 percent of its general fund available relative to expenditures, totaling an estimated savings balance of $706,676. Local governments are required to maintain at least eight percent of their fund balance — potentially spendable equity — based upon a recommendation of the Local Government Commission, a branch of the North Carolina Department of State Treasurer.

The Local Government Commission prefers to see 30 percent of a coastal communities’ fund balance available.

Years of troubles

Southport’s fund balance and overall financial health has been rocky in recent years, according to multiple letters provided by the Local Government Commission (LGC).

The city’s percentage of expenditures to fund balance dropped 50 percent between FY 2011 and FY 2012, from $3.2 million to $1.5 million.  According to the audit for FY 2012, expenditures exceeded authorized appropriations. Expenditures were not recorded in a timely manner to determine when budget amendments were needed, the audit states.

Southport appears to calculate its fund balance in a slightly different way than the Local Government Commission; nevertheless, Southport’s own accounting shows its balance has been below LGC’s recommended 30 percent threshold for multiple years. (Port City Daily/Courtesy City of Southport)

For one, the city has consistently failed to meet LGC’s October due date.

Southport was months late in supplying its financial audit to the LGC between fiscal years 2012 and 2015. The city also missed its due date in 2017 by eight months. Already four months past LGC’s deadline for fiscal year (FY) 2018, the audit is not yet complete, according to Southport’s finance director.

After total fund expenditures of the city’s general fund balance reached 19.89 percent in FY 2013, the LGC sent a letter outlining multiple concerns. Comparable communities that year had an average 49.18 percent of their fund balance available, according to the LGC.

“Over the past three years, the City’s fund balance available has experienced a steep decline,” the LGC wrote in 2014.

Estimates provided by Southport’s clerk, presented to the board last month, show a wavering fund balance, with percentages as high as 33 percent in FY 2014 and as low as 24 percent in FY 2016 and 2017.

So far this year, due in part because of hurricane-related expenses, the city is down to approximately 12 percent of its general fund. Melanie Trexler, the city’s finance director, said the figure is “just a shot in the dark.”

Because fund balances include variable figures, like existing assets, minus liabilities, Trexler said the estimate could vary. “I mean it could actually be less than that,” she said. But, she added, “I think it’s pretty close to being accurate.”

After Hurricane Florence hit in September 2018, Trexler said the city spent $1.2 million to address infrastructure issues. “The hurricane did set us back,” she said. “Southport has been behind for many years, and the last couple of years it has been delayed even further. We were on track to being real close to be caught up.”

According to Trexler, any Federal Emergency Management Agency (FEMA) reimbursement is in limbo. “With the hurricane, if we don’t get any FEMA money by the end of June, our general fund balance is going to look really bad,” she said. “There’s no guarantee as to when we’ll get our money.” 

She attributed the city’s vulnerable financial position to years of change.  “We’ve had a lot of transition,” she said. “In employees, in software, lots of things. It’s just taking some time to get above it all.”

Personnel issues

The city’s financial issues stem back years. Some of the issues are tied to personnel, others, to a delayed increased fee schedule for city services. For fiscal year 2014, former Mayor Robert Howard wrote to the LGC that its audit was late due to an 80 percent staff turnover of the finance department.

Former city manager, Kerry McDuffie, “relieved” former finance director, Bonnie Bray, of her duties in October 2014, according to the State Port Pilot. In September 2015, Bray co-wrote a letter to the LGC outlining accusations against McDuffie. Accusations claimed McDuffie “unilaterally gutted the budget in a series of actions [taken] away from the public eye.” Southport’s attorney refuted all of Bray’s claims the following month. However, the attorney did concede some transfers took place out of order, before board approval.

In a September 2018 letter, Mayor Jerry Dove wrote staff turnover and “absenteeism” was to blame for submitting FY 2017’s audit eight months late. He wrote the city’s new manager, Bruce Oakley, was implementing “changes in personnel” that would enhance improvements in the city’s accounting system.

Though Dove was police chief at the time, he said from what he could remember about 2014: “There was something wrong with the way they were keeping the books.”

He attributed some of the city’s issues to turnover, both in staff and in elected officials.

“Seems like some of the plans get put on the back burner and then nothing gets done. Then all of a sudden we’re faced with some problems like our building is falling apart – or new projects are started and never get fixed,” he said. 

Trexler, hired in early 2015, is doing a good job trying to get the city back on track, Dove said. Including two interim managers, the city has had five managers in a seven-year period. But Dove commended Oakley’s work since he started in September 2017.

“We were on the road to recovery here until the storm hit us,” Dove said. “The sale of that property would help us out.”

Land deal could nearly double fund balance

Aside from personnel issues and a low general fund balance, the LGC has repeatedly alerted the city to multiple weaknesses:

  • Monthly reconciliations of bank accounts and ledgers was not performed in FY 2013, FY 2014 and FY 2015.
  • Bank accounts, ad valorem taxes and utility revenues and account receivables were not timely reconciled every month in FY 2017 and FY 2016.
  • Water and sewer system was not financially sustainable in FY 2017. LGC first warned Southport that the water and sewer funds would be a potential weakness in 2014.

Addressing LGC’s water and sewer fund concerns, the city implemented a rate structure increase in 2017.

“We weren’t charging enough money for the services we were providing,” Dove said. “That kind of put us operating in the red.”

 Sewer rates were raised by 13 percent and water rates were raised by 4 percent. Southport’s previous mayor expressed regret that rates were not increased incrementally.

And in 2017, Southport raised taxes — from 24 to 29 cents — to smooth over the deficit, according to Oakley. Dove wrote to the LGC in March 2017 that the city would reach a 30 percent fund balance by 2020. Now, after hurricane expenses knocked the fund balance back down to 12 percent, it’s less likely that will happen.

We did show an increase up until the time – then we had the storm,” Dove said.

A land deal, currently in an upset period that ends Feb. 18, could also dig the city out of its hole.

Southport Marina offered $650,000 to purchase the city’s old waste treatment site. At 2.5-acres, the site’s usable acreage is only 1.38 according to Oakley. Cleanup costs could exceed $350,000, according to an appraisal cited by Oakley. If the deal goes through, Southport Marina agreed to take on cleanup costs itself and offer up two separate public easements for the city to use for public use.

Though accepting Southport Marina’s offer on Feb. 2 split Southport’s board, Oakley said the sale would help the city.

“This would help in the meantime until we’re reimbursed to provide some cushion in our fund balance,” Oakley said.

One board member in opposition to the deal, Aldermen Karen Mosteller, said she was not comfortable with the city giving away one of its last remaining assets.

Mosteller has not returned a request for comment. Other board members in opposition, and some members of the public, are uncomfortable with a perceived lack of public involvement in the process. Alderman voted on the offer earlier this month without a public hearing held on the matter. 

Vouching for the land deal, which Dove is in favor of, he said he would reference the transaction in a future letter to the LGC.

“If I have to write another letter to the state, I’m going to put that in it,” he said.


Send tips and comments to Johanna Ferebee at johanna@localvoicemedia.com

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