Despite what some might believe, Cannon County government is not broke. However according to the State of Tennessee Comptroller and Treasury Department, Cannon County is in a financial management crisis but depending on when revenues start generating in, the crisis might be short lived. The State Comptroller’s office has not yet approved the 2016-2017 fiscal year budget. They have until November 30th in order to do so. Cannon County Executive Mike Gannon called a special meeting with the Cannon County Commissioners last Friday to inform them they had enough money to meet this months payroll for county employees but not enough to pay any other bills or expenditures. The meeting was announced Monday. In the meantime the State of Tennessee Comptroller of the Treasury mailed a letter to the County Executive’s office which was received Friday afternoon after lunch. The letter states that We as in the State of Tennessee Comptroller of the Treasury understand that as of the end of August 2016, Cannon County government had spent 20% of its fiscal year 2017 annual appropriations. At this rate of spending, the County will not have enough money to meet its expenses through the end of this fiscal year. Cash flow forecasts for the General Fund provided by the County indicate that it spends more than its receipts for seven out of twelve months. As of the end of September, the County has already borrowed $920,322 in tax and revenue anticipation notes, which represent 18% of its projected annual cash receipts and are required to be repaid prior to the end of the current fiscal year. Additionally, the County has to begin repayment of over $1,000,000 it spent from debt service monies restricted for education. Due to its continuing financial distress, the County has now requested additional borrowing authority for operational expenditures.
The Comptroller’s office believes Cannon County is at a crossroads. The Commission needs to take immediate action to control the County’s spending and overall financial situation. Without strong, decisive action by the Commission, the County will spend more money than it receives during the fiscal year 2017 as it has every year since fiscal year 2012.
Based on the above, an pursuant to the authority of Tennessee Code Annotated, the Comptroller directs the County Commission and other officials to take the following actions to ensure compliance with the statutory cash basis budget requirements and to successfully manage the financial affairs of the County:
The County’s finance staff shall provide budget-to-actual and cash flow reports for all major, special revenue and enterprise funds at each regular meeting of the County Commission and furnish copies of these reports to the Office of State and Local Finance.
The County commission shall adopt a budget police approved by the office of state and local finance that requires it to maintain a balanced cash basis budget that only allows spending if cash is available or is approved by the office of state and local finance.
The County Commission shall adopt a cash management police approved by the OSLF
The County Commission shall determine with the assistance of the OSLF the level of cash necessary to provide working capital sufficient to maintain a balanced budget and the County Commission shall cease improper interfund borrowing from its debt service funds to finance general government operations.
The letter concludes with if the County chooses to not follow these directives, the Comptroller may take such other action deemed appropriate including, but not limited to, exercising his authority to take control of the County’s spending.
County Executive Mike Gannon went over the letter with the Commissioners during Friday’s meeting.
It’s no secret that the majority of the revenue that Cannon County government runs on is produced by property tax. Each penny of property tax is expected to bring in $20,000. While expenditures of county government is expected to increase each fiscal year, revenues must be planned to cover as close to the estimated expenditures for that fiscal year as possible.
Expenditures of County Government are expected to increase every year. Several factors come into play whether it be State mandated raises of the County’s leaders, judges and employees or health insurance costs. Different county departments may have needs for new equipment or emergency vehicles. Revenues from property tax generally don’t start trickling in until the start of November after the property values come in and the tax cards are made. So where does Cannon County get the money to operate from the time they pass the fiscal year budget till the property tax revenue starts to come in? Normally a county would be able to operate until the time of the property tax revenue in generally a two month window from the rainy day fund which at one point Cannon had built up to close to a $1.5 million dollar balance back in 2010. Now the fund balance at the end of the 2016 year was $269,688.00 which is not enough to fund the government over a three month period. According to County Executive Mike Gannon and the State Comptroller’s office the county would borrow from its debt service fund to finance the operations and when the revenues from the property tax came in they would repay debt service. This was perfectly fine with the State Comptroller’s office until the office changed their policy in the 2015-2016 fiscal year. The State now wants every county to have a healthy fund balance at the end of the year to take care of those expenses until their revenue comes in. The State now frowns on a county borrowing money from its debt service fund. When the fund balance was a healthy one back in 2010, the commission at that point voted to spend that fund balance down which was a concern voiced several times by some of the commissioners who served at that time as well as County Executive Mike Gannon. So instead of raising the property tax a penny or two each year to help pay for the expenditures, the County was forced to whittle down their general fund balance during the months they needed to cover expenditures before the revenue would come in. Several years according to the letter the county’s expenditures ended up exceeding revenue since there was no property tax increase to help pay for those expenditures. Even though the fund balance is expected to be $289,795.00 at the end of the fiscal year, the County will still have to take $10,800 out of fund balance to cover the expenditures. County Executive Gannon stated the other issue wasn’t really an issue in the long run as in the letter it mentioned the County has to begin repayment of over $1,000,000 it spent from debt service monies restricted for education. That wasn’t necessarily a mistake, Gannon contends. The state of Tennessee auditors approved of the way it was done for close to a 20 year span. Past county commissions and several county executives were following what they were told was right. But after the state changed their mind, they are allowing Cannon the opportunity to correct it in a 10 year span instead of all at once. The big advantage of this, Gannon said is that the school debt will be paid off sooner and after the final payment is made the wheel tax will decrease $40.
County Executive Gannon also said that the property tax rate can not be touched until next fiscal year. The County Executive’s office will be meeting with the State’s County Technical Advisory representatives this week to discuss the various options of raising revenue and covering expenditures to satisfy the State’s newer requirements.
