Covington to Eliminate Short-Term Debt 9 Years Ahead of Schedule
It has been on the books in the City of Covington since the 1970's, but now a short-term city debt will be erased for good.
City Manager Larry Klein and Finance Director Lisa Desmarais will outline details of how they will eliminate the Tax Anticipation Note (TAN) and then pivot to address long-term debt during Tuesday night's city commission caucus meeting.
"We are projecting that by the end of June the city will be able to pay that off and no longer need it after June 30, the first time in 42 years that the city will not need short term debt to bolster its cash reserves to pay payroll and other expenses," Klein said in an interview with The River City News. "It's because of good cash management changes we've made in the finance department, good stewardship by our department heads, good decisions by our city commission that have put in place policies to allow us to do it."
The TAN is borrowed from a bank at the beginning of each fiscal year, usually around a day after its paid off in full, to cover expenses since there are lulls in between the collection of payroll and property taxes. For Covington, the amount of the TAN in recent years has been $3.5 million.
The city was forced to find a new bank to renew its TAN in this fiscal year. The current loan is financed by Heritage Bank and BB&T.
"The process is not something that happens overnight, it requires a lot of change in terms of how you behave day to day, how you manage the budget, how you manage the finances of the budget," Desmarais said. She cited the new Springbrook accounting software and the implementation of new controls over purchasing and disbursements. The finance department has been fully restructured since the 2013 arrest of former finance director Bob Due who later pleaded guilty to stealing nearly $800,000 from City Hall. The City of Covington's credit rating was later downgraded by Moody's, something that Klein believes will be changed soon in the wake of this good news.
Last year, city leaders crafted a plan to eliminate the TAN over the next 10 years but now find themselves in the position to do so nine years early.
So, what does this mean long-term? Listen to the full interview with Klein and Desmarais: