City may reach for the credit card to avoid going broke

Here’s the latest installment in the city’s ongoing battle with the budget…..

Staring at the prospect of going broke within a month, the city on Wednesday approved a controversial emergency loan to cover its bills until it can scrounge up more cash.

A sharply-divided City Council approved the $600,000 interfund loan from the Winslow water utility to fill potential funding gaps until property taxes are collected in May.

“If the world turns out as we hope it will, the inflows will be bigger than the outflows,” Councilman Barry Peters said. “But what if the end of February ends up like November and December, when median home values fell 20 to 25 percent?”

Despite taking steps late last month to cut $2.3 million from its operating budget, the city   found this week it is hurtling toward insolvency.

“If we do not restructure government, we are headed for bankruptcy,” Councilman Bill Knobloch said. He joined  council members Debbie Vancil and Kim Brackett in voting against the loan. They prefer additional project deferrals and deeper budget cuts to offset the city’s declining revenues.

The interfund loan is aimed at safeguarding the city’s general fund balance while the council deliberates on additional cost-cutting or revenue-boosting options in the coming weeks.

Finance Director Elray Konkel said borrowing money from the water utility, which has a multi-million dollar cash surplus, is a better option than obtaining a loan from a third- party lender.

An interfund loan is far less costly, more flexible and available faster than one obtained from a bank, he said.

The interfund loan’s interest rate of about 3 percent could cost the city up to $18,000 before it must be paid back in December.

A bank loan would likely come with a 5 or 6 percent interest rate on top of a $15,000 to $30,000 set-up fee.

Council chair Kjell Stoknes, who joined Peters, Chris Snow and Hilary Franz in voting for the loan, stressed that the interfund loan’s interest payments benefit the water utility rather than a private bank.

Brackett countered that using the loan was “reckless” and could “set a precedent of raiding the utility fund.”

Knobloch was unsuccessful in getting council support for a proposal that would cut more staff and freeze all spending for capital projects, including the Winslow Way utility repair.

Brackett said the administration is holding too tightly to the Winslow Way project and the  related Winslow Tomorrow planning effort.

“We’ve had two years of budgets where (it has) been expertly orchestrated to deliver Winslow Tomorrow and Winslow Way,” she said. “Everything else is crafted around that.”

City Administrator Mark Dombroski warned that the city would lose millions of dollars in grants for Winslow Way and beach restoration projects if the city’s capital projects were halted.

A handful of residents joined the council minority in speaking out against the loan.

Dick Allen, president of a utility ratepayers advocacy group, said the city shouldn’t borrow money when its future finances are in peril.

Island resident Lin Kamer-Walker said the loan would put the utility fund in jeopardy and do nothing to fix the imbalance between city revenues and expenses.

The city’s financial troubles have contributed to a “death in pubic confidence,” resident Joe Honick said.

After listening to public testimony, Peters promised more work to “reshape and limit” the city’s spending.

“I think we’re on the right track,” he said. “It’s a long, hard track (that) won’t be easy. But we are talking in the same language about a new financial reality.”