BRADENTON, Fla. – When the city of Petersburg asked Virginia for help this year sorting out its fiscal crisis, what the state's technical assistance team found wasn't pretty.
In a review that took less than two months, they discovered that a $4.5 million tax revenue anticipation note was maturing June 30.
But was there enough money in the bank to pay it?
When the team went over the general ledger for the previous five years, they discovered that spending exceeded revenues by $16 million over the period.
They also found $14.7 million in unpaid bills and $4.1 million in internal loans that had to be repaid for a total of $18.8 million in obligations owed, according to Virginia Secretary of Finance Richard "Ric" Brown.
"Our feeling was that there were structural imbalances in the budget for some time," Brown said in an interview. "This was not an overnight thing."
The state's team managed to work the city's finances in order to repay the RAN on time, although some bills remained unpaid.
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Brown informed the City Council about the findings last week, he said, adding that "based on the report we gave them, they are taking steps I think to try to turn the ship around."
On Tuesday, S&P Global Ratings placed Petersburg's BBB general obligation bond rating on CreditWatch with negative implications.
The action reflects the fact that the city has not secured short-term financing for cash flow in fiscal 2017, as it annually does, which presents considerable liquidity challenges in the coming months, said S&P analyst Timothy Little.
"As identified by the state's report on technical assistance to council, the city will have extreme difficulty paying essential bills, including payroll, in the latter part of 2016 [and] perhaps as early as mid-August," Little said.
Petersburg had about $55.3 million of outstanding GOs at the end of fiscal 2015.
The city, about 25 miles south of the state capital of Richmond, has about 32,000 residents. Officials did not respond to requests for comment.
Petersburg is S&P's lowest-rated municipality in Virginia, and the CreditWatch designation means there is at least a one-in-two likelihood that the city's rating will change in the next 90 days.
Petersburg is not the only small city in the Southeast facing a fiscal crisis.
In south Florida, Opa-locka teeters on bankruptcy as a state-appointed financial emergency board delves into the city's books.
Like Virginia, the state of Florida does not provide money to assist an ailing municipality.
However, the nine members of the oversight panel appointed by Gov. Rick Scott on June 1 have financial or municipal experience.
But Opa-locka's city's current fiscal problems – and second state emergency declaration since 2002 - are developing amid a federal corruption probe and an investigation by the Securities and Exchange Commission.
On May 25, City Commissioner Terence Pinder died in a single-car wreck a day before he had agreed to surrender on bribery charges. Authorities believe Pinder, 43, committed suicide.
Last week, the former city manager, David Chiverton, and former public works supervisor, Gregory Harris, were arrested and charged with taking kickbacks from business owners and individuals.
Chiverton, who resigned Aug. 1, took bribes in return for his influence in obtaining city licenses and preventing water from being shut off for delinquent payments, according to filings by prosecutors in the U.S. District Court for the Southern District of Florida.
In exchange for payments, Harris also used his position to assist businesses and individuals with occupational licensing, zoning issues, code enforcement, liens, water service and billing issues, prosecutors said in a separate federal case.
The oversight panel appointed by the governor recently discovered that the city's water and sewer collection rate is a dismal 27%.
Chiverton paid himself about $40,000 in unused sick time and vacation pay before taking a leave of absence prior to submitting his resignation.
"I'm not sure how Chiverton bypassed the system to get paid out," the financial emergency board's chairman, Melinda Miguel, said at the panel's July 28 meeting.
The city must ensure proper segregation of duties to prevent such an occurrence in the future, she said.
At the meeting, acting city manager Yvette Harrell said that Opa-locka had only $354,000 available in the general fund, but had $500,000 in bills to pay.
In addition, the city's payroll was due this Wednesday.
The oversight panel authorized Harrell to pay only the payroll.
On Thursday, the emergency board will meet to determine how much money remains in the bank, and which bills will be paid, if any.
The board has already discussed the possibility that Opa-locka may need to file Chapter 9 bankruptcy – a step that must be approved by the governor.
Opa-locka has 16,000 residents, and is located about 12 miles north of Miami, which underwent a state-declared financial emergency in 1996.
A complete picture of Opa-locka's finances and debt is unclear.
The last available audit was for fiscal 2014, and documents provided to the oversight board have not been made public.
The city has about $8 million in outstanding bonds and notes that were issued in 2011 and 2015, and placed with local banks.
The SEC is investigating whether Opa-locka properly disclosed its financial condition when some of the debt was sold.
Under the financial emergency declaration, the city cannot issue any bonds or take out any other kind of long-term debt without the governor's approval.
In Virginia, the outlook is not as bleak for the city of Petersburg.
To date, the City Council has fired the manager. The city attorney and finance director stepped down, and interim officials are in place.
A six-month 10% pay cut has been ordered for all employees.
For fiscal 2017, the state's technical assistance team found that the city adopted a $102 million budget even though revenues were anticipated to come in at $90 million – potentially adding to the $18.8 million in unpaid bills and internal loans.
"The city has operated with little to no cash reserves for several years, using annual tax anticipation notes to help with insufficient liquidity," according to the state's report.
"Securing short-term financing will be difficult, if not impossible, in the absence of action to structurally balance the budget for fiscal 2017 and beyond," the report said.
Public Financial Management recently began working with the city on the budget, said Brown, the state finance director.
Additional budget cuts and austerity measures are expected to be discussed when the City Council meets Aug. 23, he said.
"We recommended that their first step should be to take action on the existing budget to stop digging a hole deeper," Brown said. "PFM is there to help with budgeting going forward so hopefully they can get it structurally balanced."
