Transfer of Chowan County reserves apparently not criminal

By Connie Sage

EDENTON, N.C.

Transferring money from a reserve fund to balance a county budget requires authorization, but it is not a criminal offense, according to a state expert on local government finance.

"The statute is structured in such a way that it might cause someone to lose his job, but it doesn't seem to be criminal," said David Lawrence, an attorney and professor in the school of government at the University of North Carolina.

The Local Government Commission said last week that Chowan County had all but depleted its cash and investments, which had totaled $19.5 million five years earlier, in part to balance annual operating budgets. As of June 30, the fund was down to $723,335.

The fiscal watchdog group also said the county spent more than it received in revenues for the last five years and was in violation of state law.

Lawrence, an authority on legal aspects of local government finance, said there are criminal provisions in the state Budget Fiscal Control Act, which include embezzlement or knowingly approving false claims.

"I suspect unless someone gets aggressive about interpreting the statute, it's a civil matter," Lawrence said.

New County Manager Peter Rascoe learned of the cash flow problem on June 17, the day he started work. He was hired to succeed 29-year County Manager Cliff Copeland, who retired.

To balance the county's budget - which had been approved in June without a tax rate hike - county commissioners on Monday will have to choose between increasing taxes, cutting services and personnel, or both.

Commissioners said they were unaware of the problem and said they were not told by Copeland that he was using up cash reserves.

Lawrence said the "entire theory of our budget law assumes honest estimates of revenue" and the main purpose of annual audits is for a board to review financial performance.

"I don't know why nobody would notice the reserves getting lower and lower," he said.

Edenton resident Bob Quinn said there are "a lot of people seriously upset."

"I can not for the life of me understand a commission elected by the citizens that would not have asked for the audits," he said, adding that the county needs a citizens' oversight committee.

"I have difficulty understanding how commissioners and former County Manager Cliff Copeland rightfully think they were representing the public," he said.

In a prepared statement, former County Manager Cliff Copeland said his "strategy was clear - to borrow internally to finance our facilities and services and repay these monies when the economy improved."

"We consulted the State Treasurer's office and the credit agencies all concurred," he said. "The goals were to hold down taxes and create jobs. Unfortunately, the economy has weakened considerably in the interim and those efforts were delayed. We do anticipate a payback from our water and solid waste funds to our reserve fund this coming year."

Copeland said he had "never taken a penny from Chowan County" nor "benefited in any way from any public monies."

Rascoe and at least one commissioner are asking businesses to help out by paying their taxes now instead of next January.

Charlie Creighton, chief executive of Edenton-based Colony Tire Corp., said Wednesday that he will pay his taxes early.

"We're working up all the bills right now," said Creighton, whose business annually pays tens of thousands of dollars in taxes. "Certainly I'm disappointed about the county being short of cash."

Rascoe said the specific amount of budget shortfall that has to be made up is still being determined and will be based on "using realistic revenue projections, along with projected cuts."

Some Chowan County department heads already are cutting part-time positions and services, and in one case working without lights.

County Social Services Director Ben Rose, who could lose as many as five of his 38 positions, said he can cut personnel but not services, which are mandated by the state and federal governments.

To save money, Rose said, his employees are working in the dark, turning lights on only when meeting with clients.

Parks and Recreation Director Robbie Laughton already has laid off two part-time workers, terminated a summer ball-field maintenance worker, and eliminated two week-long summer day camps.

Edenton residents pay both town and county taxes.

Town Manager Anne-Marie Knighton said the town is "trying to be supportive" with suggestions where the county can save money.

The town and county jointly operate two departments, the fire department and the planning and inspections department. There will be no cutbacks in the fire department, she said.

"Cliff obviously had a plan," said Knighton. "He thought the growth was going to come but with the economy the way it is, that plan totally went to pieces."

In a statement read at the town's monthly council meeting Monday night, Edenton Mayor Roland Vaughan said the town "deeply regrets" the county's financial situation and reassured Edenton residents that the town "is financially sound."

The town's general fund reserve was 20.2 percent and at the end of its fiscal year in June, $1.3 million was in reserves, he said.