Chowan manager has a rough start, thanks to crisis

By Connie Sage,  Correspondent

EDENTON. N.C.

By the middle of last week, Chowan County Manager Peter Rascoe had sent off the last set of documents requested by the state Local Government Commission.

If the fiscal watchdog gives its blessing when it meets Sept. 2, the county would be able to refinance $1.4 million in loan payments, Rascoe said, and they'd be due next year instead of next month.

And despite the ire of many local residents, a new budget with a tax rate hike and cuts in services is in place - one that Rascoe expects will allow the county to dig itself out of its financial pit.

Clayton Crofton, an investigator with the state auditor's office, plans to come to Edenton on Monday to start going through records and to talk to staff, according to John Morrison, the county attorney.

That office has taken the lead on a preliminary inquiry into the budget crisis with the help of the State Bureau of Investigation's Financial Crimes Unit.

Now, after working what he described as 16-hour days for more than month, going without sleep, snacking on crackers and sardines and being "scared to death" that the county would have to drain its bank account to pay its bills, Rascoe was taking a break.

His trial by fire started June 17, the day he took over as the county's chief executive from retiring longtime County Manager Cliff Copeland.

Rascoe was told that the county was virtually broke. Sure, it owned buildings and land. Taxes and fees would be coming in just as they always did.

But on that day, cash in the county's fiscal cupboard was just about gone. And the county's equivalent of a savings account had just more than $700,000.

Rascoe is seen by many here as a hero or a villain. Supporters say he came to the county's rescue and saved it from a potentially humiliating takeover by the state. Critics contend that as former county attorney, he must have - or should have - known that the county's finances were in shambles.

He sat at his desk Wednesday afternoon, a window air conditioner loudly rattling, and talked for more than three hours with a reporter to give his account of what he knew and when he knew it.

No, he said, he was unaware that the county's reserves were nearly wiped out until his first day on the job as county manager.

Yes, he said, he was just as shocked as everyone else to learn that some $20 million in reserves had been spent.

No, to his knowledge the county attorney "has never been involved in day-to-day financial operations," nor was he expected to. "That's the responsibility of the budget officer," who also is the county manager, he said.

Yes, despite objections by the public, a balanced budget had to be passed on Aug. 14 "in order for the county's loan modification requests to be on the agenda for the LGC's September meeting."

By reamortizing loans from 15 to 20 years, a $1,035,927 county school payment due Sept. 29 would be lowered to $710,408 and due March 15. Loan payments on two other buildings totaling nearly $400,000 due next spring would be lowered to $257,782, he said.

In June 2003, the county had about $19.5 million in total cash and investments, which included money remaining from the 1998 transfer of Chowan Hospital to University Health Systems of Eastern Carolina, according to the LGC.

In 1998 Copeland was appointed to the University Health Systems' board of directors, according to Barbara Dunn of UHS public relations. Copeland, she said last week, chairs the board's audit committee.

"It has been a truly steep learning curve for me," said Rascoe, a boyish-looking 51-year-old with silver-streaked brown hair.

Just before lunch on June 17, Rascoe said the phone rang. It was finance officer Lisa Jones. "She was distraught," he said. "She did not think the county was going to be able to make June's expenses."

"How do we find out what's here?" he asked as they began analyzing accounts.

"That's it," she said, pointing to numbers showing nearly depleted reserves.

"I realized that's all there was in the county reserves," he said. "I asked, 'What about the hospital money?' "

"That is the hospital money," Jones told him.

Rascoe said he spoke with Copeland that afternoon, who told him he was optimistic "that the money is going to come in to meet expenses for June."

In disbelief, Rascoe said he thanked his former boss, hung up and swore. He and Jones went to see Ralph Cole, the chairman of the county Board of Commissioners, to tell him that the LGC needed to know that the county's reserves were precariously low.

Rascoe said he didn't sleep that night. "I was captain of the ship. I was stuck having to fix it. I was committed to fix it. I was angry I had to discover a cash shortage this way."

The following day, he said, he and Jones briefed the county's seven commissioners, who he said were "genuinely shocked and concerned" but expressed doubt that the reserves were not there.

"Are you sure?" he said they asked him. "Is there any way you've made a mistake?"

For days, he said he was "holed up" in the county's finance office analyzing financial records with Jones and talking on a speaker phone to the LGC.

After initially faxing information to the LGC, two of its certified public accountants came to Edenton the week of July 7 and again the following week to investigate.

During that time, Rascoe said he'd start work at 6:30 a.m. and get home at 9:30 or 10 at night, "crash and start all over again" the next day.

He said he visited groups of residents over morning coffee at local restaurants. "I didn't want to appear we were keeping anything from anybody," he said. "I wanted to be totally transparent."

On at least one night, he said, he slept in his clothes on the burgundy Oriental rug in his upstairs office in Edenton's 1905 jailer's house.

"Things were exploding constantly," he recalled. "I was trying to manage an ongoing crisis - I don't want to use the word 'disaster.' "

On July 21, the LGC briefed county commissioners. "It all made sense to me when their findings showed $4 million a year was being inserted into the general fund," Rascoe said. The cash had been transferred throughout each year in question, he said, "not all at once."

That knowledge was a "huge relief to me," Rascoe said. "It substantiated what I had found," that Copeland "had been utilizing the reserves that were in fact the hospital money."

On the evening of July 24, Rascoe said he drove to Raleigh and the following day met with the LGC staff, which issued a letter telling the county it was in violation of state law and had to get its fiscal house in order.

The North Carolina State University and University of South Carolina School of Law grad, who's also a commander in the Coast Guard Reserves, spent the next two weeks trying to come up with revenue and expense numbers he said the county could realistically expect this fiscal year.

Rascoe and his wife, Dianne Daniels, slipped over to the Outer Banks to celebrate his birthday on the night of July 13. Supportive notes, calls and e-mails got him through the past two months, he said. He picked up a Bible from the corner of his desk.

Every day he said he read Romans 8: 31-39: "... neither death nor life, neither angels nor demons, neither the present nor the future, nor any powers, neither height nor depth, nor anything else in all creation, will be able to separate us from the love of God that is in Christ Jesus our Lord."

Rascoe continues to be dogged by angry taxpayers who deride him, Copeland, the commissioners and others for being asleep at the wheel and for ignoring their fiduciary responsibilities.

They want more answers. Some he can give; others he said he can't.

How much cash was pulled from reserves each year to balance the budget or to pay for capital projects is being culled from county records for investigators, Rascoe said.

Details about how closely Copeland held the county's financial reins will come out in the investigation, he said.

When rumors circulated around town that county officials were shredding documents in bulk, he said he told them to stop.

"We have not shredded any financial documents since this process began," although it's customary to shred papers dealing with personnel matters, he said.

Some employee salaries may be out of whack - either too high or too low, according to townsfolk. Rascoe said he and Human Resources Manager Carrie Byrum are collecting data and expect to hire a consultant to help with a study - the first since 1973.

Others found it hard to believe that Rascoe didn't sit down with Copeland before taking over as county manager, implying he had to have known the county was in a bind.

"Several times I sat down with him to talk about transition," Rascoe said. "He never disclosed any concerns about cash flow, nor did he disclose any use of the reserves. He never indicated any concerns over finances whatsoever."

Rascoe acknowledged that while he did participate in planning for expenses for this year's budget, he was not included in any discussion of revenue.

The county's fiscal woes are "nowhere near over," Rascoe said.

For at least the first couple of years as county manager, his role will be to "get the county back on track by managing frugally and sensibly," he said.

"You have to try to catch the tiger right when it comes out of the cage," he said, "or he's going to wreak havoc."

That head-on approach to handling the county's budget fiasco - one he claims he never saw coming - is to practice what he learned in the Coast Guard: "Hit hard and hit fast in a crisis."