The “we’ve got a problem” uttered by Sen. Marvin Blyden after questioning the governor’s financial team was echoed by several of his colleagues Friday after a four-hour hearing revealed that the government has been operating with six days cash on hand for the past six months and is pulling from other accounts to meet payroll.
The six days cash on hand isn’t new – Finance Commissioner-designee Kevin McCurdy said as much during his confirmation speech in early December before the Rules and Judiciary Committee. What surprised senators, however, was the repeated assertation by Office of Management and Budget Director Jenifer O’Neal that despite what it says on the government’s general ledger, the cash flow really isn’t there.
“There’s no cash. There’s no cash, there’s no cash, there’s no cash,” she said after Blyden questioned her about a nearly $62 million balance in the Tourism Advertising Revolving Fund (TARF.) O’Neal explained that the government has four bank accounts: one for the General Fund containing tax deposits, a second for special fund and hotel taxes, a third for payroll and a fourth for federal funds. The first two accounts hold most of the government’s cash, but “the funds on paper are just that,” she said. “They’re on paper, it’s not actual cash.”
Visibly confused, Blyden tried again.
“So, of the $61 million that’s there, there are no funds available for expenditures?” he asked.
“There’s no cash,” O’Neal responded.
Attempting to understand the situation better, Sen. Donna Frett-Gregory, who chaired Friday’s hearing, turned to McCurdy, who, along with his head of accounting, said that the TARF dollars were being transferred out for payroll expenses. For clarity, he explained that other special funds are also deposited into the account, but on further questioning added that the Tourism dollars make up the bulk of the money.
How the government got to this point was explained by O’Neal in an opening testimony, which underscored what has been said by government officials for a while now – that there’s a lag in revenues during the first six months of the year but that things pick up in April when income taxes are paid and the peak tourism season is over.
“We’ve had a slow first six months since forever but it’s now coming home to roost because you’ve been utilizing ‘Bank 2’ as your line of credit,” Frett-Gregory said to O’Neal, who disagreed, saying that the special funds account actually contained “pooled cash” from other departments and agencies, along with Tourism, that’s used to pay bills when they’re due. The TARF only generates about $40 million per year but government payroll is $22 million every two weeks and what’s on hand and available needs to be used to meet it, she explained.
While senators said they understood the government’s payroll obligation, the issue, they said, is structural – bank accounts aren’t reconciled, fund balances aren’t reconciled, and when money is “borrowed” from another fund, it’s not replenished.
Meanwhile, the governor is proposing a new revolving line of credit to tide operations over during the six-month lag and Frett-Gregory said that if taxes are going to be used to repay it once they come in, then any money taken out of the special funds beforehand for expenses like payroll won’t be put back in.
“How do we ever get back to making up the delta in the special funds and get back some semblance of order?” she questioned, adding that a reconciliation of the banks, along with the accounts, has to be done. Asked by Frett-Gregory when the government’s bank accounts were last reconciled, Finance’s Director of Treasury Lucy Nunez said none are complete in their entirety, though she could not say since when because the department doesn’t consider anything reconciled if it’s not been done properly.
O’Neal said that the government has expanded its contract with Ernst & Young to include the reconciliations because “we realized that we can’t do it by ourselves and it’s so far behind.”
Other contributing factors to the cash flow issues, according to O’Neal, include:
- The inability of government departments and agencies to draw down on their federal reimbursements. During the hearing, she explained that there is currently $72 million in outstanding drawdowns that OMB believes the government “can still recover,” though repeated emails to the different agencies to draw down when they’re supposed to don’t seem to be working. O’Neal said the financial team has proposed having all government cashiers reporting directly to Finance so that payments can be deposited as soon as they’re made and having those that deal with federal grants within the departments do the same through OMB;
- A large amount of money spent in overtime payments, she said, “has been a major problem for the government for forever and a day;”
- Appropriations made by the Legislature that are either passed before revenue projections are revised or remain available until expended.
