The city of Salisbury passed a policy in 2009 regarding interfund loans or transfers ó the practice of loaning itself money from one fund to another. So the city anticipated needing the interfund loans that now are helping to get Fibrant off the ground.
But City Council may have gone too far in 2009 when it gave the management services director and city manager authority to make such transfers ěas needed,î requiring only that still-outstanding funds be reported in the cityís annual financial report. Without giving City Council so much as a heads-up in advance, city staff has had wide latitude to transfer unlimited funds.
That may be one of the reasons people now are surprised to learn millions are being borrowed from city reserves to finance Fibrant. That is, in addition to some $30 million in bond funds. There was no mention of those loans this year until some persistent citizens dug through the city budget and brought them to light. The city will borrow more than $7.5 million from its reserves for Fibrant by 2013, some of it from the water-sewer fund reserve, and pay it back with 1 percent interest.
Interfund transfers are allowable in accordance with generally accepted accounting principles. And interfund loans may be a good way to avoid higher interest rates. But this is a bad way for these particular facts about Fibrantís finances to trickle out.
You canít accuse the city of hiding the information, exactly. Itís in the budget, a public record that you can find online at www.ci.salisbury.nc.us/pdf /FY11_12_Budget.pdf. As a printed document, itís two inches thick. The amounts of the interfund loans to Fibrant are mentioned twice.
Still, the city staff membersí answers to questions about where the financing for Fibrant was coming from and whether water-sewer funds might be involved have not included mention of interfund loans or the water-sewer reserve until recently. City Manager David Treme says thatís because no one asked.
The city of Wilson also borrowed from reserves when it launched its broadband system, Greenlight. According to that cityís public affairs manager, Brian Bowman, Wilson borrowed about $4 million through an interdepartmental loan. ěIn NC, municipalities are allowed to borrow for capital costs (construction), but not for operations (staff to run it),î Bowman said in an email. ěThe loan was planned from the start.î
Salisbury anticipated interfund loans from the start, too, but itís not clear if City Council understood in 2009 that staff would be loaning Fibrant more than $7.5 million. City staff needs the flexibility to make some transfers at its discretion to carry on day-to-day business. When the amount reaches the millions, though, and pay back is going to take years, City Council should have a direct say ó separate and apart from the annual budget.