HERMON, Maine — A recent transfer of funds earmarked for economic development into the town’s checking account to meet payroll obligations will be among the matters that the Town Council will address Thursday night.
The meeting is scheduled for 7 p.m. in the public safety meeting room.
Town Manager Clinton Deschene said last week that in order to address a cash flow problem related to the town’s April 1 due date for property tax payment, he transferred more than $500,000 in revenues from the town’s tax-increment financing district into the town’s checking account.
As it turned out, however, the funds were not used because enough cash came in to cover expenses, Deschene said. He said the funds since have been put back into the economic development account.
Deschene said that while the town had enough cash on hand to pay town workers, there was not enough in the account to cover the payroll for school employees. He said that historically the town’s cash flow takes a deep dive each February because property tax payments are not due each year until April 1.
Last year, voters rejected a warrant article that sought to split property tax payments over two due dates, a measure that Deschene and several Town Council members have said would smooth out peaks and valleys in the town’s cash flow.
What has generated some controversy in town is that Deschene did not seek council approval before transferring the funds on Feb. 23. Councilors learned of the transfer through a memo dated March 5, according to memos and council meeting video footage related to the issue.
Town Council Chairman Timothy McCluskey said Wednesday the council would have been informed on March 1 but a meeting scheduled for that date was canceled because of a storm.
“Information explaining the cash transfer was in the March 8 table packet for the council to discuss during our March 8 council meeting but the council, running late, elected not to review the information in the table packet, and they pushed it off to review on the March 15 meeting instead,” McCluskey said.
When the issue came up on March 15, Deschene said there was no requirement that he seek council approval and that no state or town rules were violated.
Town Councilor Tony Reynolds, however, disagreed and has requested an independent audit, which will be discussed Thursday.
The council also will look at strategies to prevent the need for such a move in the future, McCluskey said.
While Reynolds said he would have supported the transfer, he said last week that the council should have been informed before the transfer was made as opposed to two weeks after the fact.
Reynolds said this week that he will not sign town warrants until his concerns about the town’s fiscal management are addressed.
Concerns raised about the transfer prompted McCluskey to request an opinion from the town’s legal council. The town’s auditor also looked into the matter, he said.
The opinion, written by Erik Stumpfel of the Bangor firm Rudman Winchell, found that because the economic development funds weren’t actually used, there was no violation of state law regarding the use of TIF revenues, the town charter or the town’s reserve policy.
Despite that, however, Stumpfel advised that Deschene seek council approval in the future.
McCluskey wants to see cash flow problems handled differently in the future.
“The council and the manager are reviewing why there was a need to transfer these funds and our intent is to develop workable policies that will prevent these types of shortcomings in the future,” he said.
“But in the end it is the manager’s responsibility to make sure our accounts are managed properly and I feel the town of Hermon is in capable hands with the current manager, as we have been able to retain a low tax rate and maintain the town’s financial stability during these tough economic times,” he said.
“I would prefer that there not be cash flow problems at all but in most towns there is a lull of revenues at different times of the year,” he said. “Some towns borrow on a short-term tax anticipation note. We don’t typically do that but maybe we should consider it in the future.