The Price of Liberty is Eternal Vigilance
City Council, November 6
City refutes Wall Street Journal criticism
To provide parking to assist Cigar Factory developmentMarc Knapp
Because of the election on Tuesday, the first Council meeting of the month was moved to last night. Both the agenda and the attendance were light.
The meeting opened with comments by both CFO Bedard and the Mayor on the recent article in the Wall Street Journal (WSJ) that was critical of the finances of the City. The response by Mr. Bedard and the Mayor was published in the Post and Courier and they responded again last night. In summary, the article in the WSJ was factually correct but the conclusion drawn by the author was total unjustified. The Mayor’s letter to the WSJ is published in today's edition of the journal. See below.
The article in the WSJ studied the cash balances held by a number of cities around the US and concluded, more or less, that those in the study with very low cash balances at the end of last year were in financial trouble. This may have been the correct conclusion for many of these cities, but it was wrong for Charleston. The City balances its books at the end of the calendar year and the balance date coincides with the time of its lowest cash balance. As in every previous year, there were considerable tax receipts collected by the County and which were to be paid to the City in the following month. The City’s finances were and are on a sound footing.
As CFO Bedard said, the City up until 2004 issued Tax Anticipation notes to tide it over the months when liquidity was tight. The City never was short of revenue, it was just that its receipts were bunched up in the early months of the following year. The financial position of the City had improved in recent years and it had accumulated balances in other Funds on which it could draw in the final months of the year. In consequence, it no longer needed to issue Tax Anticipation notes, thereby saving some hundreds of thousands of dollars in interest costs. The cash drawn from these other balances and used in the General Fund were replaced as tax revenues came in.
For me, the surprise was that the WSJ could publish an article critical of Charleston’s finances. The paper prides itself on its accuracy and analysis. That it was so wrong in its conclusion suggests the need for some soul searching. It seems that the author never contacted the City for an opinion or an explanation. It is also reasonable to ask how the author could be so negative when the bond rating agencies ranked the City in their highest categories. As CFO Bedard noted, none of the other cities mentioned in the article had such high ratings.
We don’t think the WSJ article will have any impact on the City’s financial standing. But we hope the author and the paper are more careful in future in their analysis and conclusions.
The only other item of interest discussed last night was the likely development of the old Cigar Factory on East Bay Street. In contrast to the plans of the previous owner to construct upscale condominiums, the new owner plans a commercial development. However, for it to be viable, the development needs far more parking spaces than that available on the site. To support the development, the City has agreed to convert part of the property it acquired when the old bridges across the Cooper River were torn down. Those lots abutting East Bay Street and some hundred yards away will be converted into a surface parking area with 180+ car spaces. The City will let 160 spaces to the developer for use by the future tenants. The agreement will be for 10 years and the annual income is expected to be over $1 million.
The Mayor, and Planning, Preservation and Sustainability Director Keane, spoke of the project. They noted the City’s preference for a commercial over a condominium development. The future tenants were high tech companies and with strong hiring plans. The development would be highly beneficial for the City.
Nobody disagreed, but Council member Mitchell was not happy. He said that the East Side neighborhood was unaware of the parking plan. It was the neighborhood’s view that the parking site should be for residential development. The developer needed to speak to the community. Director Keane said that it had, but perhaps it should do so again. He also said, as did the Mayor, that the City had acquired a lot of land when the old bridges were torn down. Ultimately all of the acquired land would be used for housing but those lots to be used for the surface parking were likely to be the last developed. It could be more than 10 years before development was viable. Surface parking to serve the Cigar Factory was something in the interim that would allow that project to proceed and to the benefit the City. The Mayor also noted that the parking spaces would be free for citizens to use at night and the weekends. This would be of interest to those exercising across the new Cooper River Bridge.
Council agreed unanimously to the parking agreement.
There was little else of interest discussed at the meeting and few speakers rose in Citizens Participation time. I was one of the few. I asked where we were in raising funds from the public for the Gaillard project. I also expressed some unease about the $12.5 million being raised by a bond issue for the proposed African American museum. The bond will be backed by revenues from the Accommodation Tax but even so, I wonder why it is so hard to raise money for some of the important services for the City. I also ask why the Charleston Museum, presently so underutilized, was not considered by the city to play the role.
Mayor’s letter to WSJ
I write on behalf of the citizens of Charleston, S.C., regarding the series you are calling "Warning Signs." A table that appears with the article "Cash Crunch Crimps Cities" (Oct. 31, U.S. News) leaves the impression that Charleston, S.C., has no cash on hand to meets its current expenses. The table ignores the many other line items in the audit where revenues are reflected.
The presentation of assets in other funds is common in municipal finance, as a recent publication from Standard & Poor's makes clear. As described by S&P, a local government's liquidity score "measures the availability of cash and cash equivalents to service both debt and other expenditures." S&P explains that "because governments hold monies in various funds that may be accessed for short-term liquidity, the measure uses Total Government Available Cash held by the government and recognizes most governments' ability to engage in interfund borrowing."
By this standard, Charleston had more than $43.5 million on Dec. 31, 2012. The table ignores these funds and relies instead on the cash-on-hand line.
Charleston was the first municipality in South Carolina to obtain a Triple-A rating from S&P. That distinction places Charleston in the highest rating category of any city in the state. The rating has been affirmed, with S&P noting the city's "exceptional and consistent financial performance, supported by good embedded financial management policies and procedures, and strong historical fund balance levels." It is unfortunate that a single table can distort the city's accomplishments.
Nevertheless, those elected to serve will continue to pursue Charleston's tradition of financial discipline and management.
Joseph P. Riley Jr.