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Revenues are down, costs are up and local conservative factions haven’t been silent in their criticism of the Democratic-majority Haywood County Board of Commissioners, which is about to approve a budget utilizing fund balance for the first time in around a decade.

One year after the town’s tax rate rose by 12.5 cents per $100, Sylva is considering a proposed $3.7 million budget that will keep tax rates level and cover the town’s operating needs — but will come up short on addressing capital needs and commissioners’ desired projects. 

Haywood County commissioners have set a date for the required public hearing in advance of passing next year’s budget — an especially important one, considering County Manager Ira Dove’s prediction that the county could see itself forced to use over $2 million from the county’s fund balance to keep things in a state of equilibrium.

Two tight-pocketed Macon County commissioners, who have voted consistently against all sorts of new government spending, have decided to go on the offensive and push for a tax decrease.

A class action complaint aims to hold the Eastern Band of Cherokee Indians responsible for money lost when the stock market crashed in 2008 and eroded the personal accounts of Cherokee youth held in trust by the tribe.

All 14,000 members of the tribe share in profits from Harrah’s Cherokee Casino and Hotel. For those under the age of 18, the tribe holds the money in trust, not only adding the annual casino payments to it but also investing it to help it grow until they reach adulthood and can cash out.

The suit claims 138 youth each lost about $22,000 when their cut of casino earnings were invested in risky, unapproved ventures.

To safeguard against losses in the stock market, the funds of 17-year olds are supposed to be transferred to a safe and stable “pre-payout” account to protect it from market volatility. The holding account guards against erosion of the principle in the year just before payout.

The suit claims the investment committee for the Eastern Band of Cherokee Indians Minors Trust Fund failed to transfer funds into the safe holding account in 2008, and the 17 year olds that year “suffered significant monetary losses as a direct and proximate result of the decision to not transfer funds to the pre-payout sub-account.”

In other words, the stock market tanked and money was lost because it wasn’t in safekeeping. The youth that year received approximately $65,186 instead of the $88,000 that they should have accrued by turning 18. Minors can cash out when they turn 18 if high school diploma or GED. Otherwise, they have to wait until they are 21.

The suit names each of the five members of the investment committee and Principal Chief Michell Hicks, both individually and in their official capacities.

“They played the stock market and they lost,” said Attorney Russell McLean of Waynesville, who represents the plaintiffs. “They gambled and invested it in funds that were not protected.”

The investment committee and Hicks had not as of last week filed a response to the civil suit.

The suit claims the tribe should reimburse the youth for their losses. The tribe, in fact, previously pledged to do just that in the face of angry backlash over losses in the Minors Trust Fund.

In an tribal-wide update on the Minors Fund status in April 2009, Chief Hicks. stated the tribe “stands good for the principal balance of our children’s investments by tribal law,” according to the suit. The proclamation said that the Eastern Band would make up the difference “if a minor leaves the fund and their balance is below the principal amount contributed.” Despite the promise, the tribe did not follow through on its commitment and did not reimburse the children involved, the suit alleges.

McLean said that he expects to file a second, larger class action suit on behalf of Eastern Band children ages birth through 17.

“We’ll see if an entire group of children on the reservation should be protected by the courts,” he said.

McLean said the next step in the current class action suit is to identify and notify each of the children involved. They’ll need to each decide whether they want to proceed as part of a class action suit or if they prefer to file their own individual lawsuits. He said the notification would take about two months to complete.

Despite cutting corners across the board, Swain County still isn’t sure it has achieved a healthy level of savings.

Nevertheless, County Manager Kevin King is guessing the county will pull out of its financial crisis by early spring.

“That’s not saying we’re out of the woods yet,” said King.

In 2009, the Local Government Commission identified Swain as one of only a few counties in the state to have “serious financial and budgetary problems” and recommended that the county develop a financial plan of attack to submit to the commission.

There is no specific timeline for progress, as long as the county is consistently taking positive steps, according to the LGC.

For now, Swain is required to send monthly financial statements to the state commission. The state sees no need for a higher level of oversight at this point, according to a spokesperson for the Local Government Commission.

“They’re not even communicating with us,” said King. “If they foresee a problem, they’ll give us a call.”

The county is in the process of plugging a $1 million shortfall to meet the state’s mandate of an 8 percent fund balance, akin to the county’s savings account. At 8 percent, the county would have enough cash on hand to cover one month of operating expenses.

Since Swain falls below that benchmark, the N.C. Department of Revenue began overseeing the county’s budget and will continue to do so until the situation is corrected.

The LGC’s recommendations only become mandatory if the county repeatedly violates a statute or is in danger of defaulting on a loan.

 

Shifting the blame

King and Finance Officer Vida Cody said it is difficult to determine whether the county would meet the 8 percent benchmark until the end of the 2009-2010 fiscal year.

“We have a small finance department,” said King. “Most of our time is just making sure all the bills are paid, all the money is collected.”

Part of the uncertainty also results from a complication that has delayed counties from receiving revenues from sales tax, King said.

After sales tax increased by 1 percent in September, scores of merchants incorrectly filled out tax forms. The state Department of Revenue rejected 15 percent of the receipts.

While that is corrected, Swain and other counties will just have to wait for an inflow of sales tax revenues from September and October.

In mid-December, the state informed Swain County that it would not be reimbursing the county for taking on the child support enforcement program until after July.

That program was handed to the county as part of an unfunded mandate in 2009.

Also in 2010, counties will have to contribute 1.35 percent more to the North Carolina retirement system. This translates to an additional $75,000 coming out of Swain’s budget.

The county also faced more than the estimated $20,000 in expenses to repair a sinkhole that cropped up near its jail at the end of 2009. The hole is now stabilized, though more gravel was necessary than originally estimated.

“There should be no more expenses,” said King.

Swain County is working with the original contractor to determine the cause of the slide. The county will pursue reimbursement from the contractor if it is determined there was a problem with the initial work, according to King.

 

Details of a financial disaster

As of June 30, 2009, the county had a fund balance of 6.67 percent, compared the state’s recommended minimum of 8 percent.

According to the LGC, the average fund balance available for comparably sized counties was 20.16 percent.

In June 2008, Swain was close to that figure, with 18.62 percent of its budget in cash reserves.

While every county faced severe budget shortfalls during the recession, most began trimming costs in fall of 2008. Swain County waited until the summer of 2009 — more than a year into the recession. By the time Swain was tackling its problem, most other counties in the region had already improved their situation.

In 2008, only four counties in the state dipped below the 8 percent benchmark. The LGC was aware that these counties were struggling, whereas Swain did not notify the commission that they might not meet the benchmark last year.

Swain’s cost-cutting measures so far have included laying off 8 full-time positions and reducing all salaries by 2 percent. Swain continues to hire on an as-needed basis, leaving positions not related to public safety empty.

County employees have taken five days in furloughs so far, as part of the pay cut.

Swain also expects $157,000 from the Tennessee Valley Authority, which will begin payments this month, King said.

County employees have begun using purchase orders before buying supplies with county money. LGC and Swain County’s auditor both recommended improving control over purchases made by county departments.

“They’re doing better, much better,” Cody said. “By the end of the fiscal year, we should have met every one of the recommendations of the auditors.”

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