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A practice of borrowing money raises concerns
Both the King County treasurer and the banker who extends the Vashon Park District its line of credit have raised concerns about the small agency’s history of using bank loans to manage its cash flow.
For the past several years, the park district has obtained what’s called a tax anticipation note from a private bank to help it handle the spikes and troughs of its tricky cash flow situation.
Twice a year, the agency — like most in the region — gets a big dump of revenue when semi-annual property tax receipts come due. Its tax anticipation note, or TAN, provides the cash it needs when money from its first influx is beginning to run dry but the second one has yet to arrive.
Bill Ameling, the park district’s chair, said the park district immediately pays off the TAN when it receives its next round of tax receipts, making it a safe bet for lenders and an easy way to manage cash flow. The use of TANs, he said, “is as common as water.”
But the cash-strapped district pays interest on that money; this year, its $400,000 TAN will cost it around $6,000 in interest. What’s more, according to the park district’s own banker, it’s actually an unorthodox way of doing business and could obscure cash flow problems that the agency likely should address.
“I am unaware of any other entity that uses TANs on an annual basis,” said Ron Olson, the director of municipal services for Cashmere Valley Bank, which has given the park district such a note the past few years.
“It isn’t the norm. I think they should be building up a rainy day fund. They shouldn’t be paying interest on something like this,” he said.
Scott Matheson, King County’s treasurer, said he, too, is concerned.
“You’re always borrowing against future revenue. You never catch up,” he said.
“It doesn’t address the structural cash flow problem. At some point, you either have to generate more revenue or reduce your costs,” he added.
He and Olson have discussed the Vashon Park District’s ongoing reliance on TANs on more than one occasion, Matheson said.
“I know Ron’s never seen it. I’ve never seen it either,” Matheson said. “It just raises concerns.”
The park district began using TANs on a regular basis about five years ago, according to Cynthia Capifoni, the district’s longtime budget manager until she stepped down in April. Before 2007, a TAN was sought about every other year, she said.
Wendy Braicks, the park district’s former executive director, “never did it without discussion and without approval of the board,” Capifoni added. “It’s a thorough process and was very well-documented. It was done with the commissioners full support.”
Like Ameling, Capifoni defended the practice. “You have to have cash flow. It was a responsible tool that was used well,” she said.
But the size of the TAN has grown significantly in recent years, she said. Usually, it was “just a few thousand dollars,” she said, climbing as high as $30,000 on occasion. Earlier this year, shortly before she left the district, “Everything was past due … and we made a huge draw,” she said. In February, the district sought $175,000 from Cashmere Valley Bank. A month later, she added, the district drew another $100,000.
When the district did so, she said, Olson, its banker, made it clear he was troubled by the request. “He was not happy,” she said.
Michael DeBlasi, the park board’s treasurer, did not return telephone calls. Ameling, a former CPA, said he knew Olson didn’t like the fact that the district was seeking TANs on a regular basis but questioned the basis for his apprehensiveness.
“I’ve never understood his concern,” Ameling said. “It’s the safest thing you can do as a banker.”
The TAN gets paid off immediately when a new infusion of tax receipts comes in, Ameling said. “They’re the first ones at the trough.”
The interest rate Cashmere charges for the loan is 2.76 percent — making it what Marie Browne, the park district’s financial consultant, called “a pretty cheap way of financing.” But even a low interest rate is an issue, she added. “It’s real money,” she said.
Most agencies develop a reserve over time, enabling them to weather the highs and lows of bi-annual tax receipts, Matheson said.
The executive director of Si View Metro Parks — like Vashon’s, one of only a few free-standing park districts in the region — said he’d never heard of tax anticipation notes. Travis Stombaugh, the director of Si View in North Bend, said that when he arrived at the district in 2007, he found it had no emergency reserve and a small general fund reserve.
He told the board he wanted an operating reserve that could cover six months worth of operations, he said. The commissioners were hesitant, he said. “They didn’t want to hoard cash,” he said. So they asked him to come up with a policy, which the board then approved.
“Before 2007, they’d have to have temporary spending freezes,” he said. “It wasn’t a very good picture.”
Olson said his bank is not licensed to give financial advice, and he’s been careful about what he’s said to the park district. What’s more, he said, he thinks Vashon’s park district is a good one. “It’s a really nice park district,” he said.
But the use of a TAN, he said, can make a small district vulnerable, should a true financial emergency come up. “What would happen if there was a sudden need for something — a sinkhole in an athletic field, some sudden need for $200,000 that insurance didn’t cover?” he asked. “The district is running so close on funds that they wouldn’t have the money to address it.”
Matheson, who’s been the county treasurer for 27 years, has seen several small park districts form over the years — agencies that usually borrow money from the county until they pass a couple of levies “and get their feet on the ground.”
In Vashon’s case, he’s been paying close attention, wondering if the county should step in. Indeed, he said, Olson asked him if the county would consider intervening. But Vashon is an independent agency, he said.
“I don’t know that we can assert ourselves.”
What’s troubled both Matheson and Olson is the park district’s decision to use operating revenues to cover capital expenses — in Vashon’s case, the development of its fields project north of town. Most entities would seek a bond or special levy for such a development, rather than spend its operating revenue on that type of project, Matheson said. “It’s very unusual,” he said of Vashon’s decision.
But Ameling said the park district has acted thoughtfully, adding that he’s frustrated by Matheson and Olson’s comments. “They can be concerned all they want. We’re not a part of them.”
As for the district’s financial struggles, he said the district will get through this rough spot. “We’re going to be OK,” he said. “We’ll manage our way out of this.”