A state audit last year predicted that the City of North Tonawanda would not have enough money on hand to pay its bills by early 2021.
That prediction was correct.
The Common Council voted 3-2 Tuesday to borrow $4.2 million for 90 days to tide the city over until residents begin paying city property tax bills in April.
City Accountant Jeffrey Zellner said a $3.9 million payment to the state retirement system is due Monday, and the city will be able to make that payment.
Monday is also the day the city will sell its tax anticipation notes. The last time it did so, in 2012, the interest rate was 1.01%.
Zellner called the borrowing "a routine thing that used to be done."
Since 2012, the city had been borrowing money from other internal funds, such as water and sewer, to keep the general fund functioning during February and March.
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However, the State Comptroller's audit called for halting that practice, saying such internal borrowings are generally not recommended. Zellner told the Council last August that they are not illegal.
The audit said the city's budget is structurally unbalanced and will continue to be unless changes are made in fiscal policy.
Council President Robert E. Pecoraro, during Tuesday's meeting, called the move "a very good process ... to make sure the city can still be solvent, pay their bills until we get our $14 million to $17 million in April for our taxes."
"This is something that's responsible," Alderman Eric M. Zadzilka said. And Alderman Robert Schmigel called it "normal operating procedure for cities."
"Doing that (Tuesday) is only going to set us up for better things in the future," Schmigel said.
Alderman Austin Tylec, the only Democrat on the Council, disagreed.
"We're going to be in the same spot next year, based on the cash flow analysis," Tylec said in an interview. "There's no big fix, but there's multiple small fixes. It takes a lot of time and effort."
The audit said North Tonawanda always seems to come up short of cash in February and March, because its fiscal year begins Jan. 1, but property taxes aren't collected until April.
Also, the city's general surpluses have been declining – down 37% from 2017 to the end of 2019, to $5.3 million, the audit said.
"It has gone down a little bit, because there were no tax raises," Zellner said. He said the city tries to avoid creating "a cushion" through overtaxation. The 2020 surplus figure isn't available yet.
"The city is very healthy," Zellner said.
Tuesday's measure also changed city policy to allow the city clerk-treasurer and accountant to carry out future short-term borrowings of up to $5 million without Council permission. Before Tuesday, the city had a $3 million limit on administration borrowings.
