Beaver County ended last year by writing “bad checks” totaling $9.5 million and purportedly getting “an agreement” from Huntington National Bank not to cash them right away so they did not bounce, according to officials. The county was left with a negative year-end cash account balance of more than -$6 million. That negative cash balance is dwarfed by an even larger undisclosed cash flow deficit for 2016 that initial estimates now put at more than $17 million.
“The deficit the county is facing is clear and it is indisputable,” said Ricardo Luckow, a Certified Public Accountant who works as a contracted consultant for the County Controller’s Office. “I would describe this as a crisis situation for Beaver County.”
As a consultant to the Controller, Ricardo Luckow has conducted several high profile audits for the county in the past, discovering serious financial improprieties. Luckow lead the audit of the Sheriff’s Office that proved George David had been giving away free and discounted gun permits, and discovered the major deficiencies in the county’s Tax Claims Bureau and Assessment Offices. It was also Luckow who first brought it to the county’s attention that Treasurer Connie Javens and Financial Administrator Vince LaValle had been unilaterally withdrawing millions of dollars from public accounts for Friendship Ridge.
In October of last year after doing a regular review of county finances, Ricardo Luckow and Controller David Rossi sent a warning to the Board of Commissioners that the figures available to them showed the county was running out of money; it was facing a budget shortfall in the millions.
“We basically heard back from the Commissioners and Financial Administrator that everything was fine, that there were unspecified revenues that were going to be coming in,” Luckow told the Beaver Countian. “I received three phone calls basically saying everything was OK.”
Everything was not OK. The unspecified revenues never came.
“I notified the Commissioners that we saw a deficit and that is all that my office could do,” said Controller David Rossi. “In the end, we have to pay according to the budget passed by them.”
Luckow now believes the anticipated revenues never existed. “We see nothing significant out there,” he told the Beaver Countian.
Instead, according to Luckow, the county wrote two suspect checks on December 29th of last year, one in the amount of $2.5 million and one in the amount of $7 million, using them to satisfy two Tax and Revenue Anticipation Notes, commonly called TRANs, short-term loans that are required to be paid off in the same fiscal year they were taken.
The county’s financial reporting system indicated there were not enough funds available at the end of 2015 to cover the entire amount of the checks, leaving the General Fund showing a negative cash balance at the end of last year of -$6.91 million.
“As custodian of the funds, it is the responsibility of the Treasurer not to release checks if there are not enough funds in an account to cover them,” said Luckow. “The checks were released by the Treasurer’s Office anyway.”
When Luckow asked how the county was releasing checks it did not have the funds to cover, he said he was told that Huntington National Bank had agreed to delay cashing them so they did not bounce.
In early January, the county took out another TRAN loan from Huntington Bank in the amount of $13 million, in part so that it could cover the checks already written to Huntington last December to pay off its prior two TRAN loans.
“Yes, it’s incredible, the county took out a TRAN to pay off its two previous TRANS,” said Luckow. “By law this not something you can do.”
The county took out one of those $5 million TRAN loans in early 2015 to deal with cash flow issues until that year’s tax payments started coming in (the county paid off half of that TRAN throughout the year, leaving $2.5 million). The second TRAN, in the amount of $7 million, was taken out last November purportedly to be used as a short-term stop-gap measure for the county’s various human services departments due to the budget impasse in Harrisburg. County Commissioners had insisted that once the budget was passed in Harrisburg, the county would receive reimbursements from the state to cover the $7 million TRAN by year’s end. The county’s resolution declared it was anticipating revenues between November and December 2015 that would cover its repayment — those revenues never came although the county maxed out its note.
Luckow now believes those “anticipated revenues” never existed either. He said he has been unable to gather further details about the transaction, “The schedule showing how the county was to repay that TRAN is missing.”
According to Luckow, only about $3 million of the $7 million TRAN note was actually used by the county’s human services departments to cover a gap in state funding, with the remaining $4 million being used for regular General Fund expenditures; the county still owes its human services department another $1 million on top of that, increasing the shortfall even more. Rather than simply being used as a budget stop-gap due to problems in Harrisburg, the money was effectively covering a previously undisclosed operating deficit.
While the county is starting off 2016 deeply in the hole, the Annual Budget first proposed by the Board of Commissioners in November 2015 for the 2016 fiscal year showed the county would be starting with more than $6.1 million in cash on hand.
“This $6 million cash on hand number that was put into the budget is what we call in accounting terminology a plug,” said Luckow. “The county just made up a number to make its budget work, to make it balance, in this case that plug was added into the beginning cash balance […] It’s not real.”
Luckow said he was monitoring the county’s financial statements as officials manipulated the starting cash number being put into the budget to make it all add up.
“When the Controller’s Office found other discrepancies, like with long-term debt payments that were under-budgeted by $250,000, we told [Financial Administrator] Vince LaValle and he told us he would fix it. I saw that he ‘fixed it’ by increasing the amount of that beginning cash balance on the budget […] This budget is published, the public can see this plug right now for itself.”
Although the prior Board of Commissioners touted each year that the county had not raised property taxes, Ricardo Luckow said the county’s budget has been grossly mismanaged for a long time.
“The county had repeated operating deficits that were not addressed by the Commissioners for years,” said Luckow. “You’re going back 10 years with horrible financial performance. But this is far worse than it’s ever been, the county has never had negative cash before.”
County financial records show that in prior years deficit spending was filled with one time revenue sources, such as the sale of Friendship Ridge. Other monies used in the past to effectively fill the financial crater included the lease of public lands for timber sales, the sale of mineral rights for natural gas drilling, and the refinancing of bonds to delay payments that were due.
All of those monies have already long been spent, including the net proceeds from the sale of Friendship Ridge. Beaver County is now left without a single dollar in a cash reserve fund, and according to Luckow, a cash flow deficit that could top $17 million this year if drastic measures are not taken by the new Board of Commissioners.
“The budget is urgently needing to be reviewed and revised in order to eliminate or at least mitigate the deficit that is now clearly projected,” said Luckow, who noted that if no action is taken the county will not be able to meet its financial obligations in a timely manner. “We know where the big spenders are, we have ideas, now we need to work with the new Commissioners to see what ideas they want to implement. We have already put together a two page paper with 15 points for the Commissioners to consider.”
Republican Commissioners Sandie Egley and Dan Camp, who inherited the budget when they took office on January 4th, have said they are now reopening it — over the protests of incumbent Democratic Commissioner Tony Amadio — and will be doing a line-by-line review.
Beaver County Financial Administrator Vince LaValle resigned from the county at the end of last week after the Commissioners made the decision to terminate him.