Peter Rascoe had a rough first day on the job. Shortly after taking over as Chowan County manager, he learned that the county couldn’t pay its bills. It had only $723,335 in total cash and investments on hand, had burned its way through a $29 million reserve fund, and faced a $4 million budget shortfall.
In other words, the county was broke.
Now, Rascoe and county commissioners are in hot water after the Department of State Treasurer sent a letter directing the county to balance its budget or face a potential takeover for being out of compliance with statutory law.
The situation has local residents up in arms. Hundreds of citizens attended a heated meeting of the Chowan County Board of Commissioners Aug. 14 to protest leaders’ handling of the crisis. Commissioners voted the same day to cut services and raise taxes, including a 9-cent property tax increase, to help balance the budget. They also voted to put a quarter-cent sales tax referendum on the November ballot.
“People need to know the truth,” said Robert Steinburg, chairman of the Chowan County Republican Party. “There is $29 million missing, and we’ve got to have some answers. Why wasn’t there accountability? Why weren’t there procedures set up to prevent this?”
Rascoe said that county leaders are doing everything in their power to rectify the problem and that they have been open with citizens and the press.
“The commissioners have gone the extra mile to invite the district attorney, state auditor, and the state treasurer to come in and look at everything,” he said.
Rascoe took over as county manager June 17. He replaced former county manager Cliff Copeland, who served three decades in the position. Rascoe said he learned of the crisis the first day on the job, and that there was “no hint” of the situation before that point.
“If I had been aware, then I certainly would have brought it up to the commissioners,” he said.
After hearing of the shortfall, Rascoe contacted the Local Government Commission, a division of the treasurer’s office that monitors the financial health of North Carolina’s counties, to ask for help. The county also invited the State Auditor’s Office and SBI’s Financial Crimes Unit to examine the situation.
The commission responded in a letter July 24 describing the county’s dire financial circumstances. “Over the last five years, the County has expended more that [sic] it has received in revenues by large amounts, ranging from $1.3 million to $3.3 million per year,” wrote Sharon Edmundson, director of the commission’s fiscal management section.
The county has a debt service payment of more than $1 million due Sept. 29, Edmunson wrote, but only $723,335 in total cash and investments.
“Budgeted appropriations for fiscal 2008-2009 total approximately $21 million. Based on our review, we believe that revenues realized in 2008-2009 will be only $16.9 million, leaving an initial funding gap of $4.1 million … The issues with cash flow for Chowan County are serious and must be addressed by the Board as soon as is practicable,” she wrote.
The commission met recently to consider the county’s request to delay two outstanding debt payments to next year. That, mixed with the tax increases and cutbacks, would create a workable cash flow situation, Rascoe said.
Asked how he would respond to residents who question his contention that there was no indication of the impending fiscal disaster, Rascoe said he understood the concern, but he pointed to Copeland for not notifying commissioners of the trouble.
“He controlled the day-to-day finance matters. He controlled which accounts were used, and he did not disclose that to anybody except the actual finance officer who was doing the things he told her to do,” he said. “It was kept by him, close to him. Period.”
Steinburg, however, said it was “ridiculous” to think that Rascoe didn’t know about the county’s fiscal situation. “He was the county attorney and the special projects manager. I don’t know if he knew the extent, but I’m sure he knew,” he said.
In an interview with The Virginia-Pilot of Norfolk, Chowan County Finance Manager Lisa Jones said Copeland was “well aware” of the crisis before his retirement.
“I think it was a serious issue and has been a serious issue. He always assured me everything was going to be all right,” she said.
Copeland said that he used the reserve funds for legitimate expenses such as services and new facilities and that he intended to replenish it when new tax revenue came in, the newspaper reported. The revenue never materialized.
David N. Bass is associate editor of Carolina Journal.