Deputy Superintendent Curt Baker
Roanoke City Council put Curt Baker, Deputy superintendent for Roanoke City Public Schools on the spot Monday morning. What was thought to a routine request to approve renewal of the $10 million line of credit facility with Wells Fargo turned into financial sausage making.
Causing the heartburn was an increase in the banking fee from $2000 last year to $35,000 for fiscal year 2012. Even if the LOC is not used during the year RCPS will incur the fee. Wells Fargo indicated that they could not continue to subsidize the LOC anymore.
The LOC has been used for overdraft protection and liquidity issues since 2008. Under questioning from Councilman Ray Ferris Baker assured him that “it was not a facility for cash management.”
Baker said that Wells Fargo representatives told him the increase was necessary. The banking industry is adapting to financial regulations imposed by the Dodd-Frank Act and is preparing for other impending financial regulations. These regulations are anticipated to impose higher capitalization requirements for loans and debt facilities.
The Dodd-Frank Act requires higher reserves to be set aside resulting in a per annum increase to .35% basis point explained Baker. He said they had accessed the LOC ten times over the last three years.
Baker told council that they “will insist on an early termination clause with [Wells Fargo] if a lower cost alternative can be found.”
Councilman Bill Bestpitch lingered on the subject of alternatives to RCPS “cash flow issues” asking Baker whether they have had any “overdraft issues.” Baker replied that once when the bank did not record their deposit in a timely manner it was accessed overnight. In that case no interest was charged.
Bestpitch grilled Baker making a point that prior to 2008 before the city and school system severed their financial ties neither RCPS nor the city had a LOC. Baker was asked if there had been overdrafts or cash flow problems prior to July 2008. Baker was not on board most of that time saying that as far as he knew it had not been a problem.
Bestpitch hinted that the city and school systems should reestablish their joint financial management arrangement. “The cost to the taxpayers of the city of Roanoke is whose money we are talking about [pre-2008] would be zero,” said Bestpitch.
“I think this council has demonstrated over and over again our strong support for public education,” said Bestpitch. He lamented over the amount of school supplies the $35,000 would buy. “I happen to know for a fact … that we have teachers … reaching into their own pockets to buy school supplies,” he said.
“As someone who feels a strong obligation to represent the interest of the taxpayer I just can’t see spending $35,000 just to have a line of credit,” said Bestpitch
Councilman Court Rosen said he didn’t have a problem and understood from a business point of view the need for a line of credit. “I think it’s smart … it’s the school boards prerogative,” he said.
Director of finance, Ann Shawver confirmed that low cash flow situations occur both for the city and the school system about the same time every year. It would be difficult for the city to “backstop” the school system she explained.
Shawver tried to nudge council members to understand the time it would take to find an alternative to Wells Fargo. A Request for Proposal for a new bank would take six months. In her discussion with a Wells Fargo representative Shawver said that she got the impression that the city and school system would be hard-pressed to find another financial institution that would be less costly.
Councilman Sherman Lea said, “to me what is being done by Wells Fargo [equates] to some issues we’ve had with loan sharks.” Lea said he understood the need for the line of credit but that he was “tired of sitting up here and being held hostage” in situations they had no control over.
Shawver reiterated that she “must defer to school administration and the school board on budget affairs that effect Roanoke City Schools.”
In the end city council tabled the LOC approval until the next council meeting though Shawver explained it would take 30 days or more to evaluate alternatives. Council still insisted that Baker and Shawver work on “alternatives” for their next meeting.
Mayor Bowers was absent and council members Lea, Ferris, Bestpitch and Price voted to table while Trinkle and Rosen voted “no.”
School Board Chairman, David Carson said in an email:
“I regret the position that the bank has put us all in. I understand and share Council’s concern. I also appreciate that the school finance folks are trying to be extra careful with respect to RCPS finances – a job they have done extraordinarily well for my entire time on the Board.
As we have with many difficult issues that have confronted us over the past several years, we will work through our concerns together.”
Posted By Valerie Garner
Categories: Education, Finance, Politics, Roanoke City Politics, Roanoke City Public Schools
Tags: budget, city_council, city_debt, Roanoke City Public Schools