Annapolis Mayor Joshua J. Cohen said Thursday the city plans to pursue a $10 million line of credit in order to make payroll and other expenses for the next few months as it struggles with a significant drop in revenues and a record budget deficit.
Calling the move a "temporary measure to ease our short-term cash flow crunch," the proposed line of credit would allow the city to offset shortfalls until it receives property tax revenues in October.
The three members of the city council's finance committee are co-sponsoring a resolution that they plan to introduce Monday night that would authorize the credit line, which the city last sought a quarter of a century ago.
"The need for a line of credit underscores how tight money is," said Cohen, a Democrat. "But I really want to emphasize that this is a short-term cash problem. Taxpayers should remain confident in the city's overall financial strength and solvency."
The city's on-hand cash flow could run negative as early as next month as revenues continue to come in short of estimates, including several thousand-dollar decreases in building permit funds and hotel tax revenues and the loss of $1.8 million in state aid, said Tim Elliott, the city's finance director. The terms of the loan are still being discussed, and it would be paid back as soon as the city recoups property taxes this fall.
The city code allows the mayor a $3 million line of credit. If passed, the resolution would increase the amount to $10 million. Elliott described the credit extension as a precaution and said he may only need a portion of the funds. He added that he expected the interest rate for the line of credit to be under 4 percent.
"I'm very hopeful that I won't have to draw that $10 million, but I've had so many surprises this year that I just want to be extra careful," Elliott said. "You've just got to be prepared."
Facing a $9 million structural deficit, Cohen last month laid off 33 city employees and presented a $80 million budget proposal that includes the elimination of 52 more positions and cuts to nearly every city department. The city is negotiating with the four employee unions and has said that without $2.5 million in union concessions, more layoffs are likely.
Alderwoman Classie G. Hoyle, chairwoman of the finance committee, called the need for the credit line "disappointing," adding that although she agreed to put the resolution before the council, she is unsure if she will ultimately support it. Hoyle said she has asked for an independent auditor to examine the city's finances and report back to the committee.
"I'm not convinced," said Hoyle, a Democrat. "The mayor certainly hasn't convinced me that this is absolutely the step we've got to take today. We'll have to look at things and see."
Alderman Ian Pfeiffer, a Democratic member of the finance committee, called it "an option that has to be taken."
"It's disturbing that we're in a position where we need to do this, but it's also the only option we have at the moment," Pfeiffer said.