Pottstown asks borough authority for car loan

Sunday, November 23, 2008 6:20 AM EST

POTTSTOWN — Not everyone can buy a new car, or maybe several new cars, without knowing where the money is coming from, but not everyone is the borough of Pottstown.According to information made public at Tuesday night's Borough Authority meeting, when the borough formally asked the Authority for a $686,000 loan, that is exactly what has happened.Assistant Borough Manager Jason Bobst and Timothea Kirchner, a financial consultant and acting finance director, laid the scenario out for the borough authority board members.

In August, Borough Council agreed to proceed on a number of capital projects, including a new Chevy Tahoe for Police Chief Mark Flanders and several new patrol cars.These vehicles, along with three new cars for the code enforcement department and new equipment for Pottstown Community Television and equipment for borough hall, were to be paid for through a "lease purchase" agreement with a firm named Municipal Services Group, identified by former finance director Robert Armelin.The cars and equipment were purchased, but the financial deal was never finalized, Bobst said.That's when the trouble began.Because the audit of the 2007 books was (and is) still not complete "and that caused (Municipal Services Group) to be skittish about loaning money to the borough," Kirchner said.The result was the potential for the borough to pay 4 percent interest on themoney, rather than the 2 percent originally proposed."The borough purchased the equipment in anticipation of the financing going forward," Kirchner said.Given that the borough's other option is to issue a general obligation bond, an expensive process for less than $1 million, Kirchner and Bobst said they felt obligated to explore a less expensive option.In response to questions from the authority, Kirchner made it clear that it is too late to give the equipment back and not spend the money."It's not the way I would recommend doing business in the future, but it's the situation we're in now and it keeps the money in the borough," Kirchner said.The borough offered to pay the Authority 3 percent over the five-year course of the loan.Borough Authority Chairman Ronald Downie thanked the staff for at least asking first."I appreciate that at least the borough is not going ahead and doing it without asking us," Downie said.Kirchner said although she and Bobst are attempting to clean up the borough and Authority budgets, as well as previous bad practices, she nevertheless recommended the move."I know you've heard promises in the past, but we're trying to change things going forward," she said."But how many finance directors do we have to go through?" asked Downie. "Every problem we run up against each time is essentially finance.""It's true," Bobst said, "that in years past an agreement to do things like this has been verbal, or never been offered at all, and that the borough has never paid the authority back. But this issue caught us off-guard."Off-guard or not, the Authority board did not appear anxious to agree to the deal."Our fiduciary responsibility is to invest our money in doing capital projects that enhance services for our ratepayers," Downie said. "I don't think we should be in the position of lending money."Authority member Don Read agreed, saying "my threshold question is how does this benefit our ratepayers? I would like to stay as a water and sewer authority only."Although the water and sewer funds combined have about $2.5 million in reserve, Downie worried that loaning some of that money out might crimp the authority's ability to continue with its capital budget program."I think that $600,000 would be better utilized on authority directed projects," Downie said. "I would rather use it to put solar panels up at the water plant because it would save our ratepayers money."Referring to the budget discussion that had just occurred, Downie said "why are we looking at increases for our ratepayers, would we loan money out for things that are not giving them a return?"David Busch, a financial expert with the authority's engineering firm, BCM, said there would be a return — $60,000 in interest."It's our view that we should strike the best deal we can on behalf of the community," Kirchner said.But Downie pointed out that the authority serves customers in the surrounding communities as well as just Pottstown. "We have ratepayers outside Pottstown and we are obligated to do what is best for our customer base," he said.Authority member Tom Carroll said he is reluctant because PCTV is not currently contributing to the general fund, but is a drain upon it, and he does not believe money should be invested in it."My biggest problem is how do we hold PCTV accountable to make money," Carroll said."I don't want the Authority to be the oversight committee for borough operations," Read replied.Referring to the mortgage meltdown fueled, in part by subprime mortgages, Carroll replied, "If you look closely at how some of the money that was lent to people in this country was spent, you might come to the conclusion that we should not have lent them money or we might not all be in the fix we're in."In the end, the Authority made no decision, agreeing to table the matter until more information on the proposal is gathered.

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