Bank says Cairo in default; accounts frozen

Tuesday, February 7, 2006

CAIRO, Ill. -- The bitter fight paralyzing city government in Cairo now threatens the town's financial health as a bank last week declared it in default on its debts and froze city accounts.

A letter dated Feb. 1 from First National Bank in Cairo, signed by bank president Jay Manus, calls for city leaders to work to solve the problems or face costly legal action.

The letter was addressed to Mayor Paul Farris and the six-member city council. Farris did not return calls Monday seeking comment.

The city council will meet today, at Farris' request, to consider borrowing $136,000 in anticipation of future tax revenue in order to meet current obligations. The posted agenda doesn't detail whether the future tax money is expected in the current year, which ends April 30, or in the upcoming fiscal year. A call to city hall for clarification was not returned.

The bank letter didn't detail exactly how much the city owes. But the city is 110 days late on payments totaling $3,123.76 for one loan and 45 days late paying $14,221.80 on a second obligation, Manus wrote.

In addition, the city doesn't have hazard insurance for required properties nor has it provided audited financial statements to bondholders, placing it in default, Manus wrote.

Audits are a particularly thorny problem for the city. Under Illinois law, cities are required to deliver audits to the office of the state comptroller within six months of the end of a fiscal year. Cairo hasn't filed any audits since the review of spending for 2002 was completed.

The comptroller's office is working to push Cairo into compliance, said Carol Knowles, spokeswoman for the comptroller. The office has been told by Cairo officials that the 2003 audit should be done within a month or so, which would allow work to begin on the 2004 and 2005 audits, she said.

The audit currently underway covers the year immediately prior to Farris' election as mayor. At a recent council meeting, Farris said the audit needs more work before it can be accepted.

There are no state penalties for failing to provide an audit, Knowles said. If an audit is delayed too long, she said, the comptroller's office does have the power to hire an auditor for the city and force the city to pay the bill.

"We currently have more than a dozen underway. Communities usually receive several communications from the office, and we try to work with them before we take this action," Knowles said.

The letter freezing Cairo's accounts and declaring it in default isn't the first attempt by the bank to get the city's attention. Previous letters seeking to get the questions about payments and audits resolved haven't been answered, Manus wrote.

"It is clear the city's elected officials and appointed fiduciaries have abdicated their legally required duties and responsibilities," Manus wrote. "This is an unacceptable situation."

The bank wants to work with the city to straighten out the problems, Manus wrote. "But now you must act in good faith or we will be forced to protect our interest by taking additional legal actions that will be both costly and detrimental to the city of Cairo."

The bank is willing to work with the city, Manus said. "We don't want to cause any harm to the city of Cairo," he said.

Getting money to make required payments would be only the first step to sorting out the difficulties with the bank. And Farris will have difficulty getting the council to go along with the plan to borrow $136,000, council members Elbert "Bo" Purchase and Bobby Whitaker said Monday.

Whitaker and Purchase are bitter enemies of the mayor, engaged in a prolonged campaign aimed at removing Farris from office. Council members won't vote for a loan today, Purchase said, in part because Farris has withheld paychecks from his opponents.

"I guess it means we are going to have bad credit," Purchase said. "We had A No. 1 credit before he came in there."

The idea of borrowing from next year's income to pay this year's bills isn't fiscally sound, Whitaker said. Council members have been rebuffed in their attempts to gain insight into city dealings under Farris, he said.

"We have requested for the past two and a half years and haven't received anything but a bunch of numbers," he said.

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