Chatham Area Transit is having a tough time meeting its funding obligations due to a delay in payment reimbursements and is seeking an increase to its borrowing limit after nearly maxing out its line of credit.
Chief Executive Officer Chadwick Reese discussed the funding shortfalls Tuesday when he asked the board to approve a $6 million increase to CAT’s $1.7 million credit line with Wells Fargo.
Reese said the increase is needed because CAT has three construction projects under way and reimbursement payments from the state, amounting to about $3 million, have not been coming in time to cover those expenses. In addition, there is a lag time between the time property taxes are collected and when CAT actually receives its share of revenue from the tax. About $1.5 million in tax revenue is expected in June, Reese said.
CAT has been using a line of credit to cover payments in the interim since 2007, when Chatham County agreed to back the loans. To pay off last year’s $1.5 million payment, another line of credit had to be taken, leaving only about $200,000 to borrow, Reese said.
In addition to the construction expenses and debt payments, CAT has had a difficult time paying its $1 million monthly management fees to Veolia Transportation in a timely manner, and currently owes the private company about $3 million, Reese said.
Veolia was hired to manage CAT’s daily operations in 2010.
The board ended up approving the credit increase after some members voiced concerns about the growing amount of debt being taken on.
Board member Bill Broker said the line of credit has been an ongoing issue since it was first established in 2007 — when it was capped at $1.5 million. Before then CAT used its reserve funds to address cash flow issues, Broker said.
“I’m concerned about digging a hole deeper with no end in sight,” Broker said.
Board members Helen Stone and Mary Osborne also questioned the job Veolia was doing to prevent such funding challenges.
“I’m wondering what the big bucks we are paying them are going for,” Stone said.
Reese said staff had put a plan forward to eliminate the line of credit in the past and the board decided to go in another direction about two years ago.
Another contributing factor is that the tax rate was significantly reduced by the board in the late 1990s, which meant they had to use reserve funds to make up the difference, Reese said. Those reserves were depleted around 2006, he said.
The tax cut is where the funding issues started, said 20-year Board Member Priscilla Thomas.
“It was a bad mistake and now here we are,” Thomas said.
Broker noted that the state no longer contributes a 10 percent match for federal grants as it did in the past, which also contributes to CAT’s funding shortages.
“The state has walked away from its obligation to transit in Chatham County,” Broker said.
The county commission is expected to consider backing the increased credit line in March.