
DATE: Friday, October 3, 1997               TAG: 9710030685

SECTION: LOCAL                   PAGE: B1   EDITION: NORTH CAROLINA 

SOURCE: BY PAUL SOUTH, STAFF WRITER 

DATELINE: SOUTHERN SHORES                   LENGTH:   96 lines

BLUE SKY HASN'T HURT TOWN, LEADERS SAY BUILDING PROJECT BRINGS FINANCIAL PROBLEMS TO SOUTHERN SHORES.

Town leaders, in a municipal newsletter, have expressed regret for the financial problems caused by cost overruns in the Project Blue Sky building program.

But the newsletter, mailed to residents Thursday, also contends that the town is financially sound, although the town's reserve funds will be $200,000 to $250,000 less than expected in part because of the overruns.

Meanwhile, Diane Henderson, the interim town administrator, Thursday said the Town Council will vote Tuesday on a new interim administrator. It will consider John P. Smith, who served on an interim basis in Holden Beach, N.C., after its town manager was hired by Kitty Hawk.

Smith is a retired Fayetteville city manager. If approved, his contract will be for a minimum of three months and a maximum of six months at a salary of $4,000 a month plus benefits.

Concern about the Blue Sky program - aimed at building storm-resistant homes - has swirled in recent months. Cay Cross, who served as town manager and administrator of the Blue Sky program, resigned last month for undisclosed reasons.

A preliminary report by auditors has revealed no evidence of any wrongdoing.

Henderson, who is also on the Town Council, said the five-member council sent the newsletter for one reason: accountability.

``With the mayor-council form of government, we are all jointly and severally responsible,'' Henderson said. ``Cay had the title of town manager, but she did not have the same power as managers in the other towns. We're responsible for oversight of the departments. We make mistakes.''

The newsletter said that despite spending overruns, the town is in good fiscal health.

``The financial stability of the town is not in doubt,'' said the letter, signed by Mayor Kern Pitts, Mayor Pro Tempore Carl Berntsen and council members Henderson, Gerald Beshens and Dick Wood. ``Our reserves are about double the amount recommended by the (North Carolina) Local Government Commission, but the town prefers to have greater reserves in the event of some future disaster. Southern Shores carries an average reserve fund equal to about six months worth of its operating budget.

``Each council member bears some responsibility, and we apologize for our collective failure to exercise stronger control over financing,'' the letter said.

The newsletter said a transfer of $251,000 from the town's unobligated fund balance to Blue Sky was a ``transfer of funds between accounts, not a loan.'' It said the town erred in its belief that corporate support could make up for anydifferential in town accounts. Corporate support can go only for ongoing Blue Sky activities.

Blue Sky is expected to receive $192,000 in grant money. But that money is obligated for Blue Sky expenditures and cannot be used to replenish the town's fund balance.

Southern Shores may postpone improvements to the town hall and other projects in an effort to replenish the fund balance, the letter said. But construction of the police station will not be delayed.

The newsletter noted that tax collections were up.

``Occupancy and sales taxes through June were 9 percent above last year's estimates, and summer tourism figures have been even more encouraging,'' the newsletter said.

Paul Sutherland, a candidate in November's town council race, said Southern Shores should sever ties with Blue Sky. He said the town's financial picture isn't so rosy, in part due to ``excessive'' spending on Blue Sky. And, he accused the town council of ``sugar-coating'' the building program's finances.

``I believe the town should extricate itself from Blue Sky as soon as possible,'' Sutherland said by phone from Charleston, S.C. ``It should sell the building and use the proceeds for the general fund balance.

``The town had a 4-cent tax raise two years ago, and that tax raise was supposed to go in part to replenish the town's general fund balance,'' Sutherland said. ``During the two-year period of the tax increase, the town's fund balance has decreased by $530,000, and of that $530,000, $417,000 was in the last year. I'm not sure why all of that happened, but I'm sure part of it was Blue Sky.''

The report to citizens acknowledged that the town will be under the watchful eye of the local government commission, an arm of the state treasurer's office, which oversees municipal finances.

The newsletter said another problem has been a failure to back up credit card purchases with proper documentation. The town's staff and its auditing firm will review those credit card purchases.

``The lack of fiscal control during the past year must be reported by the auditor to the LGC as a `material weakness' in management,'' the letter said.

The town council will meet at 9 a.m. Tuesday. ILLUSTRATION: Graphic

THE MESSAGE

The newsletter said that despite spending overruns, the town is

in good fiscal health.

``The financial stability of the town is not in doubt,'' said the

letter, signed by Mayor Kern Pitts, Mayor Pro Tempore Carl Berntsen

and council members Henderson, Gerald Beshens and Dick Wood.

The newsletter said a transfer of $251,000 from the town's

unobligated fund balance to Blue Sky was a ``transfer of funds

between accounts, not a loan.''