York, Ala., is borrowing money from a finance company to pay what it owes the Internal Revenue Service. The IRS was threatening action against the city for more than a quarter of a million dollars in back taxes.
The unpaid payroll taxes date back almost two years. Officials said a former city clerk failed to forward the money for part of 2010, all of 2011, and part of 2012.
York owes the IRS $264,000. However, the amount for the loan is $350,000.
"Well, we've got other outstanding debts, other things that we would like to pay off," said city manager Tim Sweezey. "In fact, it provides significant cash should something else come up. Basically, we've had some financial issues in terms of audits and to go through a regular lending institution it was going to take us quite a bit more time and we were basically out of time. We had to resolve this immediately."
Sweezey and councilwoman Jean Jones say the IRS was threatening to seize city officials' personal assets if the city did not settle the debt.
The Cash-N-Go Loan Company in York is a subsidiary of Sensible Loans, the company that the city of York is using. The interest rate for that loan is 18%. It's something city officials say they feel confident they can repay.
"We've researched it. We've checked our sales tax account and things of that nature," Sweezey said. "So, I'm very confident we can make these payments."
Sweezey says it's too early to determine if this loan will lead to an increase in rates for residents.
In the terms for the loan, the city will pay $8,700 monthly for 84 months. Payments will start in September with a $30,000 invitation fee.
"What we hope to do is refinance the debt at a later point," said Sweezey. "Finance it at a lower interest rate and kind of move on from there. We're getting our budget together. We're preparing for another audit. So, I'm satisfied that we're on the road to recovery."
If the loan were never refinanced, $8700 over 84 months would be $730,800.
In an effort to generate more revenue for the city, York officials are proposing the sale of alcohol on Sundays. Residents will vote on that Tuesday,
To secure the loan, the city of York put up Lake Louise and its sales tax collateral account.
Outstanding debt for the city includes money owed to the Alabama Department of Revenue.
Mason and Gardner Accounting of Demopolis has been hired to determine the amount owed to the state. It will also decide what needs to be done to fix York's financial affairs.