Penobscot County has until the end of the year to repay $4 million in federal funds that it loaned itself amid a multimillion-dollar budget crisis.
For years, Penobscot County has used portions of the nearly $30 million it received in COVID-19 relief funds — meant primarily to counter financial losses endured by essential services during the pandemic — as short-term loans to itself, the Bangor Daily News has learned. This allowed the county to save thousands in interest and keep itself afloat during times of low cashflow.
Officials are now relying on communities to pay their taxes on time to ensure the remaining American Rescue Plan Act funds can be dispersed to local organizations before the federal government’s Dec. 31 deadline. Any money not spent as allocated at that time will be forfeited to the Treasury Department.
Details of the outstanding loan provides new insight into how Penobscot County has managed its money in recent years while navigating budget gaps that have bled more than $7 million from county accounts. It also indicates Penobscot County will have to find new ways to secure the money needed to operate next year, as these funds will not be available to fall back on.
Penobscot County owes $4 million to its own ARPA funds, Treasurer Glenn Mower told the BDN. That $4 million was borrowed so the county could operate in January and February before another loan was secured. Penobscot County has long relied on taking out a loan to cover its expenses for the first three quarters of each year as it operates on a calendar year schedule, while the communities it collects taxes from use a fiscal calendar that starts July 1.
These ARPA loans, which are the equivalent of taking money from one account to another, for years were taken out to save the county from paying higher interest rates from banks, Mower and former Administrator Scott Adkins said.
“It saves a few thousand bucks, and that’s what matters,” Adkins said.
The county saved a “substantial amount” in interest by not taking out tax anticipation note loans, Mower said. The interest rate on the ARPA account is around 3%, while loans the county gets from local banks are more than double that, Adkins said. That funding matters, especially during the county’s financial struggles, Mower said.
Penobscot County has lost at least $7 million in recent years, mostly due to the rising costs of the Penobscot County Jail, which has been underbudgeted by county officials. That deficit forced officials to raise the county’s budget by nearly 20% this year.
The county must repay the $4 million before all the funds have to be spent or sent back to the Treasury Department on Dec. 31.
ARPA funds are allowed to be used as loans or lines of credit, according to the Treasury Department. The Treasury was vague about the specifics on how funds could be spent and offered little to no help when Penobscot County officials reached out directly, Adkins said.
Because of the vast number of communities that received ARPA funding and the differences in how it’s been spent, it’s unclear if borrowing part of the funds as a loan is common. Adkins and Mower both pointed to Washington County borrowing from its ARPA account, but they did not know of other places that did the same.
In November, Penobscot County owed itself $6.5 million in ARPA funds, according to emails obtained by the Bangor Daily News.
Finance Director Brenda Palmer told Adkins another loan had been paid off but “we still owe ARPA $6.5M, so not great,” the emails showed.
“Ugh, OK,” Adkins replied, before saying the county should figure out how much cash it will have on hand at the end of the year.
Penobscot County officials allocated the $30 million in ARPA funds to organizations and projects across the county. Roughly $8.4 million was given to local agencies to lessen the impact COVID-19 had on their services. The YMCA of Bangor was given $3 million for the new facility being built on Main Street. Most of the remaining funds were given to other services and infrastructure.
Officials expect communities to pay their county taxes by September or October, giving them enough time to repay the ARPA funds. The projects to receive those funds, including the new YMCA, are projected to request the money they were allocated before Dec. 31, Mower said.
If the money isn’t in the account when the projects request it, the county will have to pull funds from somewhere else, Mower said. If the loan is not repaid by the end of the year, Penobscot County would owe the remainder to the Treasury Department, which it wants to avoid, Mower said.
Mower is confident Penobscot County will have the funds available when the organizations need them because timetables for each project align with when the county expects to receive taxes from local communities.
“We’re in good shape. It’s on our radar,” Mower said.
Although there’s confidence that this year’s debts will be paid, no longer having these “extra” monies moving forward exacerbates the county’s lack of funds.
Without this stash to fall back on, the county will have to have a loan in hand before the first of the year to ensure it has enough money to operate, Mower said.
“Next year is going to be tough,” Mower said.