On January 11, Jerry Schiro, Middleburg's new Town Administrator reported to a relieved Town Council that most, if not all the town's much-publicized financial crisis had been resolved by simple and long-overdue book-keeping adjustments.

Contrary to fears generated by the town's preliminary audit report, and repeated in local and national media, bond funds earmarked for capital improvements had NOT been spent illegally.

Bookkeeping corrections and the deposit of funds long overdue from the Virginia Department of Transportation also mean, in Schiro's words, "...a much reduced deficit at the close of fiscal year 2006 and a surplus in the current fiscal year."

"Therefore," Schiro concluded, "our current budget is not in deficit."

The Bond Crisis That Wasn't

In November, Leesburg CPA Jeff Mitchell had warned Council that funds borrowed to finance capital improvements in Middleburg's aging infrastructure appeared to have been used, perhaps illegally, to pay on-going, non-capital expenses.

Both former Mayor Tim Dimos, and former Town Administrator Mike Casey repeatedly expressed doubt that such was the case.

Casey, fired by a unanimous vote of the Town Council in July, had, in fact, stated repeatedly that he believed the town was not really in debt, and that there had certainly been no misspending of bond funds for "general expenses."

According to Casey a large number of expenses had simply been misclassified. Many bills that had been paid from the town's "general fund" should have been paid from bond proceeds he said. Once the corrections had been made, Casey contended, the "bond fund crisis" would disappear.

Schiro's report confirmed Casey's and Dimos's contentions.

"Thanks to the hard work of Claudia [Dornin] and Debbie [Jewell], we have identified additional capital expenditures that should have been credited to the bond proceeds," the new Town Administrator told council on January 11.

Indeed, by January 11, former interim Town Administrator Dornin, and current Town Treasurer Jewell, found nearly $190,000 in expenses that had been improperly classified.

Once these bookkeeping corrections are made, Schiro noted, only around $44,000 of the $1.3 million bond fund remained to be spent. The $44,000, he noted further, had already been earmarked, appropriately, for a pump replacement project.

All bond funds were thus spent appropriately. No trust was violated. No laws were broken.

The General Fund Crisis That Wasn't

Because the town's bookkeepers had inappropriately charged Middleburg's "general fund" for "bond fund" capital expenses, the Town's putative "general fund crisis" also proved overblown.

In effect, the Town's "bond fund" owed the town's "general fund" more than $180,000 and, according to Mayor Davis, perhaps more than $230,000.

"That transfer [of funds from one account to another] combined with the VDOT grant revenue received in the current fiscal year," Schiro reported, "will result in a much reduced deficit at the close of fiscal year 2006 and a surplus in the current fiscal year.

"Therefore," Schiro informed a happy council," our current [2007] budget is not in deficit."

As for fiscal year 2006, Schiro noted that the "Town Staff will request Council to make some budget amendments prior to June 30, 2007" and that auditor Jeff Mitchell will be amending the final audit to Council at our February 5th work session."

What Happened?

Auditor Jeff Mitchell's February 5th report to the Town Council should provide an almost-final account of the town's accounts for fiscal year 2006.

Until then, persistent questions about who knew what, when, and what should have been done about it remain unresolved.

Both former Mayor Dimos and Mike Casey insisted for months that the "crisis" was overblown. Town Administrator Schiro's report clearly vindicated that point of view with regard to both the bond and general funds.

Casey has also long contended that his dismissal had nothing to do with the town's finances. Noting that he had been given high praise and a raise, six months before he was unceremoniously fired, Casey asserts that he was dismissed because of a combination of long simmering differences with key Council members. Among them, he says: resentment over his analysis of the risks and benefits of the Salamander deal; back-channel complaints by disgruntled former employees and current staff members to Council members; and complaints by citizens unhappy about his enforcement of town rules, or resentful that he would not grant them special favors.

Council members, constrained by legal counsel from citing specifics, generally agree that Casey was dismissed because of personnel problems and his management style. Indeed, it was not until after Casey had left his post that questions about financial oversight processes and the true state of town's finances began to surface publicly.

What is termed an "unbudgeted and unauthorized spending down" of the town's cash reserves also remains a question. Both Mike Casey and Tim Dimos assert correctly that Council specifically authorized a reduction in the town's cash reserves. Mayor Davis and Vice-Mayor Kirk both question the degree and manner in which that authorization was carried out. The next edition of the town's audit for fiscal year 2006, due on February 5, promises to shed more light on the problem.

Most, though not all Council members agree that that there were many missed opportunities to catch and resolve early all the town's financial problems, real and imagined.

The town's treasurer, administrator and Mayor dealt first hand, on a monthly basis with contracting, bill-payment and coding of expenditures. The Council's Finance & Personnel Committee, and the Town Council as a whole received financial reports monthly (and according to Mike Casey, sometimes more often.) Any and all could, and should have noticed the anomalies that first became widely known in November.

Though some debate the timeliness and completeness of those reports, most who have actually reviewed the records concur that the major anomalies cited in Jeff Mitchell's preliminary audit, and their root causes, almost literally "jump off the pages."

For some Council and Staff members this also raises the question of why the Town's auditor didn't raise questions about accounting and possible book-keeping errors before making a his preliminary audit public. Had he done so, the Town, its Council and town staff might have been spared considerable embarrassment and negative publicity.

Tax and Rate Hikes Questioned

During the two months between the November audit panic and Town Administrator's Schiro's January 11 report that all was well, Town Council raised "meals" taxes by 33%, raised the "occupancy" tax on overnight guests at hotels and bed-&-breakfasts by 66%, and levied a new tax on cigarettes.

The measures, all enacted in an effort to address problems that, according to Schiro, now seem less pressing, if not entirely moot, were strongly opposed by citizens.

At the Council's first and only public hearing on the matter on December 14, Edward "Snooks" Swain, Jerry Wine, George Archibald, Betty Patterson, Randolph Underwood, Kathy Ribaudo, Pauline Wisdom, Don Woodruff and others, all raised serious questions about Council oversight, staff management of income and expenses, and, especially, the fairness of the increases in water and sewer rates to the disproportionate number of people on fixed incomes who live in Middleburg.

As Swain noted at the January 11 Council meeting, the new tax and rate hikes nevertheless passed immediately with the Mayor breaking a tie vote, despite obvious and vocal opposition.

In the week following Schiro's report other citizens and some sources close to the Town Council and staff, questioned whether the rate and tax increases should not be reconsidered. The expected positive impact of the Salamander project on both the Town's water system and its tax base, added fuel to the fire.

What's Being Done to Prevent a Repeat?

Mayor Davis, Vice-Mayor Kirk, and the entire council have pledged that "never again" will the Council fail so miserably in its oversight responsibilities.

According to Davis, the Council is considering scrapping its current committee structure. Two full-council work sessions per month are also being considered.

In the meantime, Town Administrator Schiro has taken on full and personal responsibility for both management and oversight of the Town's finances. "The buck stops on my desk," he told the Eccentric, "and Debbie [Jewell] and I are working hard to test and fine tune our new procedures."

Who was Hurt?

According to one former Council member, in the end, the only real damage done by the Bond and Budget Panic was to the reputation of the Town and to Mike Casey. Others contend that no one involved in oversight and governance of the Town's affairs emerged unscathed.

The Beniamino Resignation That Wasn't

After an otherwise quiet session of Council followed by a brief but heated discussion of public notice advertising deadlines, Town Planner and Zoning Administrator David Beniamino announced that he was leaving his position in Middleburg.

With the town's audit problems, the Salamander project dictating major changes in the Town's comprehensive plan, and the new Town Administrator just finishing his second full week on the job, Beniamino's departure would have been, in the words of one prominent citizen, "a disaster." An advertisement soliciting a replacement was drafted and distributed immediately. Beniamino was quoted in the local press as feeling very sorry for Middleburg's new town manger, but torn by an opportunity that was too good to pass up.

Happily, by Friday, January 19th, Middleburg's Town Clerk was asking media outlets not to run the ad for Beniamino's position. Middleburg's Town Planner apparently plans to stay.