NATCHEZ — Adams County has money in the bank, but it still has a credit problem.

The Adams County Board of Supervisors met Tuesday with financial advisor Demery Grubbs, who told them that the county’s bond rating had been downgraded from Baa2 to Ba1 by Moody’s Investors Services.

Baa2 is considered a “moderate credit risk,” while Ba1 is considered “questionable credit quality.”

The problem is that starting in 2003, while the overall county budget may have been in the black, the budget ended every year with a deficit in the general fund, Grubbs said.

At the end of 2008, the last year included in the Moody’s audit of the county, the county showed a $2.2 million deficit in its general fund, Grubbs said.

“You’ve got an imbalance here,” he said. “Moody’s doesn’t look at the bottom line. They can’t put their hands on the port fund, that’s a designated fund. I am not standing before you to say the county doesn’t have money in the bank. The money is in other categories (than the general fund).”

The reason the general fund is important is because that is the fund out of which debt can be paid, and Grubbs said the company rates the credit score based on the general funds trend — in this case, a trend of deficit.

The deficit trend started at the same time as the closure of International Paper and Johns Mansfield, Grubbs said.

“The adjustments needed to be made at a point in time but they weren’t,” he said. “I’m not pointing any fingers at anybody — you were doing the best you could.”

Supervisor Thomas “Boo” Campbell said the severity of the situation could have been lessened.

“We should not have lowered the tax millage so much that we would not have money in the general fund,” Campbell said. “Mr. Grubbs said we needed some money in the general county end of year cash balance. We refused.”

Campbell also said County Administrator Cathy Walker had warned the supervisors about the general fund balance.

“She has told us about this cash ending balance for a long time,” Campbell said. “Our board would get rough with her, and she would back down. It is a little unfair for all the blame to go to Cathy, because it’s all our fault.”

President Darryl Grennell said he had pointed out the problem of the year-end balance in previous years.

The rating agencies prefer to see the entities they rate carry an excess of cash, Grubbs said.

“If you have an emergency, you have something to fall back on and you don’t have to raise taxes,” he said.

Grubbs said he recommended having three months additional funds on top of what is required to operate for a full year.

While the current situation is not pretty, Grubbs said that the county has increased collections in the last year due to the opening of the new Adams County Correctional Facility.

“The corrections collection has cut the $2.2 million deficit to $800,000,” Grubbs said. “That doesn’t show up in these numbers yet because that hasn’t been audited.”

The county is also retiring debt, so those funds will be freed up to reduce the deficit, and the recent property reappraisement will bring in more funds, Grubbs said.

“What does this do for you today? We can go back to the rating agencies and show them what we are doing, how we are doing it and where the money comes from,” he said. “That doesn’t mean they are going to change this rating immediately, but it may mean that they will take that negative watch off and change it to a positive outlook.”

Supervisor Mike Lazarus compared the situation to emerging from long-term unemployment.

“We are like somebody who was unemployed for two years and just started working,” Lazarus said. “You’re working and making money, but you are still catching up on the old bills.”

“If we got audited a year from now, we wouldn’t be here.”

At the end of January, when much of the tax collection will be done, Grubbs said the county can put together a package containing a plan for future savings, projections of what the 2009-2010 revenues will be and showing what non-designated funds can be moved into the general fund.

Supervisor Henry Watts asked what the effect would be if the county took on new debt, specifically for the road program or a recreation project, while in the process if restructuring the budget. Grubbs said it would be very hard for the county to be able to issue new debt during the restructure.

When Watts responded by asking how far the county was away from being able to take on those projects, Grubbs responded, “I can’t say until we sit down and look at everything. We are going to have to break the budget down where we know how much is being spent every month.”

While Grubbs said he didn’t believe the county would be able to issue bonds for either project in the near future, he said, “You’re in a hole for your bond rating, the county has cash.”

The supervisors also voted to talk with Walker about her absence from meetings.

Supervisor S.E. “Spanky” Felter made the motion. He said Walker was not present at Tuesday’s meeting because she was ill.