Audit Report –
City of Hemet: Ongoing Budget Deficit and Organizational
Inefficiency Threaten Its Financial Stability and Delivery of Public Services
This report addresses the “ongoing budget deficit, rising
pension costs, use of city-supported library by non-residents, significant
retiree medical costs and unfunded liability, underfunded fire department, lack
of coordinated approach to promote community engagement, inefficient structure
of city government, turnover of key positions and lack of consistent
leadership, inconsistencies in outsourcing maintenance activity”. It states that the city is high risk “due to
substantial risk factors in the city’s financial management and organizational
management.” The state is not confident that the 5-year plan developed by the
city will eliminate the deficit. Furthermore, they do not believe that the
projections used in the plan are accurate.
The constant revolving door of City Managers has also hindered the city
from moving forward. This city is just
now working on a Strategic Plan. It
would be of the city’s best interest, according to the audit report, for the
city to actively engage the community. Throughout the report (at the end of each
segment), the state makes recommendations to the city. Please see the link below to view the audit
committee hearing from January. The City
of Hemet is about 2 hours and 50 minutes into the video. In addition, please
see the video published on the City of Hemet Facebook page of the mayor
commenting on the audit. I have
also included the letter from the state auditor from October 2015.
On-going budget
deficit: “Hemet has identified declining tax revenue and increased costs as
the primary reasons for its persistent budget deficit”. The state has proposed that the city constantly
update the figures so that cleaner and clearer projections can be made. One of
the comments made in the report is that the city does not budget for unexpected
expenses; such as Measure E (total cost to the city was approx. $130K). It cost
the city $32k to hire the demographer to break up the city into council
districts, another unexpected expense.
The state projects that our deficits will be higher than anticipated. Please
see page 10 of the report.
“In October 2015, the city developed a five‑year
revenue and expenditure projection to use as the basis for addressing its
ongoing general fund deficit. The projection included revised spending plans
for fiscal year 2015–16 that reduce the $5 million budgeted deficit for
that year to a deficit of $1.9 million. Hemet based the reduction on
several factors, including actions it took to reduce spending on retiree health
care benefits and a moderate projected increase in tax revenue. We discuss
Hemet’s retiree health care spending in a later section. In the remaining four
years of its five‑year projection, the city assumes conservative
increases in revenue while holding flat or minimally increasing the majority of
expenditures.” These numbers have been updated and are discussed in the report.
The state recommends some adjustments and reductions, as
well as, charging fees for services that currently have no fee in place.
Rising pension costs:
Hemet has been making its payments but the costs are expected to increase. “According to the deputy city manager,
Hemet is in the process of researching options to adjust the payment schedule
for its unfunded liability, which may reduce its payments”. Recommendations from the city are not expected
until 2017.
The below information is taken from the report.
The City of Hemet’s
Unfunded Pension Liability Has Increased Substantially In Recent Years
Fiscal Year
|
2011-2012
|
2012-2013
|
2013-2014
|
2014-2015
|
Pension Liability
|
$208,317,838
|
$215,864,604
|
$222,090,425
|
$242,261,374
|
Value of Assets
|
$ 160,651,471
|
$ 166,940,228
|
$ 153,659,468
|
$177,071,000*
|
Total Unfunded Liability
|
$ 47,666,367
|
$ 48,924,376
|
$ 68,430,957
|
$ 65,190,374+
|
Source:
Comprehensive annual financial reports for the City of Hemet (Hemet).
* To comply
with changes in accounting standards, Hemet changed how it reports this value,
beginning with its fiscal year 2014–15 comprehensive annual financial report. It now reports “fiduciary net position,”
which equals assets minus liabilities and also takes into consideration amounts
that are deferred due to other accounting rules.
† To comply
with changes in accounting standards, Hemet changed how it reports this value,
beginning with its fiscal year 2014–15 comprehensive annual financial
report, to “net pension liability,” which represents the total pension
liability less the fiduciary net position.
Library: There
are two non-profit groups, Friends of the Hemet Public and the Hemet Library
Foundation, that provide support for the library. However, a good amount of the budget still comes
from the general fund. Charging a fee to
those outside the incorporated area would help minimize the amount coming out
of the general fund. Per the report, the
records identify that almost 44% of those that utilize the library are from
outside city limits. The library has
done an incredible job automating and innovating, but the state believes that
impact on the general fund can be reduced by charging a fee to those who do not
live in the city limits of Hemet. During
a council meeting, there was discussion on applying for grants so that the
library can run off solar. I reached out
to the director on the status of this. I have received a reply but some
clarification is required.
Retiree Medical and
Unfunded Liability: Please read the report for this section starting on
page 14. There is quite a bit of information.
Underfunded Fire
Department: I am pretty certain that we all knew this one. We all know our fire department has been
underfunded for years. Also, we had a
revolving door of fire chiefs and currently have no battalion chiefs. There was instability due to the
unknown. We have low staffing levels and
one of the busiest fire stations (Engine 1) in the entire country. As far as
safety is concerned, there are issues that not only put our fire fighters and
the equipment at risk, it also puts our citizens at risk. The report states
there is a need for infrastructure and equipment repairs. We have fire stations vulnerable to seismic
activity, just like every other city in California.
“The fire stations are also in need of significant
structural changes, including seismic retrofits and alterations to comply with
building codes. State law indicates the Legislature’s intent that an essential
services building, such as a fire station, should be designed and constructed
in such a way as to be capable of providing essential services to the public
after a disaster. However, three of Hemet’s five fire stations are
vulnerable to seismic activity. Although the fire stations were built before
the passage of the state law, their location raises concerns, given that Hemet
is in an area prone to earthquakes. The city also maintains a list of needed
repairs for the fire stations but has not estimated the costs or budgeted for
the repairs. According to the deputy city manager, city management does not
consider these improvements to be as critical as other needs, such as repairing
aging water and sewer lines and making street repairs. She also stated that,
with limited general fund resources, Hemet is unsure as to when and how it will
address the capital improvements needed for the fire department.
Although Hemet may view other infrastructure repairs as more critical, by
not addressing the seismic safety and other structural needs of the fire
stations, it could be placing residents at risk in the event of an emergency”.
Community Engagement:
The report suggests that the community may be more open to requests if the city
were more open with its citizens. The
city needs to “solicit relevant perspectives” from its citizens. The state notes that the city does not have a
public information officer tasked with engaging and communicating with the
public. The report shares an example as to how the City of Brea engaged the
citizens resulting in a positive outcome.
Inefficient Structure
of City Government: The state recommends the following: “To streamline
oversight, better align similar functions, and provide opportunities to
leverage staff, Hemet should reorganize the structure of its city government.
Specifically, it should conduct a comprehensive organizational analysis,
including work assignments, workloads, reporting relationships, and
coordination points, and pursue options to improve efficiency
and effectiveness, such as creating a combined community development and
services department, shifting engineering to become a division under public
works, and shifting its code enforcement division to public safety”. Please see
page 24 of the report to see how the state recommends restructuring.
Turnover & Lack of
Consistent Leadership: The city has had eight city managers, permanent and
interim, in the last nine years. Our
fire department went a couple years without a permanent fire chief and
currently does not have any battalion chiefs. Regarding the city as a whole: the
lack of management oversight has contributed to a lack of leadership, cohesion
and efficiency. Because we have had
reductions and turn-over, there has been a reduction of “institutional
knowledge” and efficiency. There has been a severe lack in direction. The city
is in the process and early stages of developing a strategic plan. The current status: a special meeting was
held July 16th. A consultant
was present and leading the meeting. She
either has or will be presenting the city with recommendations. The last
recorded vision statement was October 18, 2005.
The vision was, “By 2009, the City of Hemet will be a vibrant community
recognized for its diverse cultural, recreational, educational and economic
opportunities”. On the other hand, the
police department has had a strategic plan.
Recommendations suggested by the state, “Hemet should
complete a strategic plan that identifies goals, initiatives, responsibilities,
funding requirements, potential funding sources, and key performance measures
by January 2017. • Upon completion of its strategic plan, Hemet should complete
a succession plan that coincides with its strategic goals by June 2017. The
succession plan should analyze staffing needs, identify internal and external
talent pools, and create employee development plans.”
Maintenance Activity:
The state believes that the city would benefit from contracting out its
maintenance services. The parks
maintenance has remained internal. The
city has contracted out the landscape maintenance of some of its properties and
the report states that there would be some cost savings. “The parks division
continues to maintain seven parks, the city’s corporate yard, and some
streetscapes near the entrance to the city. It has already taken steps to outsource
other park functions, such as the administration of community interest classes
and recreational sports leagues, to a special district. The city has also
outsourced maintenance of some city streetscapes and neighborhood parks. This
maintenance is overseen by its public works department and is funded through
assessments to landscape and lighting districts—subsidiary special districts
designed to provide streetlights and landscaping”. There would still be
some city expenditures such as: electricity, water, liability and some
personnel costs. The city has previously
entertained outsourcing but had determined that it was more cost effective to
keep it in-house. The state makes the
case that a private company could include things in the scope of work that the
city would not be able to do without an additional cost. These items were not addressed when
considering the possibility.
Last two paragraphs
of the report:
“We strongly disagree with Hemet’s contention that the
report contains mischaracterizations, inaccuracies, and unsubstantiated items.
The audit was conducted according to generally accepted government auditing
standards and the California State Auditor’s thorough quality control process.
We gave Hemet ample opportunities to review the items contained in the draft
report and correct any items it believed to be inaccurate. Throughout the
audit, we communicated our concerns to Hemet. Further, we shared the body of
the draft report, which detailed our findings and conclusions, with city staff
at our exit conference before we sent the draft report for Hemet’s formal
review. We considered all the comments and suggestions Hemet made regarding the
draft report’s accuracy and clarity and made those changes we believed were
warranted based on the evidence. We reviewed all documentation provided, and
all our conclusions are fully supported and factually correct.
We expected Hemet to address any concerns regarding the
draft report either in its formal response or through discussions with us
during the formal review period. However, Hemet states that it will instead
clarify these concerns in its corrective action plan that it intends to submit
in early August 2016. We will review the plan and provide any further
perspective and clarity, as needed, at that time”.
No comments:
Post a Comment