Auditor confirms budget crisis

City is spending more, making less, running a negative reserve

Rebecca Neipp

News Review Staff Writer

Concerns expressed by members of the public regarding the city’s growing general fund deficit and lack of reserves were echoed by CPA Kenneth Pun, who presented to the Ridgecrest City Council the Comprehensive Annual Financial Report that resulted from the city’s yearly audit.

During public comment period, Paul Vanderwerf told the council that the residents could see the tough times facing the city. Although many residents want to do what they can to help out, he said, there did not seem to be a sense of urgency or direction from the council. “We need leadership. Let us know where we need to help out.”

Jerry Taylor pointed out that in the 49 days since the council learned of a new $1.2-million annual deficit, it had already spent some $225,000 it did not have.

He also called on the council to provide direction in bringing the city’s expenditures down to match its revenues. He said that on top of the existing general fund deficits, the city is also in the hole some $5 million to the wastewater fund.

On top of that the prospect of sequestration painted a grim picture for a town dependent on DOD funding. Already, cuts in Navy spending have been reflected in the loss of revenues in the city.

“I strongly suggest you do not wait for the normal budget cycle to start addressing this,” he said.

“I agree with Vanderwerf — the community is willing to step up. But we don’t know what you need. You need to help lead us out of this.”

Michael Neel said the council needs to list that wastewater loan as a line item in the budget. He said that a “concrete, readable promise to pay it back on a short-term schedule is the only thing that will stop inflammatory letters and blog posts.”

Katie Nazeck pointed out that the community has already partnered with the city in the face of diminishing resources by volunteering for projects like median maintenance. “If you are asking people to put their blood, sweat and tears into the city, we need to know that our money is being spent as intended.”

Barbara Auld said she wanted to second the comments that came before her, and said that as a 68-year resident of the community, she wants to be a part of helping the city get back on a secure financial footing. “I think a Town Hall meeting is something you should consider for your own sakes in light of how the community has been feeling about the unfortunate things that have happened.”

Shortly after public comment, Pun presented his firm’s evaluation of the city’s financial outlook. In his report he noted that although revenues were down in the last year (from about $9.7 million in 2011 to about $9 million in 2012), the city had increased expenditures in that same time period from $10.7 million to $11.6 million.

He also expressed concern about the city’s lack of a reserve fund, which is augmented by an additional $4.2-million liability from borrowing from the wastewater fund. (The city also has not yet paid back some $585,000 borrowed from the wastewater fund to finance the recent investigation of Benz. Although the city was awarded settlement money, that is reportedly being used to pad the general fund.)

Pun said the city needs to put aside at least 5-10 percent of its budget as a rainy-day fund.

Mayor Dan Clark asked why that number was so high, since he understood the city needs only 3 percent.

Pun answered that the figure he cited was based on keeping on hand at least two months of operating expenses — the minimum that should be set aside.

“If that is the minimum, do you have a standard recommendation?” asked Councilmember Jim Sanders.

Pun said that in light of an environment rife with fiscal uncertainty, his firm considered a reserve of 15 percent as the best practice. “And right now, the city’s reserve is essentially negative 37 percent.”

“There are a lot of cities in trouble. And we are really struggling. Do you know of any city that maintains 15 percent?” asked Clark.

“Yes, we have a number of clients who are maintaining a 20-percent reserve,” said Pun.

Clark said that given the city’s fiscal woes, that was not a realistic option.

At the public microphone, Vanderwerf pointed out that after hearing that presentation, it sounded like the city was going broke. “There needs to be a sense of urgency here. The concern he brings up is the same concern that was brought up last year.”

Jim Fallgatter noted that the auditor was only confirming the message that members of the public had been bringing to the council for months. “We are going broke every day and you don’t want to make the hard decisions.”

He asked when the council is going to take action.

“When we were sworn in in November we inherited a $1.3-million deficit,” said Clark. “We cut $800,000 right off the bat. If anything is proactive, it’s us. Be a part of the solution. This council is doing everything we can to keep this city solvent.”

Taylor corrected Clark’s claim by pointing out that the city only cut about $100,000 in spending. The rest was simply a cost shift to other accounts, including Measure L.

He also urged the council not to wait for the next budget cycle, but to begin cutting now.

Councilmember Lori Acton said she has been very proactive behind the scenes. “We are working on it. At least for myself, I am working on it daily.”

Neel said that he would like to revisit a topic that had previously been raised by the public — adjusting salaries. “The department heads need to take significant paycuts,” he said. Last year the News Review published a report that showed those salaries ranging from $130,000 to $150,000, with the city administrator collecting even more.

“Are you going to cut whole departments, or spread out the pain a little bit?”

Story First Published: 2013-02-13