At last Tuesday’s Signal Hill City Council meeting, city officials took turns blasting some key conclusions about Signal Hill’s financial practices that were outlined in a report from a civil grand jury who was charged with reviewing the fiscal health of nearly two dozen charter cities in the county.
The Los Angeles County Civil Grand Jury acts as a “watch dog” to investigate government agencies within the county of Los Angeles, according to the LA County Civil Grand Jury website. This particular grand jury looked at financial records for 23 out of the 25 charter cities within LA County. In a report released at the end of June, the jury published its conclusions and recommendations for what they deemed “best practices.” Members of the grand jury cited concerns that charter cities had “potential for abuse” due to their “greater authority and flexibility,” according to the report summary. Acknowledging that charter cities Bell and Vernon have faced scandals with allegations of financial mismanagement, the report states that the jury will study whether the autonomy of charter cities leads to abuse in fiscal management and in other areas including procurement, compensation and other aspects of governance. The members of the jury serve for one year.
Councilmember Ed Wilson acknowledged the challenges for the members of the jury who used 2009-2010 financial records as the basis for their investigation. Wilson said it was difficult to conduct an adequate analysis of cities on a one-year basis, but he also took issue with the scope of the grand jury’s investigation. Long Beach and Los Angeles, which are both charter cities, were not included in the report, and Wilson pointed out that the grand jury did not perform a financial analysis of non-charter cities.
“The numbers are what they are, but there’s a lot of context that you have to take into consideration that [isn’t] in the report,” Wilson said Tuesday night as he emphasized his concerns with the grand jury’s conclusions. “Given the magnitude of what they’re doing and the speed at which they were trying to do it…as far as I’m concerned, it didn’t do the grand jury justice, and it didn’t do the charter cities justice.”
City Manager Ken Farfsing took exception to some of the grand jury’s conclusions when it reviewed the Comprehensive Annual Financial Report for the 2009-2010 fiscal year. He acknowledged that the City, like many of the other charter cities at the time, was operating at a deficit, but he painted a different picture of Signal Hill’s debt.
“Now what happened is the grand jury combined the city general fund with our Redevelopment Agency (RDA) fund, and we believe that results in a mischaracterization of our financial health,” Farfsing told the Council Tuesday. “The main reason is that they included all the RDA bonds as debts, but they did not recognize the income to pay the bonds as assets. Those bonds will be paid off over time through property taxes that are dedicated to the bonds, so basically characterizing those debts without any asset to pay them off skews the asset-to-debt ratio.”
Farfsing pointed to a significant factor to the City’s debt for the 2009-2010 fiscal year. The city manager said Tuesday that during that fiscal year, the State borrowed more than $633,000 from the City, and his staff report said the State raided redevelopment agencies with a Supplemental Educational Revenue Augmentation Fund (SERAF) transfer that totaled over $5.1 million.
The city manager also acknowledged that Signal Hill is still attempting to transform itself after the state decided to dissolve the redevelopment agency and asked to review the strategic plan this year. He acknowledged that in the current strategic plan, many of the goals are tied to redevelopment.
“So as we reinvent ourselves as a community with economic redevelopment and other initiatives…we really need to take a look at our strategic plan and update it,” Farfsing told the Council.
There was also good news from the grand jury that Farfsing highlighted in his staff report. He said that the grand jury recommended 22 changes for all charter cities, and Signal Hill adopted most of what the jury called “best practices.” According to Farfsing, the grand jury noted several positive aspects of the City’s finances: Signal Hill’s assets are stable; the Council and the city manager have well-defined responsibilities; and the City performs a “meaningful” yearly evaluation of the manager and department heads. Farfsing also emphasized that the jury recommended that all cities have at least two months of fund balance in a “rainy day” reserve. The City already has six months of reserve funds and even established the Economic Uncertainties Fund over 14 years ago, according to the city manager.
Farfsing’s report asked the Council for their thoughts on three recommendations from the grand jury: the City should prepare two-year budgets instead of a one-year budget; the City should form an audit committee; and the City should routinely change auditing contractors at the end of their contracts.
While several city councilmembers initially opposed a switch from a one-year budget to a two-year budget since the state’s actions seemed unpredictable, City Treasurer Emerson Fersch defended the idea of moving to a two-year budget.
“The thing I think that’s important …when you actually look at numbers and plan beyond a year, is that forces you to look at your revenue differently,” Fersch told the Council Tuesday. “Instead of worrying about what sales tax is going to be this year and the year after, you start to see the variables that are controllable.”
Fersch spoke of the possibility that the City could concentrate on identifying business sectors that perform consistently and determine if it would be possible to bring more of these businesses to the City. He counseled against worrying about what the State would do.
“Has the State’s actions ever been predictable?” Fersch asked. “I’m dead serious. It is the variable that cannot be controlled.”
Mayor Tina Hansen summarized several of the Council’s conclusions on the jury’s recommendations. Wilson said he favored changing to a two-year budget for the next two fiscal years. The other four councilmembers were in favor of re-opening the discussion of changing to a two-year budget later after the City hires a new finance director. The mayor said that the Council is generally in favor of forming an audit committee and will return with recommendations on how to structure it. The five-year contract with the auditing company is due to expire within a year or two, and Farfsing confirmed that the staff has already committed to put the new service contract through the request-for-proposal process. The Council will return to the discussion later with recommendations on the auditor service contracts.
Hansen asked that Farfsing publish a response to the grand jury’s report on the City’s website and provide a link to the original grand jury report.
The mayor emphasized her problem with the jury’s conclusions, especially since Signal Hill scored high on asset stability, established a strategic plan, and already had six months of reserve funds.
“So, in actuality, what they said they were looking for, we did well,” Hansen concluded. “But the problem is then they completely…skewed the financial picture of the City, and so that’s what on record.”
Councilmember Larry Forester agreed that the financial picture is skewed, emphasizing that the jury’s assessment of the Signal Hill asset-to-debt ratio is incorrect.
“To me, it’s a disservice to the public that that [report] got published,” Forester said.
Other City Council highlights
Water impact fees In a first-reading vote, the Council voted (5-0) to pass an ordinance that would change city codes that would add an exemption for installing submeters and fire sprinklers for residential developments when determining water service connection charges and monthly water service charges.
Concerts in the Park series The City and the Signal Hill Community Foundation recognized major sponsors of the 2012 Concerts in the Park series.