City Council Report | Finance Clarity Still a Serious Concern

 

During the course of what was easily its longest public meeting this year, the South Pasadena City Council on Wednesday acted to allow its Finance Commission to take another look at the city’s proposed 2020-2021 budget and make any recommendation on how to respond to concerns citizens have raised.

“There is tremendous discontent in the community about the way the budget is being handled,” said Councilmember Richard Schneider. Audits have been delayed since 2018 so the city has been using estimated starting figures for the past three years. Hundreds of South Pasadenans signed citizen William Kelly’s petition to adopt a “resolution of continuing appropriations” until the delinquent 2018-19 audit is completed.  Schneider moved to do so and received a second from Councilmember Michael Cacciotti.

Councilmember Marina Khubesrian said she was concerned how the resolution would affect the city’s efforts to make cuts in response to projected revenue declines and said any changes could be handled with quarterly budget amendments. Councilmember Diana Mahmud said the decision could be made at the next City Council meeting after the recently scheduled special meeting of the Finance Commission has had a chance to review the budget and its recently unannounced updates. She was also concerned how a continuing appropriation might affect ongoing negotiations with the city’s unions. The City Attorney opined the Council could not adopt Schneider’s motion because it was the kind of issue that requires public notice.

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The Council ultimately elected to seek and await recommendations about how to proceed from the Finance Commission and city staff. Staff will make its recommendation at a June 18 special meeting of the Commission, which will in turn formulate a recommendation to the City Council.

The action came during a meeting in which the Council also foreswore any interest in a very unpopular suggestion the city floated to restructure its community services department, and pulled back from a controversial plan to add additional issues to a public opinion poll such as a hotel tax, for example ‘AirBnB‘ type property use, as well as  increasing the building height limit.

During two other key moments, the city provided its first public statement reacting to the  scathing assessment issued by former South Pasadena Finance Director Josh Betta questioning the accuracy of the city budget set to be adopted June 24 and the financial processes and disclosures that preceded it, as well as to unexplained changes in the public version of the draft budget approved by the Finance Commission May 26 and the one attached to the agenda item for the City Council’s initial review several days later.

On the latter question, Finance Director Karen Aceves said staff introduced “an additional document” with the aim of “reflecting the most accurate data as possible” along with updated information on the impacts of the constantly changing provisions of the County’s Safer at Home order. “I apologize if this created any confusion regarding the city’s fund and we will ensure that changes are properly identified in the future.” She also noted that “historically, the budget has either gone to the Finance Commission after Council presentation or not at all.”

The response to Betta came from City Manager Stephanie DeWolfe, who began by saying the community “has every right to expect full disclosure and transparency regarding our financial operations, our reserves and other aspects of city management,” She said she welcomes “any opportunity to discuss our finances in greater detail.”

DeWolfe, who made her first presentation to the City Council as City Manager on Nov. 15, 2017, said that “in late 2017, we discovered a pattern of inappropriate accounting practices and internal control deficiencies dating back several years and spanning several previous finance directors. Among other things, these actions inflated the size of the unrestricted general fund.” She said Council was informed of and took action to address the problem, while staff continued an investigation to determine the full extent of the problem.

Upon further investigation, “we found that the amount of the funds in various categories were over and understated, resulting in an unrestricted general fund balance that appeared larger than it really is.” But the investigation concluded that no funds were missing. She then summarized the steps taken in response to the findings but said the effort to recover has been “and continues to be time consuming and labor intensive,” undertaken by a “small team of employees” even as they attempt to administer the Finance Department’s ongoing daily duties. “As a result, these cleanup efforts will require additional time to complete.”

DeWolfe said the updated budget, along with a “discussion of the enhanced fiscal controls now in place” will be presented to the Finance Commission June 18 at 10 am, in time for the Council to vote on whether to adopt the budget at its June 24 meeting. She warned the economic environment remains “very fluid” and therefore anticipates providing quarterly or even more frequent budget updates to City Council going forward.

“That said, I want to be clear we are confident that the accounting and allocation of the general fund money, including the general fund reserve, is more accurate today than it was in 2017 or in the 2017-18 Comprehensive Annual Financial Report, and I look forward to ongoing discussion of this issue in the future.”