By: David Danelski / Staff Writer | Original Article at pe.com
Beaumont, the small Riverside County city now the subject of criminal and state auditor investigations, is also facing a financial crisis.
Financial consultants retained by the city now say years of deficit spending and bad management have left Beaumont in serious financial trouble, threatening even basic city operations.
“Questions are raised as to whether you are solvent and can continue to provide city services,” said Michael Busch, the CEO of the Orange-based Urban Futures Inc., which serves as an adviser to San Bernardino in that city’s bankruptcy crisis.
Another consultant, Bob Deis of the Public Management Group, was even more direct a during a City Council budget workshop.
“This is just like a flood,” he said. “This is a fiscal emergency.”
Busch and Deis delivered the news Monday, June 15, after they were brought in by the acting city manager to review Beaumont’s finances.
At a time when most other cities have drafted or approved city budgets for the new fiscal year, which starts July 1, Beaumont has no such document.
Leaders instead voted to extend the existing budget for two months and hired Busch and Deis to evaluate city finances and prepare a balanced budget they expect to review in August.
Reading from a statement the day after the workshop, Mayor Brenda Knight said the consulting team “will conduct a full independent evaluation of the city’s financial practices and provide an unbiased report on the condition of the city including its fiscal solvency.”
Her statement added that the city’s goal is “to develop a budget that is legal, ethical and defensible, but will also provide Beaumont with a plan for fiscal sustainability into the future.”
Councilman Lloyd White said it is too early to discuss cuts or other budgetary moves until more is learned about the situation.
If a city is found to be insolvent, it can then file for Chapter 9 bankruptcy under federal law. San Bernardino, for example, was found be insolvent in 2012, which allowed it to file for bankruptcy protections from its creditors the next year.
Beaumont’s fiscal news comes less than two months after FBI and District Attorney investigators raided Beaumont City Hall and the home of City Manager Alan Kapanicas. They also searched the offices of Urban Logic Consultants, which for years provided several city workers — including the public works and economic development directors — as contract employees.
Since the raid, state Controller Betty Yee announced Beaumont’s books would be investigated over multimillion-dollar discrepancies between city budget reports and auditor findings.
Beaumont is also appealing a year-old court ruling that calls for the city to pay $43 million in judgments, interest, fees and penalties to a regional transportation agency for what a judge found to be a failure by the city to deliver developers fees for regional road projects. That cost is estimated to be more than $57 million now — and increasing.
The turmoil since April has included the abrupt exodus of several of the city’s top managers, leaving underlings to run the day-to-day operations.
Kapanicas is on administrative leave, and those who served as the city attorney, finance director and financial consultant all no longer work for the city.
This left the city in need of expert help immediately to deal with the 2015-16 budget and other time-sensitive financial matters, White said.
Deis said the consulting team will examine the city’s management practices and look for ways to change it so the budget can be balanced and thus sustainable.
“Finances are a symptom of bad management,” he said.
Like Busch, Deis has navigated past fiscal crises in local government.
He became city manager of Stockton in 2010 in the midst of its financial crisis, and retired in 2013 after submitting a bankruptcy exit plan for that city, according to the website CaliforniaCityNews.org
DECIFIT SPENDING
One of Beaumont’s major problems is deficit spending, the consultants said. For years, the city’s general fund for basic operations borrowed money set aside for capital projects and equipment, they said.
A financial analysis done for the city this spring by a Walnut Creek firm, MGO Certified Public Accounts, found the same problem.
Since 2009, city officials have advanced money to its general fund from a community facilities capital projects fund to make up for revenue shortfalls.
By June of last year, the capital fund was owed more than $10 million, and it must be paid back, the report said.
During fiscal 2013-14, for example, the general fund showed $27.2 million in revenue, but $30.6 million in expenditures, according to city’s most recent financial statement.
The city had hoped to pay the general fund’s debt by collecting loans it had made to its now-defunct redevelopment agency.
But the accounting firm’s analysis said collecting debt from its former development agency is “highly uncertain.”
Deis, in his presentation to the City Council, urged the city to be transparent and to admit to any mistakes that have been made.
“The truth,” he said, “will set you free.”