By: Richard Montenegro Brown | Original Article at pe.com
Beaumont’s attempt to “stop the bleeding” of nearly a decade of deficit spending will mean $4 million in cuts to the budget, $1.5 million of which will come from eliminating 24 positions, city officials say.
During the first look at Beaumont’s proposed 2015-16 budget, the City Council learned Wednesday, Aug. 26, the stark reality of its finances when acting City Manager Elizabeth Gibbs-Urtiaga recounted past practices that have seen Beaumont “living beyond its means” since at least 2007. She also delivered a plan to emerge from the financial darkness.
Beaumont, according to audits, has been hiding its negative spending by balancing its budget with dollars intended for other specific purposes.
Beaumont officials this year began to get a true picture of their finances, after a raid on City Hall by county and federal officials and an investigation by the state Controller’s Office prompted a closer examination into Beaumont’s books at the Council’s request.
To achieve the cuts, Gibbs-Urtiaga and interim Finance Director Onyx Jones said, 24 full-time equivalent positions – a combination of full- and part-time workers in some cases – will need to be eliminated.
The positions include five police officers, whose jobs are now vacant due to attrition, and the other public safety staff like dispatchers. The 24 positions will save $1.5 million, with $2.5 million in cuts still to be negotiated with employee unions.
Independent auditors MGO Public Accountants, hired by the city, has found a lack of oversight and poor leadership from City Manager Alan Kapanicas resulted in a loose system of financial practices and internal controls that allowed the financial problems to flourish.
Kapanicas was placed on paid administrative leave in June. Investigations by the Riverside County District Attorney’s Office and the state continue.
Prosecutors are investigating Beaumont’s longtime relationships with a contractor – Urban Logic Inc. – that helped Kapanicas run the city, its finance department and oversaw the special district taxes that made up the restricted funds used to balance the budget.
Neither Kapanicas nor his attorney have returned recent calls seeking comment.
LONG TIME COMING
Beaumont has been without working capital since 2007, Gibbs-Urtiaga said in her report to the council, when $2.4 million was borrowed from other accounts to cover a $3.7 million hole “in order to avoid reporting a negative general fund position.”
Two years later, she wrote, the auditors discovered $9.2 million in restricted funds meant for work in tax districts around the city was moved into the general fund, which covers basic services like police and fire protection, water, trash collection and funds personnel costs.
By the end of 2013-14, city officials moved more than $10 million from the restricted accounts to the general fund, Gibbs-Urtiaga wrote.
The city still owes at least $10 million to those restricted accounts unless it can reconcile that some uses were justified expenses in the taxed areas, Gibbs-Urtiaga said.
The auditors concluded that city officials didn’t see the problems because of untimely financial reporting, financial audits that weren’t widely shared with elected officials and department heads that lacked access to the budget.
STATE OF THE CITY
Comparing Beaumont’s finances against last year or previous years is difficult, Jones said. The books still aren’t closed on the fiscal year that ended June 30, and past budgets were constructed differently than this year’s, she said.
Gibbs-Urtiaga said past budgets had expenditures beyond the basic city services. For example, the community services department budget for the Independence Day celebration and free summer concert series had the events’ $350,000 cost built into the budget.
On Wednesday, the council received a basic budget with each department seeking only what it needed to deliver necessary services. Then, Gibbs-Urtiaga said, to live within the revenues anticipated for this year, the $4 million in cuts were made.
The Police Department, which receives 40 percent of the general fund, would see some of the more drastic cuts.
Five vacant police officer posts would not be filled, and six officers already are out on work-related injuries. Dispatcher positions are being eliminated and some management positions are proposed to be cut. A request for new squad cars has been removed.
The city has added some positions, however. Among them are more finance department employees.
“The condition of our books is detrimental in determining the extent of our insolvency and, more importantly, what we must do about it,” Gibbs-Urtiaga said.
Gibbs-Urtiaga also set aside $441,460 for the council’s spending on nonessential items.
“They can do nothing with that and it can go to building our reserves, or it can go to priority programs they deem appropriate,” she said. “It’s entirely up to them.”
The money could restore the concert series, if the council so chooses.
Former City Councilwoman Nancy Gall, who served when the financial problems started, took responsibility.
“I was told we had a financial genius as a city manager,” she said of Kapanicas. “I was told I should be quiet, that I should leave it up to this financial genius.”
Gall said she was impressed with Beaumont’s new budget process, but it will take time to right the ship.
“You’re going to have to build a whole new city,” she said. “There is just no other way.”
MOVING FORWARD
Gibbs-Urtiaga and consultant Urban Futures Inc. on Wednesday focused on fixes that will “stop the bleeding,” she said.
The company’s principal, Michael Busch, said Beaumont has to be vigilant in living through lean times, building cash reserves and capital budgets for needed projects.
Gibbs-Urtiaga said that starts with minding the store.
“We have a plan to get our fiscal house in order,” she said. “The information may seem harsh, but we have our facts and are on the path to getting healthy again.”
Beaumont will begin quarterly and annual budget updates at council meeting and listen to the public’s input. Those reports will come from the elected city treasurer.
Gibbs-Urtiaga’s plan will return to the council in fall. It aims, she wrote, to overcome a $10 million negative cash balance and create a general fund reserve of $4 million.
As a part of a budget resolution that needs to be passed by a September deadline set by the state, Gibbs-Urtiaga is asking the council to adopt financial practices and policies that “hold the city manager accountable.”
“The policies give you the ability, as a colleague of mine said, to chop the head off,” she told the council.
The policies include timely financial forecasts and reports, staying within budget and “legal and ethical” use of public money.
City Councilman Lloyd White, who before his 2014 election had questioned financial practices, addressed city critics Judy Bingham and Libi Uremovic, who have repeatedly called for firing Kapanicas and suing Urban Logic .
“We wouldn’t be here if it wasn’t for a lot of what you have done,” said White, who said the city lacks the money to sue.
Now is the time to move forward as a unified council with community support, White said, directing his comments to a pair of the city’s fiercest critics.