Sunday, August 19, 2012

(LA) Grand jury report shows Pomona's budget reserves well below prudent levels

Monica Rodriquez, Staff Writer, Inland Valley Daily Bulletin -

Pomona hammered out a balanced budget for this fiscal year, but it wasn't able to add to its reserve fund - which it's trying to build to a much more robust level.
The Los Angeles County Civil Grand Jury earlier this summer released a report in which it looked at the fiscal health, governance and management practices of 23 of the county's 25 charter cities - including Pomona.

The grand jury said cities, like others across the nation, are struggling in the economic downturn and have dipped into fund balances, the reserves cities keep for a rainy day, the report said.

Pomona has $1.9 million in reserves, barely one-seventh of what city policy says it should have.

The city has a long-term plan that calls for adding to its reserve fund each year but not this one.

"We have a balance budget but we were not able to put anything in reserves this year," said Paula Chamberlain, the city's finance director.

Pomona's policy on fund balances went into effect June 2011 and calls for gradually growing the city's reserves to a level where it consists of 17 percent of the general fund's operating expenditures over eight years.

The 17 percent level is considered the minimum level needed to address situations such as reductions or interruptions of a city's revenue stream, a natural disaster and financial hardships associated with an economic downturn, according to the policy.

However, had the city not suspended the policy this year and added to its reserves the city would have had to make more service cuts than it did have to make, Chamberlain said.

In order to add to the city's reserve fund "we have to wait `til we have more revenue," she said.

Funding came and went

At one point this year, administrators thought they would be able to bolster reserves to $4.4 million.

The fund would have increased with the help of the repayment of a loan the city made to its now-defunct redevelopment agency years ago, Chamberlain said.

Initially city administrators thought the loan would not be repaid as a result of the dismantling of redevelopment agencies earlier this year.

However, additional legislation involving the agencies made it possible for the loan to be repaid, she said. Before that can happen, a series of steps, including an audit of the former redevelopment agency must be completed and a series of approvals at the local and state level granted, Chamberlain said.

When that money will arrive is not known, and the city is not counting on it this year.

The grand jury's analysis used financial data for the 2009-2010 fiscal year and was sparked by members' concerns following reports of alleged corruption in the cities of Bell and Vernon, the report said.

Data for the analysis was collected through a questionnaire and financial documents cities provided.

Chamberlain said the city came out in good shape overall but had no opportunity to speak with someone about steps being taken to build up reserves, Chamberlain said.

"They didn't come out and sit with us or come and see that we're addressing the situation," she said.

Although the city's has been going through some challenges in recent years, bankruptcy is not in the picture, Chamberlain said.

"Bankruptcy has not been the point of conversation in Pomona," she said.

City leaders have taken steps to make sure "the city stays fiscally viable," Chamberlain said. "The council is taking the fiscal challenge seriously."

Once more robust

Councilwoman Cristina Carrizosa said there was a time when the city had a larger fund balance.

For a period in the 1990s, the city had at least $12 million in reserves, she said.

"At the time, I felt satisfied," Carrizosa said.

Looking back, what happened was that reserves were used over the years to balance the city's budget, she said.

As part of her work on the council's budget subcommittee, Carrizosa proposed establishing the policy to rebuild reserves.

"That is a strong concern to me and to other council members," she said.

Councilwoman Paula Lantz has also had concerns about the city's reserves and in the past brought them up to fellow council members "but they basically fell on deaf ears," she said.

Nobody wants to cut programs but if the city's expenditures are not in-line with income, costs have to be reduced, Lantz said.

"I think we are doing everything we can to keep with in our income," she said.

During recent years the city has laid off personnel, outsourced some services and worked with employee labor groups to secure concessions such as furloughs, Chamberlain said.

More recently, funding for the library was drastically reduced.

The departure of more than a dozen library employees due to the cut in funding will probably bring the number of employees who have left the city this year to close to 50, she said.

That's the result of the closure of the city's redevelopment agency, outsourcing of park maintenance services along with the end of a federal grant and a decrease in federal Community Development Block Grant funds. The last two resulted in the elimination of some positions, Lantz said.

Council members recently approved an amendment to the city's fire services contract with the Los Angeles County Fire Department calling for the closure of a fire station and the reconfiguration of personnel and equipment at the remaining seven stations.

Had the amendment not gone forward the city would not have been able to pay for those services down the road, she said.

"If we didn't (go forward with the amendment) we would be broke because we don't have enough money," Lantz said.

At the same time the chief of the Los Angeles County Fire Department is taking steps to complete an analysis to determine if it is possible for the city to become part of Los Angeles County's fire district and change the way the city pays for fire services.

The analysis could take five or six months but could help the city significantly, Lantz said.

In order to increase reserves, additional revenue must come in and Lantz' worries about future uncertainties such as decisions made by the state legislature that could result in cities losing additional revenue.

She is also concerned about properties being reassessed at lower levels without every asking for them to be reassessed and that would mean fewer property tax dollars for the city.

Lantz is hopeful real estate sales could be improving.

"I do hear rumblings of people having more success in selling properties," she said.

That's positive not only because it means property transfer tax revenue coming to the city but also because properties have began to sell for higher price values, she said.

November tax measures

Carrizosa said she hopes voters approve two general taxes in November.

The transient occupancy tax and the property transfer tax are two measures that will need a simple majority of voters who vote in the fall to be approved.

The transient occupancy tax is paid by hotel guests and is currently set at a 10 percent rate. If approved it will increase to 12 percent at all 20 of the hotels in the city.

Increasing the transient occupancy tax could generate about $288,000 a year for the city, according to a city staff report.

The property transfer tax rate is currently $1.10 per $500 of property value at the time of sale, according to a city staff report.

If voters approve the rate would increase to $2.20 per $500 of property value. It is a tax generally paid by sellers unless a buyer and seller negotiate who pays it.

The median price of a house in Pomona is $209,000, which means a seller currently pays a city property transfer tax of $460.

With the higher rate, the seller of a $209,000 house would pay $920 in transfer taxes.

The increase could generate about $1 million annually.

Carrizosa, like Lantz, also hope the public will support a library parcel tax that could raise about $1.5 million for library services.

To pass the measure would need a two-thirds majority of those who vote in November and would cost a single family parcel owner $38 a year.

Put together the measures will offer "a little bit of help," Carrizosa said.

In addition to the measures the city continues to attract retail stores - including Target.

"We are still working on Target," she said referring to efforts to bring a commercial center anchored by the store to southern Pomona.

If that project goes through "it will give us a little bit of breathing room," Carrizosa said.

At this point, like everybody else, city leaders are looking for a change in the economy but that could still take time - a year or more, she said.

Once the economy does improve the city will have to move with caution.

"We have to live within our means," Carrizosa said. "When things begin to improve lets not go crazy and begin to hire left and right."

Local government finances

Local government finance expert Michael Coleman said the economic crisis is much more severe and longer than cities thought it would be.

The loss of redevelopment, the downturn the cost of employee pensions, have all affected cities.

"All these things continue the fiscal crisis," he said, adding the "for many cities it's still going to be years before they see a turn around."

Many cities rely on sales tax and even more so on property tax. Some cities are starting to see improvements in those areas but it's going to take longer for cities in the Central Valley and the Inland Empire to feel an improvement, Coleman said.

The two regions have been particularly hard hit by the economic downturn.

All cities have problems, Coleman said, but pursuing bankruptcy is something that cities think long and hard before doing.

"Nobody wants to do it," Coleman said. "In the long run it's expensive. It's a stigma on the communities."

Whether more cities will file for bankruptcy depends on the individual cities' circumstance.

Although bankruptcy is not something most cities want to pursue Moody's Investor Service announced Friday it will begin a wide-ranging review of municipal finances in California.

The credit rating agency said is taking this step prompted by what is sees as growing threat of increased city bankruptcies and bond defaults.

Moody's issued a report that said the growing fiscal distress in many cities in the state is putting bondholders at risk.

Some municipalities were considering bankruptcy as a way to address budget deficits and avoid obligations to bondholders, an approach that affect the investment community.

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