Atwater surveys fiscal crisis

Ex-city manager noted looming troubles in 2010

mnorth@mercedsunstar.comSeptember 8, 2012 

— Faced with a financial emergency, city leaders are scrambling to make dramatic changes to address their budget crisis, but that task is proving to be difficult because they don't have a firm grasp on where the money went.

Council members have confirmed that staff failed to provide them with an complete accounting of the city's finances. Recently, the council hired a consulting firm to provide a financial assessment -- at a cost to the city of more than $20,000.

The city is projecting a $3.7 million negative general-fund balance for the 2012-13 fiscal year. The city's next scheduled meeting is set for 6 p.m. Monday in the City Council chamber at 750 Bellevue Road in Atwater.

Though Atwater's sudden financial emergency has come as a surprise to some of its leaders, the situation had been building for the past few years.

It also didn't come without warning.

In his last budget letter to the council, former City Manager Greg Wellman warned of looming difficulties with Atwater's finances.

"This budget is marred by a variety of factors including a dwindling tax base, increasing labor costs, and diminishing reserve levels," according to Wellman's letter, dated June 9, 2010.

The document hints at "difficult and potentially controversial" decisions with the city's enterprise funds, and "challenging issues and difficult choices" with the rest of the financial picture.

Dwindling reserves

With a falling reserve level, Wellman's letter indicated the potential need to reduce the staffing level to prevent depleting reserves.

At the end of fiscal year 2008-09, the city had a reserve of $4.37 million, or about 31 percent of operating expenditures. The council adopted a reserve level target of 25 percent, but for the end of fiscal year 2010-11, the city was projecting a reserve level of $2.92 million, or 21 percent of expenditures.

Now the city's reserves have been exhausted, City Attorney Jose Sanchez said in a closed-door meeting with Atwater employees Thursday.

"It seems as though starting July of fiscal year 2011-12, when we were supposed to have $2.9 million in reserves, we were actually in the hole," Sanchez said. "We had burned through the reserves and we were under. As you can imagine, that floored everybody."

Wellman said that during his tenure in Atwater, he worked collaboratively with the council to establish the target reserve of 25 percent.

"The budget letter dated June 9, 2010, I believe, sounded a clear warning that reserve levels were in jeopardy in the general fund and also adjustments to water, sanitation and wastewater would have to be considered over time," he said Thursday.

Funds struggling

In addition to deficits in the water and sanitation funds, the general fund has seen significant shortcomings in the past few years. Some of that struggle has come from unsustainable water and sanitation funds that have relied on the general fund for support.

Property taxes have fallen by more than $1 million since fiscal year 2008-09, according to budget records from the city. Charges for services as well as licensing and permits have fallen by more than half.

Additionally, the dissolution of redevelopment agencies across the state has created another ripple in the budget.

Councilman Craig Mooneyham said there are a few employees who were funded either fully or partially by the redevelopment fund.

Now, with a drained general fund, the city has to find a new way to support those employees. "That's what we're evaluating right now," Mooneyham said.

One of the few bright spots in the numbers comes from sales tax, which has risen to about $2.5 million in 2010-11 from $2.1 million in 2007-08.

However, the city can't be sure about its numbers from fiscal year 2010-11 as it hasn't gotten its audit back for that period.

Councilman Jeff Rivero said that not receiving the audit has created a layer of confusion about the city's financial standing. He noted that recent recommendations from management have come up short and worsened the situation.

City Manager Kathy Kivley is on administrative leave, and the reason behind her absence hasn't been made public.

Public unrest

Many residents have spoken out at council meetings about the city's deteriorating finances and have offered possible fixes, including cutting council pay and allowances.

Council members cost the city a total of about $39,000 a year in pay and allowances. The council has made it clear that everything, including its pay, is on the table as the city tries to fix its budget mess.

Residents have spoken out in favor of public safety, imploring the council not to cut police positions.

While public safety has remained a council priority, it has become costlier recently.

A couple of years ago, the city added two police officers, a move that was funded in part through the general fund and overtime savings. An overall look at the public safety financial situation shows that the 2012-13 budget could increase by about $900,000, largely because of Police Department costs.

Sorting it out

The council is expecting to get its completed financial assessment back from the consulting firm within 30 days. Preliminary numbers will likely come to the council within a week.

Mooneyham said those figures will be crucial for the city to understand where it is and what needs to be done with the budget.

"Given where we were a week ago, I'm cautiously optimistic about the financial situation with the city, but the audit will ultimately let us know the real story," he said.

So far, Mooneyham said, Frank Pietro, acting city manager and police chief, has done an excellent job of clarifying the predicament.

"Frank Pietro has made it his mission to pull the veil away from our financial situation and really get to the bottom of where things are," Mooneyham said.

Reporter Mike North can be reached at (209) 385-2453 or mnorth@mercedsunstar.com.

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