Bankruptcy: Report warned of San Bernardino fiscal foolishness

July 27, 2012

By Tori Richards

SAN BERNARDINO — Five years before San Bernardino became California’s third city seeking bankruptcy protection in 2012, a 266-page management analysis report warned of dire repercussions if changes weren’t made that would cut costs and shore up the general fund.

But a 2010 follow-up review to those recommendations found that the city had only implemented 34 percent of the needed changes and was still stuck in an antiquated, costly way of doing business.

Now transformations will likely be forced upon the city as it grapples with a way to make payroll in two weeks into a $45 million budget shortfall. For the past several years, the council has been presented with false budget numbers showing more money than was actually available, while bills were being paid with restricted reserve funds.

“I have some ideas how we got to this point,” Councilman Rikke Van Johnson said at a meeting last week. “We found ourselves in similar position in 1991 and in 2009 when we made some drastic decisions and cuts. In 2005, our tax plateaued, so we were in [a recession] sooner than rest of nation.” Officially, the Great Recession began nationally in December 2007.

Regardless, those 2009 cuts didn’t go far enough to stave off the doom that city officials were warned about in the report issued by Management Partners Inc., a government cost effectiveness consulting firm.

“As noted previously, the City of San Bernardino fiscal reports and experiences reported by departments indicate that the City already has seen serious shortfalls and will continue to be unable to fund or sustain programs,” the report said. “Following are items which should solicit concern for the future fiscal condition of the city. In particular, the City lacks designated reserves for several significant liabilities and currently is not keeping track of all reasonably foreseeable future liabilities.”

The report also stated: “San Bernardino has less than one month operations funds in reserve…this is considerably lower than most cities.”

Bankruptcy strikes

The San Bernardino City Council voted last week to declare a fiscal emergency and file for bankruptcy on the heels of Stockton, which filed last month. Stockton has a shortfall of $26 million with a population of 300,000, compared to San Bernardino’s 210,000 people.

San Bernardino has the dubious distinction of the being the poorest city for its population size in the state, second in the nation only to Detroit.

But despite this, it had some dubious operating procedures that didn’t lend themselves to a city that was counting its pennies rather than engaging in a spending spree, the report found.

“When the Management Partners report came back, the council had a subcommittee to deal with it,” said former Councilman Tobin Brinker. “I asked to be on the committee, but instead they chose three other people. They opted to take the low-hanging fruit first that really needed to go. After several discussions with the council, I pushed to be more surgical and make deeper cuts. That didn’t happen.”

Brinker was ousted this year in what he says was a campaign by public safety unions to get another candidate in office who wouldn’t push for pension reform.

Report not deep enough

Councilmember Wendy McCammack, who has been in office since 2000, said she questioned whether the city could afford the $250,000 expenditure for the report, then was dismayed at the product because it didn’t go deep enough.

“I voted yes on [commissioning] it because I felt like there were a lot of inefficiencies in city government,” she said. “But unfortunately the things I asked them to look at they didn’t. They did a cursory review instead of an audit that I was looking for.”

Then the follow-up report cost another $25,000, with an additional $50,000 for a special workshop presentation.

“What I was looking for was, as an example on the law enforcement side: Are there three secretaries to every supervisor? One supervisor for four people?” McCammack said. “I thought the Fire Department and Police Department could cut costs with obvious fixes.”

The report was quietly languishing on the city’s website until news of the looming bankruptcy brought waves of public speakers to council meetings, including teacher Roxanne Williams.

“Here is a 2007 report by Management Partners, who predicted the demise and bankruptcy,” Williams said to the council, waving a printout of the report to the packed audience and instructing them on how to locate their own copy.

“I want to ask the City Council, Why have these recommendations not been implemented?” Williams said. “It’s time for leadership, not finger pointing.”

‘Fragile’ finances

The report stated something leaders knew even back then: “In general, the City’s overall financial position in the general government can be characterized as fragile.”

And: “The financial functions of the City are significantly fragmented.”

One of the recommendations was to consolidate three finance director positions into one. That was not done and McCammack explains why. “One was with the city, another was with the Economic Development Agency and a third was with the Water District,” she said. “The Water District is a separate fiscal entity and we could not do that. Removing them all and leaving us with the current person at the city who created all these errors was not a good choice.”

Said said other fixes were not possible with a popular vote because the city, under California law, is a charter city.

Still, no one could discount the fact that the report noted a “structural imbalance” in nine of the past 10 years.

The Government Financial Officers Association “recommends that governments have a formal policy about the level of undesignated reserves or fund balance, and that at a minimum the balance should be between 5 and 15 percent of regular general fund operating revenues,” the report said. “Most bond rating agencies want to see at least 10 percent. Another commonly used standard is three months of operating expenses, which is a 25 percent reserve…. During the last fiscal year, the City ended with a reserve of slightly over $10 million, approximately 7 percent, but this does not include significant unfunded liabilities.”

Other issues

Other issues the report noted:

* A hiring process that is too cumbersome. Positions have to be justified to two different departments and with extensive paperwork by each. Vacancies are verified by both Human Resources and the city manager’s Office.

* The city holds municipal elections in off years from the state’s general primary, which is more expensive because the city must pick up the entire tab. The cost for a consolidated election is $72,000 per race vs. $243,000 for one standalone race.

* Janitorial services should be contracted out. The mean hourly wage for the private sector is $11.37 an hour vs. $20.11 for the public sector.  This would save $75,000 a year.

* A two-year budget should be implemented.

* Sworn officers spend an average of 40 to 50 percent of their time on taking reports on cold calls or responding to false alarms. A civilian force of retired officers could do this.

* Upper-level police management is conducting officer training, when the duties could be assigned to civilian officers.

* Animal control duties could be contracted to the county.

* The property transfer tax should be raised to be in line with other similar cities. San Bernardino receives a fraction of other cities — 55 cents per $1,000.

* City employees are lacking in training and automation is seriously outdated.

Former council member Brinker said that, ultimately, political infighting doomed the city and the expensive report they commissioned.

“It was very frustrating,” he said. “We were being presented with a stark future of the city’s financial future and in the springtime had a beautiful vision of the city of what we all wanted. We couldn’t come together. It was very, very clear. They laid it out for us: Bankruptcy is coming and you have to do something.”

30 comments

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  1. Ted Steele, Janitor
    Ted Steele, Janitor 27 July, 2012, 08:52

    Pensions only a small issue here……..no surprise….

    Reply this comment
  2. GoneWithTheWind
    GoneWithTheWind 27 July, 2012, 09:04

    I lived in San Bernardino and many of these points are valid but not the cause of their problems. There is a nice city park downtown and if you go there you will see bums, homeless people, people doing drugs, etc. in the middle of the day and into the night. But on the days that various forms of welfare are paid out the park is literally empty. San Bernardino has far too many unproductive people sucking off the public teat. The climate is ideal for laying about in the park smoking pot or crack all year and the political climate is great for those looking for free housing, welfare and free stuff. There aren’t enough productive tax paying people to support all the free stuff the state, county and city dole out.

    Reply this comment
  3. Ted Steele, Janitor
    Ted Steele, Janitor 27 July, 2012, 10:14

    Gone with the wind is sadly correct—welfare reform and closing the border would help—- San Berdoo is kind of a dump these days……

    Reply this comment
  4. Ulysses Uhaul
    Ulysses Uhaul 27 July, 2012, 10:40

    El Monte East!

    Reply this comment
  5. Rex the Wonder Dog!
    Rex the Wonder Dog! 27 July, 2012, 12:18

    El Monte is a beautiful city…..but face it, the TRUE problems of SB was the comping of GED eductated cops and firewhiners $250K with OT, in a city where the median income is 1/10th that……………………………..

    Reply this comment
  6. Ted Steele, Janitor
    Ted Steele, Janitor 27 July, 2012, 15:04

    LOL— Poodle thinks El Monte is nice !!!!!!!!!

    That says alot!

    0 for 9 ™

    Reply this comment
  7. Twelve Peers
    Twelve Peers 27 July, 2012, 15:53

    some outside government agency should investigate penman’s office pertaining to Matich corp. WHY did penman get irate at Maja for canceling a $2.5 million city contract with Matich Corp. Why does Matich corp have no problems getting change orders when smaller contractors are shut down and thrown off the job and their Bond is forfeited when they request for a change order. a smaller contactor is forced to take The City of San Bernardino to court to fight for their bond that is held by the city. By the City holding a bond from a small contractor it can put the small contractor out of business.

    Reply this comment
  8. Rex The Wonder Dog!
    Rex The Wonder Dog! 27 July, 2012, 16:19

    El Monte is a beautiful city-but Adelento is the BOMB!!!!

    1%%%%%%%%%%%%%5 BABY!

    Reply this comment
  9. Twelve Peers
    Twelve Peers 27 July, 2012, 16:23

    City of San Bernardino police department did a very poor job investigating Randy Keuttle and Matich corp. Months after Kuettle’s departure, according to Majaj’s memo to Penman, some public works employees made accusations about Kuettle to Majaj. They said Kuettle had removed an inspector who had questioned the legitimacy of the Matich Corp.’s work on a paving project and inspected the work himself, according to the memo.

    They claimed that Matich Corp. had provided Kuettle with fishing trips, a Hawaiian vacation, a leather jacket and a truck load of Christmas presents, as well as 200 rib eye steaks for the Public Works Department, the memo said.

    The Lentz report showed that the Police Department interviewed the public works employees and most allegations proved to be untrue.

    Lentz wrote that Patrick Matich was not interviewed by police. “It was believed it would have been a futile attempt,” Lentz wrote. “The SBPD investigators could not compel any such statement and Matich would more than likely not be willingly (sic) to admit he bribed a public official, if these allegations were true.”

    WHY is police department and The Elected City Attorney Penman so willing to broom this under the carpet WE, (The People of The City of San Bernardino) needs the FBI to run a a thero investigation. http://www.pe.com/local-news/san-bernardino-county/san-bernardino-county-headlines-index/20111028-san-bernardino-public-works-director-fears-city-attorney.ece

    Reply this comment
  10. Ted Steele, Janitor
    Ted Steele, Janitor 27 July, 2012, 17:00

    I figure the poodle for an Adelanto denizen.

    I wonder if he rents there? I know for sure that I have to pay HIM rent for living in his tiny head!

    Reply this comment
  11. Ted Steele, Janitor
    Ted Steele, Janitor 27 July, 2012, 17:00

    0 for 9 ™

    Reply this comment
  12. Ulysses Uhaul
    Ulysses Uhaul 27 July, 2012, 19:46

    Poodle on Section 8 HUD HOUSING SUBSIDY

    Reply this comment
  13. Rex The Wonder Dog!
    Rex The Wonder Dog! 28 July, 2012, 01:49

    I camp out in my 1969 VW van, classic ride 🙂 Adelento baby!!!!!!!!!!!!!

    1%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%

    Sec 8 housing takes YEARS to get into, even decades.

    Reply this comment
  14. Rex The Wonder Dog!
    Rex The Wonder Dog! 28 July, 2012, 06:40

    I am working on education in Adelanto, harter schools are the best

    http://www.latimes.com/news/local/la-me-0728-parent-trigger-20120728,0,4762284.story

    🙂

    Reply this comment
  15. Ulysses Uhaul
    Ulysses Uhaul 28 July, 2012, 07:30

    Admirable that Poodle is into self improvement….great therapy available in Adelanto.

    Reply this comment
  16. Ted Steele, Janitor
    Ted Steele, Janitor 28 July, 2012, 09:27

    I bet he keeps old tires on top of his single wide, over next to the swamp cooler.

    Ted Sock P.
    Everyone is me.

    Reply this comment
  17. Ulysses Uhaul
    Ulysses Uhaul 28 July, 2012, 10:05

    Has one distinct and sterotypical hang up:

    He can’t figure how to stop those Kmart ready made designer curtains from flappin in the wind.

    Reply this comment
  18. Ted Steele, Janitor
    Ted Steele, Janitor 28 July, 2012, 11:33

    Oh man you’re killing me!

    Reply this comment
  19. Rex The Wonder Dog!
    Rex The Wonder Dog! 28 July, 2012, 20:20

    I dont have a swamp cooler or doublewide, I live in my 1969 VW Van baby!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

    🙂

    PS Teddy, stop talkking to yourself!

    BTW-I am a Target Guy, not a Walmart guy, not Kmart guy.

    Reply this comment
  20. Rex The Wonder Dog!
    Rex The Wonder Dog! 28 July, 2012, 20:22

    BTW-I moved, I now reside in the beautiful hi desert community of Lancaster…..

    Reply this comment
  21. Ted Steele, Janitor
    Ted Steele, Janitor 28 July, 2012, 20:45

    Poodle—- Adelanto is as good as you may economically do!

    Sorry little buddy !

    Quick— post now slave !!!!!!!!!!!!!!

    Reply this comment
  22. Rex the Wonder Dog!
    Rex the Wonder Dog! 28 July, 2012, 21:47

    1%%%%%%%%%%%% BABY 🙂

    Reply this comment
  23. Ulysses Uhaul
    Ulysses Uhaul 28 July, 2012, 22:56

    No one admits
    Living in Lancaster…..he may have a summer rental in vanquished Quartz Hill.

    Reply this comment
  24. Ted Steele, Janitor
    Ted Steele, Janitor 29 July, 2012, 15:05

    Post faster little troll !!!

    lol

    Reply this comment
  25. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 July, 2012, 20:57

    1%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% baby 🙂

    Reply this comment
  26. Rex the Wonder Dog!
    Rex the Wonder Dog! 29 July, 2012, 20:58

    Lancaster is beautifullllllll!!!!!!!!!!!!!!!!!!

    Reply this comment
  27. Ted Steele, Janitor
    Ted Steele, Janitor 29 July, 2012, 21:19

    OMG U Haul— Lancaster !!! PERFECT !!!

    Reply this comment
  28. Rex The Wonder Dog!
    Rex The Wonder Dog! 29 July, 2012, 22:28

    Teddy, I can WAIT until CalTURDS has another 1% year in for 2012, then the wheels will not only have fallen off, but your going to be in full on meltdown mode.

    Hey, did you see this, new law around the corner baby!

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1933887##

    Reply this comment
  29. Rex The Wonder Dog!
    Rex The Wonder Dog! 29 July, 2012, 22:29

    Read and LEARN Teddy!

    Statutes as Contracts? The “California Rule” and Its Impact on Public …

    http://www.uiowa.edu/~ilr/issues/ILR_97-4_Monahan.pdf

    Reply this comment

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