San Joaquin County Grand Jury • 2018-2019

San Joaquin County Grand Jury San Joaquin County Parks and Recreation: Budget Challenges and Matters of Trust

21 pages
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Findings and Recommendations 18 findings

F2
3 The Park Endowment Trust and the Micke Grove Trust represent an invaluable opportunity to provide an ongoing source of funding for new park initiatives and capital expenditures, if those trust funds are not depleted on an annual basis.
Related Recommendations (1)
R2
1 Starting with the 2020-2021 proposed budget, the Parks and Recreation Division discontinue the use of both the Micke Grove Trust and the Park Endowment Trust to fund operation and maintenance of the parks.
F3
1 The Grand Jury found it difficult to determine Wells Fargo’s effectiveness in managing the William G. Micke Estate Trust because the biennial reports filed with the court do not contain performance information.
Related Recommendations (1)
R3
1 By December 31, 2019, the Board of Supervisors require Wells Fargo to submit an annual performance report for the William G. Micke Estate Trust. This report shall include the total return compared to an industry standard benchmark with a similar risk profile. 4.0 Parks and Recreation Benchmarking Assessment Report In 2018, the General Services Department commissioned David Taussig and Associates to conduct the Parks and Recreation Benchmarking and Assessment Report (Taussig report). The purpose of the report was “to evaluate how San Joaquin County compares to other counties based on a wide range of quantitative and qualitative information regarding parks, recreation, facilities, employees and finances.” This report generated a number of Key Findings, Common Themes, and Recommendations. The issues most pertinent to this investigation are: • The Parks and Recreation Division does more with less, in comparison to the benchmarked counties • Existing funding sources are unable to keep up with rising costs of services and maintenance • A lack of long-term funding options for operations and maintenance • The Parks and Recreation Division’s general fund contribution per capita is the lowest among the benchmarked counties • Staffing cuts would be inappropriate, and in fact, additional staffing would allow the Division to clear any backlogged tasks and prioritize work with high visibility to the community Taussig identified three “benchmark” counties geographically close to San Joaquin County that have similar characteristics in terms of median household income, median property value, and land area. The three benchmark counties are Stanislaus, Placer, and Yolo. Table 2 below lists the per capita contributions from the General Fund of each county to their respective parks budget. This shows how much money each county contributes to the park budget per person living in the county. Table 2. Comparison of the Per Capita Contribution from the General Fund to the Parks Departments in the Benchmark Counties County San Joaquin Stanislaus Placer Yolo General Fund Contribution Per $3.19 $5.30 $5.02 $4.73 Capita San Joaquin County’s contribution is 33% lower than the next lowest county. The report further identified that “the Division has approximately 6.61 full-time employees per Regional Park, which is low relative to the benchmarks. Stanislaus and Placer County have, for comparison, approximately 8.40 and 11.00 full-time employees per regional park.”
F1.1
The Parks and Recreation Division budget has not kept pace with inflation, nor has it benefited from substantial growth in the overall County budget, thereby hindering the Division’s ability to maintain and improve the parks.
No recommendations for this finding
F1.2
The reduction in County contributions through Net County Costs has further exacerbated the Parks and Recreation budget challenges.
No recommendations for this finding
F1.3
The Board of Supervisors and the Parks and Recreation Division have continued to supplement the budget with monies from the Parks Trust Funds rather than making the difficult decisions required to balance the Parks and Recreation budget.
No recommendations for this finding
F1.4
The continued borrowing of money to balance the Parks and Recreation budget is an unsustainable practice that has decimated the Parks Trust Funds.
No recommendations for this finding
F1.5
Despite direction by the Board of Supervisors to create a program to reduce reliance on trust funds and provide a balanced budget by 2014-2015, the Parks and Recreation Division continues to rely on trust funds to balance its annual budget.
No recommendations for this finding
F1.6
Despite recognition by members of the Board of Supervisors that the trust funds should be paid back once the economy recovered, no effort has yet been made to repay the “borrowed” money.
No recommendations for this finding
F1.7
Although the Parks and Recreation Division recognized the chronic overestimation of revenues and reduced the revenue estimates in their 2018-2019 proposed budget by nearly $360,000, data from the prior two years indicate that the revenue estimates should have been reduced by an additional $100,000.
No recommendations for this finding
F2.1
Contrary to the original intent of the Park Endowment Trust, the Parks and Recreation Division has proposed, and the Board of Supervisors has approved, the use of principal for operations and maintenance in the park system each year since 2010-2011.
No recommendations for this finding
F2.2
Prior to its near depletion, the Park Endowment Trust was an invaluable resource, providing the Parks and Recreation Division an ongoing source of seed money for capital development projects and major equipment purchases. Micke Grove Trust The Micke Grove Trust was established on January 14, 1986 “for the deposit of the monies from the William G. Micke Estate Trust.” It was further ordered “that no money shall be expended for any reason whatsoever from the Micke Grove Trust Account without the prior authorization by the Board of Supervisors.” Figure 6 below shows the deposits, expenditures, transfers, and the year- end balance for the Micke Grove Trust between the 2009-2010 and 2017-2018 fiscal years. $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 Deposits Transfers to General Fund Year-End Balance Figure 6. Deposits, Transfers to General Fund, and Year-End Balance for the Micke Grove Trust Based on the financial information and legal briefs reviewed by the Grand Jury, the County provided all monies required for the maintenance and operation of Micke Grove Park prior to the 2009-2010 fiscal year. Evidence was found that there were periodic requests by the County for funds from the William G. Micke Estate Trust to pay for equipment and capital improvements. Internal Revenue Service regulation changes in 2008 began requiring the William G. Micke Estate Trust to annually distribute approximately 5% of the Fair Market Value to the County. Between 2009 and 2012, these required distributions from the William G. Micke Estate Trust were deposited into the Parks Donation Trust. Beginning in 2013, the required distributions were deposited into the Micke Grove Trust. During 2013-2014, the required distribution, along with the prior balance, was transferred from the Micke Grove Trust into the General Fund to supplement the Parks and Recreation budget for ongoing operations of Micke Grove. This practice continues. Between 2013- 2014 and 2017-2018, nearly $1,700,000 was transferred from the Micke Grove Trust into the General Fund to supplement the Parks and Recreation budget. The balance of the Micke Grove Trust at the end of fiscal year 2017-2018 was $1,000. Park Donation Trust The Park Donation Trust was established on March 11, 1980 to account for donations made for specific park improvements. Figure 7 below shows the deposits, withdrawals, and year-end balance for the Park Donation Trust. $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $- William G. Micke Estate Deposit Private Donations Total Withdrawals Year-End Balance Figure 6. Deposits, Withdrawals and Year-End Balance for the Park Donation Trust At the end of 2011-2012, the Park Donation Trust had a balance of nearly $1,400,000. During the past decade, almost $2,500,000 has been transferred out, leaving a balance of less than $7,000 at the end of 2017-2018. Finding
No recommendations for this finding
F2.3
The Park Endowment Trust and the Micke Grove Trust represent an invaluable opportunity to provide an ongoing source of funding for new park initiatives and capital expenditures, if those trust funds are not depleted on an annual basis.
No recommendations for this finding
F2.4
The Parks Special Projects Trust Fund is an excellent addition to the Parks Trust Funds that, with proper management, will provide a valuable source of funding and operational support for special projects for years to come. 3.0 Non-County Managed Trusts The William G. Micke Estate Trust (the “Trust”) is managed by the trust division of Wells Fargo Bank (the “Trustee”). As stated in the Petition for Instructions (San Joaquin County Superior Court Case #29176), the County of San Joaquin is the beneficiary and the Board of Supervisors is responsible for overseeing the management of the Trust. The Board of Supervisors must also ensure that the monies distributed from the Trust are used in a manner consistent with the requirements of the Trust. As Trustee, Wells Fargo is responsible for prudently investing the assets in the Trust. Per California Probate Code 16047(a), “A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.” Wells Fargo receives an annual management fee of approximately 1% for managing the Trust. At the end of 2016, the Trust consisted of a leased orchard and vineyard, securities, and cash. At that time, the value of the land was over 82% of the total value of the Trust, but the return on the land leases was only about 2% of the land’s value. Wells Fargo, with the approval of the San Joaquin County Superior Court and the San Joaquin County Board of Supervisors, sold the orchard in 2017 and the vineyard in 2018. The Trust is now entirely in securities and cash. Between 2009 and 2017, the William G. Micke Estate Trust distributed nearly $3,100,000 to the County. At the end of 2017, the balance of the Trust was almost $6,600,000. In order to receive their full management fee, Wells Fargo is required to file a biennial accounting report with the San Joaquin County Superior Court. These reports are legal filings and include a listing of each transaction made by Wells Fargo over the prior two years. However, the reports do not contain a clear and understandable summary of the total return on the investments in the Trust or a performance comparison to appropriate benchmarks. Finding
No recommendations for this finding
F3.1
The Grand Jury found it difficult to determine Wells Fargo’s effectiveness in managing the William G. Micke Estate Trust because the biennial reports filed with the court do not contain performance information.
No recommendations for this finding
F4.1
Despite a strong recommendation in the Taussig report that staffing cuts would be inappropriate, the Parks and Recreations Division has continued to eliminate positions.
No recommendations for this finding
F4.2
While “doing more with less” is admirable, it is apparent that the Parks and Recreation Division is at the point of “doing less with less,” especially considering the additional staffing cuts in 2018-2019 and the rising costs of services and maintenance.
No recommendations for this finding
F4.3
The very low per capita contribution from the County is a major factor in the Parks and Recreation Division’s inability to balance the budget.
No recommendations for this finding
F5.1
Departmental reorganizations and turnover have resulted in the loss of historical knowledge amongst the Parks and Recreation leadership and staff.
No recommendations for this finding

Conclusions 10