San Bernardino County 2009-2010 - California Grand Jury Reports

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The consolidated year-end volume. The individual investigations it contains are listed separately below.

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Individual reports (8)

July 01, 2010 — Ad Hoc Committees

33 pages 8 findings 22 recommendations

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Findings & Recommendations 8 findings

F1: The Cemetery management claims they have never been informed of the requirements regarding submitting monthly financials and annual budgets.

Related Recommendations (4)

R1: General Fund Financial Condition...........................................................................3

R10-32: LAFCO, Special Districts and the ACR’s office need to set up a meeting with the Cemetery Supervisor and the Board of Directors and provide them with understandable guidelines and rules they are to follow. (Finding 1)

R10-34: The Barstow Cemetery needs to contact LAFCO, the ACR and Special Districts and ask for help. (Findings 1, 2, 3)

R10-35: The Barstow Cemetery needs to arrange for someone to become their bookkeeper and keep monthly financial statements and do an annual budget. (Findings 1, 2, 3)

F2: The Cemetery does submit annual Audits, but their Audits are generally received 2 years after the period of time for which they are done.

Related Recommendations (3)

R2: APUA Asset Purchase Payments.............................................................................9

R10-36: The Barstow Cemetery needs to consider finding a new auditing firm. There is no reason it should take two-plus years to do an audit on this small of an operation. (Finding 2)

R10-37: The Barstow Cemetery needs to start budgeting so they can operate the cemetery without losing money. (Findings 2, 3, 4)

F3: Since the ACR pays all of their bills, the Cemetery is of the opinion that the ACR maintains their books. The ACR sends them a monthly report (approximately 54 pages) titled “Report Distribution System” and referred to by the County as a FAS report. The Barstow Cemetery people are of the opinion that this is a financial statement. 53 2009-2010 San Bernardino County Grand Jury Final Report

Related Recommendations (1)

R3: Redevelopment Debt Obligations..........................................................................12

F4: The Barstow Cemetery Superintendent states that they know nothing about transfers from their Endowment Funds. They claim the ACR does that.

Related Recommendations (1)

R4: Sale of Assets To Resolve Financial Difficulties..................................................14

F5: Regarding the high cost for employee benefits, there are actually five employees, not two as LAFCO indicated. Also, because of their low salaries, the Cemetery Board authorized a good health insurance plan for the employees. And with only five employees, the cost for benefits is very high, both for health insurance and worker’s compensation. They are not covered in the County system where they could receive much lower premiums if they were allowed to participate.

Related Recommendations (2)

R5: Summary of Conclusions and Recommendations.................................................16 RESPONSE FROM THE ADELANTO CITY MANAGER................................18 April 8, 2010 Kent Fogleman, Foreman Members of the 2009-10 North Arrowhead Avenue, Room 200 San Bernardino, CA 92415-0243 Dear Mr. Fogleman and members of the 2009-10 San Bernardino County Grand Jury: Harvey M. Rose Associates, LLC is pleased to submit this report on the Financial and Budget Analysis of the City of Adelanto. This report was prepared in accordance with the scope of work described in our contract with the Grand Jury dated January 8, 2010. The intent of the analysis was to examine the City of Adelanto’s overall financial condition and ascertain whether the City has sufficient resources to fund the cost of its operations and service the debt incurred by the City and its Redevelopment Agency (RDA). The report concludes that the City is facing significant financial challenges that have been exacerbated by the current recession and rising costs of public safety services provided by the County of San Bernardino. At the end of FY 2009-10, the City will have a General Fund budget deficit of approximately $4.2 million on base expenditures of approximately $13.7 million, representing approximately 30 percent of its annual costs. During the recession, the City has relied upon accelerated payments of debt owed by the Adelanto Public Utility Agency (APUA) to the General Fund to close this deficit. However, this source of funding will decline by $3.2 million beginning in FY 2010-11, due to decisions surrounding a recent APUA bond issue. The City now intends to supplement its operating budget with the proceeds from the sale of the Adelanto Community Corrections Facility in June 2010. However, this one-time source of funds will be depleted within six years. Similarly, the Adelanto Redevelopment Agency (RDA) is unable to service its debt with the amount of property tax increment that it receives. As a result, it has been borrowing funds from the County of San Bernardino under the terms of a 1996 settlement agreement to meet its debt obligations. Since FY 2006-07, the amount of this debt has grown by $4.9 million, or 39.8 percent, increasing the City’s total debt by approximately 5.0 percent. Unless the City is able to negotiate revisions to the settlement agreement, this debt will continue to grow into the foreseeable future. Kent Fogleman, Foreman Members of the 2009-10 San Bernardino County Grand Jury April 8, 2010 The sale of the Adelanto Community Correctional Facility and other short-term solutions to the City’s financial difficulties will provide only temporary deficit relief. Accordingly, the City is pursuing a number of long-term strategies to strengthen its tax base and draw development to the community. However, to accomplish these long-term strategies, City officials will need to clearly communicate the severity of its financial difficulties to its citizens and investors, while simultaneously increasing public confidence in the reasonableness of solutions that it pursues. The report includes several recommendations that, if implemented, would aid the City in these efforts. A response to these recommendations from the City Manager has been attached for the Grand Jury’s consideration. Thank you for this opportunity to serve the 2009-10 San Bernardino County Grand Jury. Please don’t hesitate to call with any questions that the members may have. Sincerely, Stephen Foti Principal/Partner Introduction The 2009-10 San Bernardino County Grand Jury requested that Harvey M. Rose Associates, LLC conduct a financial and budget analysis of the City of Adelanto to evaluate the financial condition of the City and to ascertain whether the City will have sufficient resources to fund its operations and service debt obligations incurred by the City and its Redevelopment Agency (RDA) in the foreseeable future. The Grand Jury’s concerns were influenced by the conclusions reached in a 2009 San Bernardino County Local Agency Formation Commission (LAFCO) Community Service Review of the City of Adelanto. That review concluded: • As of September 3, 2009, the City had not yet produced audited financial statements for fiscal years 2005-06, 2006-07, 2007-08 or 2008-09. • As of June 30, 2005, the City had substantial long-term debt obligations related to its capital projects, redevelopment and enterprise fund activities. In addition, the General Fund had advanced approximately $2.1 million to the RDA that was not expected to be repaid within one-year. • As of June 30, 2005, fund balance deficits existed in the General Fund, Sanitation Special Revenue Fund, Maverick Stadium Special Revenue Fund and RDA Project Area 3 Capital Projects Fund. Although the City stated that these deficits would be eliminated with future revenue growth, it is likely that recovery has been impacted by the economic downturn. • Approximately two-thirds of the City’s territory lies within redevelopment areas. As a result, the City does not have access to property tax revenues that otherwise could have been used for general operations, had development occurred outside of the redevelopment areas. • Due to the lack of audited financial statements and uncertainty regarding the validity of fund balance estimates included in the adopted budgets, the overall financial condition of the City could not be determined. • A dramatic decline in assessed valuation, evidenced by County Assessor records and supported by high foreclosure rates and a drop in construction activity, indicate that the City may have significant difficulty funding service levels and servicing its debt in future years. In summary, LAFCO concluded that: “the City has and continues to experience financial challenges. This is evidenced by the challenges in reducing debt, the deferral of payments of certain debt, excess of expenditures over appropriations in more than one fund, which includes the General Fund, and the lack of funding to adequately provide non-enterprise services. In addition, the use of reserves generated during the building boom of the past couple of years to balance the current budget, in staff view, signals a continuing financial challenge for the City of Adelanto. LAFCO staff expresses concern that with the downturn in the economy, the reduction in assessed valuation due to the high foreclosure rate in Adelanto, and the sharp decline in construction activity, the use of reserves may not be able to close future budget gaps due to their depletion in prior years.” Harvey M. Rose Associates, LLC 1 Introduction Our review generally supports the conclusions reached by LAFCO in its 2009 review. Most of the conditions cited in LAFCO’s Community Service Review continue to exist and an evaluation of budget and financial records, as well as information received from City officials during interviews, suggest that the City will be depending on various strategies that include the sale of its most valuable assets, negotiations with the County of San Bernardino for debt relief and service reductions to the community. Although many of the solutions being sought by the City are likely to provide temporary financial stability, the continuing recession, an imbalance between available revenues and the cost of services that results in a severe structural deficit, as well as other economic factors impacting the future of the community, make the long term financial viability of the City uncertain. The remainder of this report discusses these areas of concern in more detail and provides the basis for our conclusions regarding the City’s overall financial condition and viability. Acknowledgements We would like to thank the Adelanto City Manager and Finance Director for their cooperation and assistance throughout this review. It is clear that they are facing difficult challenges as they move forward and have creatively pursued solutions that they believe will provide additional time to resolve the problems that lie at the core of their financial difficulties. Harvey M. Rose Associates, LLC 2

R10-39: The Barstow Cemetery needs to contact the California Association of Special Districts and consider joining so they can obtain health insurance and workers compensation at a considerable savings. (Finding 5)

F6: The high cost of water is due to the fact that they had three wells but they have all gone dry. When they looked into re-digging a well, they were told there was no water under their property and they had no choice but to use retail water.

Related Recommendations (1)

R10-38: The Barstow Cemetery needs to again look into the possibility of drilling its own well for water. (Finding 6)

F7: With agreement of the Barstow Cemetery District and the County, the County Special Districts Department could transfer the Cemetery to a County Controlled Special District.

Related Recommendations (1)

R10-33: Special Districts needs to look into taking over the Cemetery and determining what changes would have to be made in order for the Cemetery to afford this change over. (Finding 7) 54 2009-2010 San Bernardino County Grand Jury Final Report

F2010: This is contingent on the schedule of the independent auditor that the City contracts with. 10-42 Request that the City Manager develop and present a comprehensive financial projection and plan for resolving the City’s structural deficit in the next five years, by using the audited numbers and expenditure trends shown in the ending budget of June 30, 2010 as the base. This should be 57 2009-2010 San Bernardino County Grand Jury Final Report completed and committed to by the staff and Council by the end of the year. 10-43 Immediately start discussions with the San Bernardino County Sheriff’s Department and the San Bernardino County Fire Department in a concerted effort to reduce the cost of services provided to the City by both departments. This may involve the very difficult task of reducing selective services provided by the departments for a period of time until the financial situation begins to improve. This could include but is certainly not limited to the reduction in the hours that patrol deputies are on duty or the hours that fire stations are manned. There are other services that both departments provide that could be limited depending on the work load or specific requirements of the City. 10-44 It is strongly recommended that a series of public workshops be held to discuss the financial condition of the City and to explore all possible solutions to the deficit that faces the City. We understand that the problems are many, very complex, and some very hard decisions will have to be made. The more input and assistance that can be obtained from the citizens would be of tremendous help to the Council and Staff. One possibility would be requesting the citizens to approve a fire district to assist in funding this function. Although we understand this is a very unlikely possibility due to the present economic situation and the recent failure to obtain the necessary support in local adjacent communities. This is another reason that we recommend the Adelanto taxpayers be made aware of the problems that are facing the city and the possible alternatives if the situation is not dealt with in a timely fashion. 10-45 It is recommended that the City negotiate with the County to modify the terms of the Redevelopment Agency (RDA) settlement agreement to 58 2009-2010 San Bernardino County Grand Jury Final Report permit a long term debt relief, which could possibly include the exchange of property which is owned by the RDA. RESPONDING AGENCY RECOMMENDATIONS DATE_____ City of Adelanto 10-40 through 10-45 09-30-2010 59 Attachment 1 Financial and Budget Analysis of the City of Adelanto Submitted to the 2009-10 San Bernardino County Grand Jury by Harvey M. Rose Associates, LLC 1390 Market Street, Suite 1025 San Francisco, CA 94102 (415) 552-9292 (P) (415) 252-0461 (F) http://www.harveyrose.com April 8, 2010 Table of Contents Introduction..............................................................................................................1 1. General Fund Financial Condition...........................................................................3 2. APUA Asset Purchase Payments.............................................................................9 3. Redevelopment Debt Obligations..........................................................................12 4. Sale of Assets To Resolve Financial Difficulties..................................................14 5. Summary of Conclusions and Recommendations.................................................16 RESPONSE FROM THE ADELANTO CITY MANAGER................................18 April 8, 2010 Kent Fogleman, Foreman Members of the 2009-10 North Arrowhead Avenue, Room 200 San Bernardino, CA 92415-0243 Dear Mr. Fogleman and members of the 2009-10 San Bernardino County Grand Jury: Harvey M. Rose Associates, LLC is pleased to submit this report on the Financial and Budget Analysis of the City of Adelanto. This report was prepared in accordance with the scope of work described in our contract with the Grand Jury dated January 8, 2010. The intent of the analysis was to examine the City of Adelanto’s overall financial condition and ascertain whether the City has sufficient resources to fund the cost of its operations and service the debt incurred by the City and its Redevelopment Agency (RDA). The report concludes that the City is facing significant financial challenges that have been exacerbated by the current recession and rising costs of public safety services provided by the County of San Bernardino. At the end of FY 2009-10, the City will have a General Fund budget deficit of approximately $4.2 million on base expenditures of approximately $13.7 million, representing approximately 30 percent of its annual costs. During the recession, the City has relied upon accelerated payments of debt owed by the Adelanto Public Utility Agency (APUA) to the General Fund to close this deficit. However, this source of funding will decline by $3.2 million beginning in FY 2010-11, due to decisions surrounding a recent APUA bond issue. The City now intends to supplement its operating budget with the proceeds from the sale of the Adelanto Community Corrections Facility in June 2010. However, this one-time source of funds will be depleted within six years. Similarly, the Adelanto Redevelopment Agency (RDA) is unable to service its debt with the amount of property tax increment that it receives. As a result, it has been borrowing funds from the County of San Bernardino under the terms of a 1996 settlement agreement to meet its debt obligations. Since FY 2006-07, the amount of this debt has grown by $4.9 million, or 39.8 percent, increasing the City’s total debt by approximately 5.0 percent. Unless the City is able to negotiate revisions to the settlement agreement, this debt will continue to grow into the foreseeable future. Kent Fogleman, Foreman Members of the 2009-10 San Bernardino County Grand Jury April 8, 2010 The sale of the Adelanto Community Correctional Facility and other short-term solutions to the City’s financial difficulties will provide only temporary deficit relief. Accordingly, the City is pursuing a number of long-term strategies to strengthen its tax base and draw development to the community. However, to accomplish these long-term strategies, City officials will need to clearly communicate the severity of its financial difficulties to its citizens and investors, while simultaneously increasing public confidence in the reasonableness of solutions that it pursues. The report includes several recommendations that, if implemented, would aid the City in these efforts. A response to these recommendations from the City Manager has been attached for the Grand Jury’s consideration. Thank you for this opportunity to serve the 2009-10 San Bernardino County Grand Jury. Please don’t hesitate to call with any questions that the members may have. Sincerely, Stephen Foti Principal/Partner Introduction The 2009-10 San Bernardino County Grand Jury requested that Harvey M. Rose Associates, LLC conduct a financial and budget analysis of the City of Adelanto to evaluate the financial condition of the City and to ascertain whether the City will have sufficient resources to fund its operations and service debt obligations incurred by the City and its Redevelopment Agency (RDA) in the foreseeable future. The Grand Jury’s concerns were influenced by the conclusions reached in a 2009 San Bernardino County Local Agency Formation Commission (LAFCO) Community Service Review of the City of Adelanto. That review concluded: • As of September 3, 2009, the City had not yet produced audited financial statements for fiscal years 2005-06, 2006-07, 2007-08 or 2008-09. • As of June 30, 2005, the City had substantial long-term debt obligations related to its capital projects, redevelopment and enterprise fund activities. In addition, the General Fund had advanced approximately $2.1 million to the RDA that was not expected to be repaid within one-year. • As of June 30, 2005, fund balance deficits existed in the General Fund, Sanitation Special Revenue Fund, Maverick Stadium Special Revenue Fund and RDA Project Area 3 Capital Projects Fund. Although the City stated that these deficits would be eliminated with future revenue growth, it is likely that recovery has been impacted by the economic downturn. • Approximately two-thirds of the City’s territory lies within redevelopment areas. As a result, the City does not have access to property tax revenues that otherwise could have been used for general operations, had development occurred outside of the redevelopment areas. • Due to the lack of audited financial statements and uncertainty regarding the validity of fund balance estimates included in the adopted budgets, the overall financial condition of the City could not be determined. • A dramatic decline in assessed valuation, evidenced by County Assessor records and supported by high foreclosure rates and a drop in construction activity, indicate that the City may have significant difficulty funding service levels and servicing its debt in future years. In summary, LAFCO concluded that: “the City has and continues to experience financial challenges. This is evidenced by the challenges in reducing debt, the deferral of payments of certain debt, excess of expenditures over appropriations in more than one fund, which includes the General Fund, and the lack of funding to adequately provide non-enterprise services. In addition, the use of reserves generated during the building boom of the past couple of years to balance the current budget, in staff view, signals a continuing financial challenge for the City of Adelanto. LAFCO staff expresses concern that with the downturn in the economy, the reduction in assessed valuation due to the high foreclosure rate in Adelanto, and the sharp decline in construction activity, the use of reserves may not be able to close future budget gaps due to their depletion in prior years.” Harvey M. Rose Associates, LLC 1 Introduction Our review generally supports the conclusions reached by LAFCO in its 2009 review. Most of the conditions cited in LAFCO’s Community Service Review continue to exist and an evaluation of budget and financial records, as well as information received from City officials during interviews, suggest that the City will be depending on various strategies that include the sale of its most valuable assets, negotiations with the County of San Bernardino for debt relief and service reductions to the community. Although many of the solutions being sought by the City are likely to provide temporary financial stability, the continuing recession, an imbalance between available revenues and the cost of services that results in a severe structural deficit, as well as other economic factors impacting the future of the community, make the long term financial viability of the City uncertain. The remainder of this report discusses these areas of concern in more detail and provides the basis for our conclusions regarding the City’s overall financial condition and viability. Acknowledgements We would like to thank the Adelanto City Manager and Finance Director for their cooperation and assistance throughout this review. It is clear that they are facing difficult challenges as they move forward and have creatively pursued solutions that they believe will provide additional time to resolve the problems that lie at the core of their financial difficulties. Harvey M. Rose Associates, LLC 2 1. General Fund Financial Condition • The Adelanto General Fund has a structural deficit that has been exacerbated by the severity of the current recession. In the last three fiscal years, operating revenues have declined by 27.5 percent. In addition, the City has relied very heavily on accelerated wastewater and water utility purchase payments from the Adelanto Public Utility Authority (APUA) to finance the cost of basic General Fund services, amounting to approximately $5.4 million in FY 2009-10. It is likely that the City will continue to use income from the sale of assets to fund its operations in the foreseeable future. The City of Adelanto provides a full range of services to the community that includes police, fire, planning, building, street maintenance and other municipal services. These services are funded from a variety of sources that include: • Tax Revenue – consisting of motor vehicle in lieu tax1, sales tax, franchise tax and property tax. In FY 2009-10, the City projects that the General Fund will collect nearly $4.0 million from these sources. • Non-Tax Revenue – consisting of fees and charges to persons receiving services from the City and to other City funds, licenses and permits, fines and forfeitures, investment income and other miscellaneous revenues. In FY 2009-10, the City projects that the General Fund will collect nearly $4.5 million from these sources. • Interfund Revenue – consisting of fund transfers received by the General Fund from other City funds for a variety of purposes, including loan repayments being made by the other funds. In FY 2009-10, the City projects that the General Fund will collect approximately $5.4 million from these sources. In total, the City projects that the General Fund will receive approximately $13.9 million from all sources in FY 2009-10 to fund approximately $13.7 million in operating costs.2 Operating and Non-Operating Revenues The revenues collected by the General Fund can generally be grouped into two categories: (1) Operating Revenues, and (2) Non-Operating Revenues. Operating Revenues include both tax and non-tax revenue, and can generally be considered reoccurring resources that the City is entitled to receive by law or collects as a result of its activities. Non-Operating Revenues do not result from the City’s activities, and are typically either one-time in nature or have a defined end-date. In Adelanto, the Interfund Revenue that the General Fund receives can be considered Non- Operating Revenue, since it principally consists of income from the sale of assets. These tax revenues are provided to the City as an intergovernmental transfer from the State. February 24, 2010, Resolution: Approval of Resolution Adopting Mid-Year Budget Adjustments for FY 2009-10, Exhibit A Harvey M. Rose Associates, LLC 3 Section 1: General Fund Financial Condition In FY 2009-10, the City projects that approximately 61.2 percent of total General Fund resources will be derived from Operating Revenue and 38.8 percent will be derived from Non-Operating Revenue. The distribution of these resources by major account category are displayed in the table, below, for FY 2006-07 through FY 2009-10.3 Table 1 Schedule of Adelanto General Fund Revenues FY 2006-07 through FY 2009-10 FY 2007 FY 2008 FY 2009 FY 2010 4-Year Percent Percent Revenue Source Actual Actual Estimate Estimate Change Change Of Total MVIL In Lieu 2,383,060 3 ,000,557 3 ,025,000 2,287,000 ( 96,060) -4.0% 16.5% Sales Tax 1,718,761 1,451,544 1,375,000 850,000 ( 868,761) -50.5% 6.1% Franchise Tax 247,006 325,429 286,500 390,000 142,994 57.9% 2.8% Property Tax 324,638 352,230 453,500 330,000 5,362 1.7% 2.4% Property Transfer 278,898 81,467 106,500 100,000 ( 178,898) -64.1% 0.7% Other Taxes 25,675 26,055 30,000 30,000 4,325 16.8% 0.2% Subtotal Taxes 4,978,038 5,237,282 5,276,500 3,987,000 ( 991,038) -19.9% 28.8% Service Fees 718,135 1,980,130 1,317,248 1,317,248 599,113 83.4% 9.5% Administrative Fees 528,641 - 426,752 526,752 ( 1,889) -0.4% 3.8% Interest Income 1,565,050 1,477,453 1,500,000 1,234,310 ( 330,740) -21.1% 8.9% Licenses & Permits 2,251,864 445,487 302,000 339,500 (1,912,364) -84.9% 2.5% Charges for Services 1,350,872 628,693 244,100 258,500 ( 1,092,372) -80.9% 1.9% Fines & Forfeitures 144,067 132,184 146,450 172,000 27,933 19.4% 1.2% Other Revenue 142,100 403,416 167,600 634,800 492,700 346.7% 4.6% Subtotal Non-Tax 6,700,729 5,067,363 4,104,150 4,483,110 (2,217,619) -33.1% 32.4% Total Operating Revenue 11,678,767 1 0,304,645 9,380,650 8,470,110 (3,208,657) -27.5% 61.2% Interfund Loan Repayments 1,923,051 2,721,022 3,585,000 4,165,691 2,242,640 116.6% 30.1% Interfund Transfers In 1,280,000 1,440,000 1,345,000 1,215,000 ( 65,000) -5.1% 8.8% Total Non-Operating Revenue 3,203,051 4,161,022 4,930,000 5,380,691 2 ,177,640 68.0% 38.8% Grand Total Revenue 14,881,818 1 4,465,667 14,310,650 1 3,850,801 (1,031,017) -6.9% 100.0% Source: City of Adelanto FY 2009-10 Proposed Budget, and February 24, 2010, Resolution: Approval of Resolution Adopting Mid-Year Budget Adjustments for FY 2009-10, Exhibit A. As shown, during the four year period FY 2006-07 through FY 2009-10, total Operating Revenues will have declined by approximately $3.2 million, or 27.5 percent below levels collected in the first year of the period reviewed. The greatest amount of this decline occurred in the Non-Tax accounts, primarily in planning, building and community development service fees, due to a dramatic drop in development activity within the City. FY 2008-09 and FY 2009-10 are estimated. Harvey M. Rose Associates, LLC 4 Section 1: General Fund Financial Condition During this same period, the City substantially increased the amount of Non-Operating revenue that supports General Fund activities, principally from payments received from the APUA for the purchase of the wastewater and water utilities. As shown in Table 1, Interfund Loan Repayments increased from $1,923,051 in FY 2006-07 to $4,165,691 in FY 2009-10.4 This $2,242,640 annual increase in receipts, equaling a rate of growth of approximately 116.6 percent, reportedly occurred after a decision by the City to accelerate payments on the approximately $31.0 million debt balance owed by APUA at the start of the period. As shown in Table 1 and in Table 2, below, these actions allowed the City to replace a significant portion of its lost operating revenue while simultaneously funding a 7.6 percent increase in the General Fund cost of operations. Table 2 Schedule of Adelanto General Fund Expenditures FY 2006-07 through FY 2009-10 FY 2007 FY 2008 FY 2009 FY 2010 4-Year Percent Percent Department Expenditures Actual Actual Estimate Estimate Change Change Of Total Police (County Sheriff) 4,121,197 4,827,106 4,965,550 4,597,632 476,435 11.6% 33.5% Fire (County Fire) 1,767,900 2,753,517 3,092,000 3,187,486 1,419,586 80.3% 23.2% Community Dev/Planning 1,412,019 890,390 513,885 493,411 ( 918,608) -65.1% 3.6% Building/Code Enforcement 848,783 885,367 655,725 644,796 ( 203,987) -24.0% 4.7% Streets 919,684 829,480 866,850 863,305 ( 56,379) -6.1% 6.3% Human Reources/Technology - 310 608,170 576,034 576,034 N/A 4.2% Non-Departmental 934,049 1,168,147 1,035,760 992,806 58,757 6.3% 7.2% All Other City Activities 2,736,253 2,821,419 2,557,125 2,358,494 ( 377,759) -13.8% 17.2% Total Expenditures 12,739,885 1 4,175,736 14,295,065 1 3,713,964 974,079 7.6% 100.0% Had the City been unable to accelerate the APUA loan repayments, it would have been faced with a FY 2009-10 operating deficit of approximately $2.2 million. Had no APUA payments been available to the General Fund, the operating deficit would have been nearly $2.0 million greater, amounting to $4.2 million, or over 30 percent of the City’s total operating budget. In broad terms, this represents the City’s “structural deficit”, which will only be resolved by finding additional stable sources of General Fund operating income or substantially reducing costs. This latter remedy may prove difficult. As also shown in Table 2, the City has reduced the cost of operations in virtually every service area except public safety. Much of this is appropriate, given that a significant portion of the loss in income reflects slowing in local development activities and, thus, cost reductions have been made in development-related budget areas. However, the increases in police and fire services purchased from the County were significant during the period reviewed. As shown, the cost of police services purchased from the Sheriff increased by 11.6 percent, despite recent service reductions in FY 2009-10 that produced savings 4 As will be discussed in the next section of this report, the actual payments received from wastewater and water enterprise activities will be $5.4 million in FY 2009-10. This includes the $4,165,691 in Interfund Loan Payments and $1,234,310 in interest income shown as Non-Tax Operating Revenue. Harvey M. Rose Associates, LLC 5 Section 1: General Fund Financial Condition of approximately $413,430.5 Had the City’s contract not been modified, costs would have risen 21.6 percent over FY 2006-07 levels, equating to an average annual growth rate of 7.2 percent. The Finance Director reports that the Sheriff recently notified the City that the contract cost will increase by 7.0 percent again in FY 2010-11. More significantly, the County’s charges for Fire services increased by approximately 80.3 percent during the period reviewed, from $1,767,900 in FY 2006-07 to $3,187,486 in FY 2009- 10. Most of this increase occurred in FY 2007-08 and FY 2008-09 as a result of a unilateral decision by the County to replace pay-call firefighters with full-time firefighter-emergency medical technicians (EMT), providing constant staffing at the facility with EMT trained personnel. However, even after considering this dramatic rise in costs, since FY 2007-08, the City’s cost of fire services has increased at rates surpassing those charged by the Sheriff for police services, by an average of approximately 7.9 percent per year. At the time of this report, the County Fire Department had not notified the City of contract cost increases for FY 2010-11. Absent this information, but assuming that these expenses rise at the same average rates as in prior years, the City could face additional costs of over $580,000 for basic police and fire services next year. Financial Outlook The General Fund financial outlook for the City is not promising. The lingering effects of the recession continue to adversely impact sales tax and other sources of local tax revenue, and financial consequences arising from the State’s budget crisis make the reliability of certain tax revenues uncertain. Further, building and development activity remains low. The City’s own projections of operating revenues assume that income will remain stagnant or continue to decline in the short term. Based on discussions with the City’s Finance Director and as noted in the City’s most recent Interim Financial Report6 , payments from APUA for the purchase of the sewer and water systems will be reduced by $3.2 million in FY 2010-11. According to the Finance Director, these reductions are necessary to conform with the underlying assumptions contained in the $76.8 million in the 2009 Series A - Adelanto Public Utility Authority Refunding Bonds issued earlier this fiscal year. Stagnant revenues, the potential for substantial additional costs for police and fire services, and the loss in income from the sale of the sewer and water utilities, present serious financial difficulties for the City. To resolve these financial difficulties, City representatives state that they are relying on the sale of the Adelanto Community Correctional Facility to a private correctional services provider for approximately $28 million. Reported widely in the press, a final agreement has been entered into with a closing date of June 4, 2010. The City has also taken steps to terminate employees who currently operate the jail facility as of that date, as part of the transition plan from City to private operation of the facility. These actions will provide such staff with a severance package that will extend pay and benefits to August 4, 2010. November 17, 2009, Thirteenth Amendment to Contract with City of Adelanto for the Sheriff’s Department to Provide Law Enforcement Services, Schedule A 6 City of Adelanto Interim Financial Report, Fiscal Year 2009/10, 50% of the Fiscal Year Complete, July 1, 2009 – December 31, 2009 Harvey M. Rose Associates, LLC 6 Section 1: General Fund Financial Condition For the long-term, the City has discussed the possibility of asking the voters to create a fire district that would be financed through an additional property tax levy or parcel tax. This may provide a long-term, partial solution for addressing the structural budget deficit. However, the experiences of a neighboring jurisdiction earlier this decade, to extend property taxes established to support fire district operations7, failed to obtain approval from a 2/3 voter supermajority that was necessary for passage. In Adelanto, voters may be even more reluctant to impose additional taxes on themselves, given the City’s current economic environment and recent decisions by the City to increase water service charges by 229 percent over the next five years.8 Lastly, the City should seriously consider long-term cost savings solutions to its structural deficit. This could include reductions in the number of hours that fire stations are manned, based on call volume and activity, as well as the number of hours that patrol deputies are on duty. Although the review of such alternatives was outside of the scope of this analysis, the City should immediately evaluate the impact they would have on the Adelanto community. Further, the City Council should convene a public workshop to evaluate the current and long-term financial condition of the City and to explore solutions to the structural deficit. This process should be designed to obtain input directly from Adelanto taxpayers. Lack of Reliable Financial Data It should be noted that this analysis was conducted primarily from data reported in the City’s various budget documents and interim financial reports. Audited financial statements were not finalized for the year ending June 30, 2007 until just prior to the release of this report, although a draft report was provided earlier; and, financial statements for the years ending June 30, 2008 and 2009 have not been prepared. This is a significant cause for concern, since the City cannot expect confidence in its financial data without a thorough review by an independent auditor. This deficiency was noted in the September 2009 LAFCO Community Service Review. At that time, the Adelanto Finance Director stated in a letter to LAFCO that the final June 30, 2007 comprehensive annual financial report (CAFR) would be produced in September 2009, a draft June 30, 2008 CAFR would be available in September 2009 and the audit of the June 30, 2009 financial statements would begin in October 2009. When we initially met with the City in early February, we were told that the June 30, 2007 CAFR would be finalized within days, the June 30, 2008 CAFR would be complete within “one to two weeks” and that the June 30, 2009 CAFR would be completed “within six months.” At the exit conference for this report, we were provided with a copy of the final 2007 CAFR. However, the City also confirmed that work on the 2008 and 2009 CAFRs had been suspended because the financial auditors needed to complete work on the June 30, 2008 Adelanto Public Utility Authority financial statements and June 30, 2009 Adelanto Redevelopment Agency financial statements. Work on these CAFRs has now resumed with a goal of completing them as expeditiously as possible. November, 2002, City of Hesperia, Measure B 8 2009 Series A - Adelanto Public Utility Authority Refunding Bond Issue, Harvey M. Rose Associates, LLC 7 Section 1: General Fund Financial Condition We understand the current challenges facing City staff. However, the successful completion of the City’s financial statements is essential for increasing the public’s confidence in the reported financial condition of the City. Unless this situation is resolved, it will become even more difficult to convince voters of the need to approve additional local taxes. Given the inability of the City to meet self-imposed deadlines to date, this continues to be an area of concern. Harvey M. Rose Associates, LLC 8 2. APUA Asset Purchase Payments • The Adelanto Public Utility Authority (APUA) has been making payments to the General Fund for its 1996 purchase of the wastewater and water utilities. The General Fund has relied heavily upon the income from this purchase to finance its ongoing operations and supplement the General Fund balance, receiving reported income of $5.4 million in FY 2009-10. It is unlikely that the APUA will default on its debt obligations to the City due to recent substantial increases in water utility rates. However, the payments to the General Fund will decline by $3.2 million in FY 2010-11 and continue at a reduced level until the debt is fully retired in FY 2022-23. As discussed previously, the General Fund has been relying on payments from the Adelanto Public Utility Authority (for the purchase of the wastewater and water utilities from the City in 1996) as an operating revenue during the period reviewed. These payments amounted to $2,075,000 in FY 2005-06. However, beginning in FY 2006-07, the APUA began to accelerate the payment of the debt held by the water utility, providing the General Fund with $6,802,470 more between FY 2006-07 and FY 2008-09 than would have otherwise been paid had the annual amount remained at the FY 2005-06 level of $2,075,000. Under the purchase agreement, payments to the City have consisted of two components: (1) Scheduled Purchase Payments, equal to five percent of the outstanding principal balance; and, (2) all remaining surplus revenues from operations. Combined, the total payments from the APUA for the wastewater and water asset purchase will equal $5.4 million in FY 2009-10, of which $4.2 million has been budgeted as an operating revenue with the balance of $1.2 million being budgeted as interest income to the General Fund. According to information contained in the 2009 Series A - Adelanto Public Utility Authority Refunding Bond issue, the wastewater utility has been making interest-only payments to the General Fund on its portion of the debt, amounting to $386,835 in FY 2009-10. According to that document, the principal balance owed therefore remained at $6,431,169 between FY 2005- 06 and FY 2008-09 and will stay at this amount until FY 2019-20. Under the requirements of the bond agreement, beginning in that year, payments are scheduled to increase substantially until the wastewater utility debt is fully paid off in FY 2022-23. Conversely, the water utility has been paying interest plus an increasing amount of the principal balance during the past four years to retire its debt on an accelerated schedule. At the beginning of FY 2005-06, the water utility owed the General Fund a balance of $26,485,464. By June 30, 2009, this balance had declined to $14,089,328. Although the water enterprise is paying the General Fund $5,013,165 in FY 2009-10, as an underlying assumption made for the bond agreement, this amount will be lowered to approximately $1,888,399 in FY 2010-11 and remain at approximately that level each year until the debt is fully paid off in FY 2019-20. Harvey M. Rose Associates, LLC 9 Section 2: APUA Asset Purchase Payments Even after these reductions, however, these two sources of income will provide the General Fund with a stable revenue stream of $2,230,000 each year until the debt is fully retired in FY 2022- 23. These funds are substantial. However, the bond agreement rate model assumes that the City will no longer be able to accelerate payments from the Water Utility to resolve a General Fund deficit, should one occur. Accordingly, beginning in FY 2010-11, the decision by the City to re- fund APUA debt essentially contributed to a $3.2 million General Fund operating deficit from FY 2009-10 levels. Because the payments to the General Fund will remain fixed through FY 2022-23, the impact from this decision will grow with inflationary cost increases, unless other sources of income are identified by the City. The basis for this analysis is provided in Table 3 and Table 4, below. Table 3 Schedule of APUA Payments to the General Fund FY 2005-06 through FY 2008-09 Beginning Scheduled Surplus Total Ending Balance Payments Revenues Payments Balance Wastewater FY 05-06 6 ,431,169 3 21,558 (49,583) 271,975 6 ,431,169 FY 06-07 6 ,431,169 3 21,558 26,439 347,997 6 ,431,169 FY 07-08 6 ,431,169 3 21,558 37,613 359,171 6 ,431,169 FY 08-09 6 ,431,169 3 21,558 46,716 368,274 6 ,431,169 Total 1,286,232 61,185 1,347,417 Water FY 05-06 2 6,485,464 1 ,324,273 478,752 1,803,025 2 4,562,413 FY 06-07 2 4,562,413 1 ,228,121 2,023,912 3,252,033 2 1,841,391 FY 07-08 2 1,841,391 1 ,092,070 2,848,759 3,940,829 1 8,255,019 FY 08-09 1 8,255,019 9 12,751 3 ,718,975 4,631,726 1 4,089,328 Total 4,557,215 9,070,398 13,627,613 Grand Total FY 05-06 3 2,916,633 1 ,645,831 429,169 2,075,000 30,993,582 FY 06-07 3 0,993,582 1 ,549,679 2,050,351 3,600,030 28,272,560 FY 07-08 2 8,272,560 1 ,413,628 2,886,372 4,300,000 24,686,188 FY 08-09 2 4,686,188 1 ,234,309 3,765,691 5,000,000 20,520,497 Total 5,843,447 9,131,583 14,975,030 Note: Budgeted payments in FY 2009-10 were $5.4 million with a note that the transfer will decline to approximately $2.2 million in FY 2010-11. Harvey M. Rose Associates, LLC 10 Section 2: APUA Asset Purchase Payments Table 4 Schedule of Anticipated APUA Payments to the General Fund FY 2009-10 through FY 2022-23 Fiscal Year Wastewater Water Total FY 10 3 86,835 5,013,165 5 ,400,000 FY 11 3 41,601 1,888,399 2 ,230,000 FY 12 3 44,077 1,885,923 2 ,230,000 FY 13 3 47,079 1,882,921 2 ,230,000 FY 14 3 50,791 1,879,209 2 ,230,000 FY 15 3 55,492 1,874,508 2 ,230,000 FY 16 3 61,629 1,868,371 2 ,230,000 FY 17 3 69,966 1,860,034 2 ,230,000 FY 18 3 81,929 1,848,071 2 ,230,000 FY 19 1 ,365,711 864,289 2 ,230,000 FY 20 2 ,230,000 - 2,230,000 FY 21 2 ,230,000 - 2,230,000 FY 22 2 ,230,000 - 2,230,000 FY 23 1 ,424,507 - 1,424,507 It is important to note that the APUA increased both wastewater and water rates to finance operations and pay its debt obligations in preparation for the 2009 Series A - Adelanto Public Utility Authority Refunding Bond Issue. In August 2009, wastewater fees were increased to levels that would cover operations plus the debt incurred with the 2009 refunding, including the payment of outstanding principal and interest to the General Fund. Similarly, in that same month, water rates were increased by approximately 229 percent through FY 2014-15 for the same purposes. Therefore, it is highly unlikely that the APUA will default on its debt service obligations, so the General Fund can rely on these payments as a stable source of income for the next twelve to thirteen years. Harvey M. Rose Associates, LLC 11 3. Redevelopment Debt Obligations • The Redevelopment Agency (RDA) has long-term debt obligations that have forced it to borrow from the County through mechanisms defined in a 1996 RDA settlement agreement. These borrowings have risen substantially in recent years as property taxes have declined and the RDA has been unable to service its debt through the Property Tax increment that it receives. Without debt relief or substantial economic development within the redevelopment project areas, the RDA will be faced with continued difficulties with the funding of its current debt obligations and will likely not meet its low and moderate income housing set- aside requirements. Further, it is highly unlikely that the RDA will be able to repay a $2.5 million loan from the General Fund in the foreseeable future. In its 2009 report, LAFCO made the observation that “. . . the inclusion of more than two-thirds of the City’s territory within a redevelopment area will preclude the City from receiving the tax increment above base year that otherwise would have gone to the City.” As a result, Property Tax is not a significant revenue for the General Fund in Adelanto. In addition, although the greatest share of property tax goes to the Redevelopment Agency, the RDA is unable to meet its debt obligations without borrowing from the County of San Bernardino at high interest rates against an accumulating principal balance. As of June 30, 2009, the RDA had approximately $68.8 million in debt from a series of bond issues, the 1996 settlement agreement with the County and a settlement agreement with the Intermountain Power Agency from a 1993 property tax appeal. Also included was a long-term advance from the General Fund of $2,524,243. This debt had increased by a net amount of over $3.2 million since FY 2006-07, entirely as a result of the conditions of the settlement agreement with the County, since bonded indebtedness was reduced by nearly $1.7 million during this period. The change in liability by major category of debt is displayed in Table 5, below. Table 5 Schedule of Redevelopment Agency Debt As of June 30, 2009 Debt Category FY 2006-07 FY 2007-08 FY 2008-09 3-Year Change Percent Change 2010 Pmts Due County Debt 12,370,635 14,738,770 17,291,314 4,920,679 39.8% - Tax Allocation Refunding Bonds 11,315,000 11,315,000 11,315,000 - 0.0% 622,325 Revenue Bonds 37,326,949 37,717,029 35,649,905 (1,677,044) -4.5% 3,270,983 Long Term Advances 2,524,243 2,524,243 2,524,243 - 0.0% - Settlement Agreement Payable 1,989,390 1,989,390 1,989,390 - 0.0% - Total 65,526,217 68,284,432 68,769,852 3,243,635 5.0% 3,893,308 Harvey M. Rose Associates, LLC 12 Section 3: Redevelopment Debt Obligations The County settlement agreement arose from a lawsuit filed against the RDA by the County for the misuse of tax increment money related to the Victor Valley Economic Development Area. To settle the dispute in 1996, the RDA agreed to “relinquish approximately 33% of incremental property taxes to the County, of which approximately one half (16.26%) would be subordinate to the Agency’s existing long-term debt. The County will loan to the Agency, at the rate of 7% per annum, the amount of the deferred incremental property taxes needed to meet debt service requirements on the refunding bonds, plus amounts needed to administer the Agency’s long term debt.”9 In effect, this action required the RDA to pass 33 percent of its share of property tax increment revenue to the County (along with other more minor “pass-throughs”), pay its required debt service obligations, and borrow the balance of any deficiency from the County. The agreement does not require the City to make payments on the principal balance owed to the County on a regular or set schedule. During the period of the economic downturn, this agreement has had devastating effects on the Adelanto RDA. As shown in Table 5, the County debt increased by 39.8 percent in the two years between FY 2006-07 and FY 2008-09, amounting to an additional obligation of $4,920,679. During the same period, the principal owed on the Tax Allocation Refunding Bonds (1995 Series A, B, C and D and the 2007 Tax Allocation Bonds) declined by $1,677,044. The net result of these transactions resulted in increased debt obligations of approximately five percent over FY 2006-07 levels. In FY 2009-10, the City projects that the County loan principal will increase by an additional $1.3 million, not including the 7 percent interest on the principal balance, amounting to an estimated additional amount of $1.2 million. After factoring in reductions in the principal on the bonded indebtedness, the RDA’s total debt obligation at the end of FY 2009-10 will likely increase by a net amount of $1.3 million. Due to this situation, the RDA will very likely be unable to reduce its total debt obligation or meet its mandatory 20 percent “set-aside” for low and moderate income housing without substantial increases in the amount of property tax increment that it collects. Alternatively, the City and the County are in active negotiations regarding the terms of the settlement agreement that could involve the exchange of the RDA property in lieu of a cash payment from the City on a portion of the loan principal balance. This property would be used for the construction of a reentry facility for State prisoners, to be constructed by the State. Under scenarios developed by the City, this proposal would permit the RDA to fully retire its debt to the County by FY 2020- 21. This proposal is pending and the outcome is uncertain. The RDA’s financial situation has a direct impact on the General Fund. First, it is highly unlikely that the RDA will be able to repay the $2,524,243 advance that it received from the General Fund in prior years, since this obligation is subordinate to all other debt. Further, to the extent RDA resources are needed to meet the terms of the County settlement agreement and retire accumulating debt, the City will be hampered in its ability to develop and attract Sales Tax generating retail business or other development that would benefit the General Fund. Adelanto Redevelopment Agency Basic Financial Statements, June 30, 2009, Notes to Basic Financial Statements, Note 7H. Harvey M. Rose Associates, LLC 13 4. Sale of Assets To Resolve Financial Difficulties • The City has determined that the only way that it will be able to resolve its immediate financial crisis will be to (1) sell the Adelanto Community Correctional Facility to a private prison operator that is attempting to secure contracts with the federal and/or State governments for the housing of prisoners; and, (2) successfully negotiate with the County to exchange a parcel owned by the RDA for a portion of the City’s debt obligation under the 1996 RDA settlement agreement. These proposals are in different stages of negotiation between the parties, and outcome is uncertain. Over the years, the City of Adelanto has been able to accumulate various assets that are now being looked at to resolve its ongoing structural budget deficit. According to information obtained for this analysis, the City has executed a contract with a private prison operator that has purchased the Adelanto Community Correctional Facility to house federal and/or State prisoners. The purchase price for the facility is $28 million. The sale of this facility is critical to the City’s ability to forestall major reductions in services. As shown in previous sections of this report, the City has: • Experienced a 27.5 percent loss in operating revenue since FY 2005-06, amounting to approximately $3.2 million annually; • Seen average annual increases in costs for police and fire services purchased from the County of approximately 7.2 percent and 7.9 percent, respectively (in FY 2010-11, the Sheriff has reported that law enforcement service costs will increase by 7.0 percent and it is probable that the cost of fire services will increase by a similar amount); and, • Has lost its ability to flexibly fund its significant operating deficit with income generated from the sale of the wastewater and water utilities to the Adelanto Public Utility Authority. These circumstances have combined to create a situation whereby the City will either have to reduce expenditures between $2.2 million and $4.2 million per year (representing between 16.0 percent and 30.7 percent of the FY 2009-10 operating budget), or identify additional resources that will help to fill the budget gap. According to the Adelanto Finance Director, his projected budget deficit for FY 2010-11 will be approximately $4.75 million, which is only slightly more than the annual cost of the law enforcement services contract with the County after the increase planned for FY 2010-11. Sale of Adelanto Community Correctional Facility At the time of this report, City representatives stated that the agreement with the private prison operator is final. However, discussions with the City’s representatives suggest that, due to delays in the purchaser’s negotiations with the federal government for the housing of prisoners, the transition of City employees to private employment may not occur by the time of closing or Harvey M. Rose Associates, LLC 14 Section 4: Sale of Assets To Resolve Financial Difficulties completion of the severance package. According to the Finance Director, in late January 2010, the purchaser requested a six month extension on the execution of a final purchase agreement but was granted only three months by the City Council to April 4, 2010. At a recent City Council meeting, in response to a request by the City, the parties agreed to a second extension of two months to June 4, 2010, so that there will be “a smoother transition” for the City workforce that will be reemployed by the private operator when the City ceases operations. Exchange of RDA Property for Debt Relief As part of a second initiative to provide the Redevelopment Agency with an opportunity to reduce debt that is owed to the County, City officials have stated that they are in active negotiations with the County to restructure the 1996 RDA settlement agreement. Based upon interviews with both City and County representatives, the exchange of RDA-owned property, in lieu of a cash payment to the County on a portion of the settlement agreement loan principal, has been made a part of those discussions . Under one City proposal, the RDA would provide a parcel of land to the County in exchange for reducing its debt obligation, In turn, the County would offer the parcel as a site for the construction of a State-owned prisoner reentry facility for parolees, which conceptually would have made the County eligible for a $100 million grant to renovate its jail in Adelanto. According to worksheets provided by the City’s Finance Director, this action could substantially reduce the City’s FY 2009-10 debt obligation and allow the RDA to retire the principal balance owed to the County by FY 2020-21. However, without significant increases in the assessed valuation for property within the redevelopment project area, there will be little left to fund development projects that would stimulate Sales Tax and other General Fund revenue growth during this period. The proposal presented by the City appears optimistic. At the time of this report, there was no clear indication of how much the County would be willing to offer to the RDA for the parcel. Further, County representatives stated during interviews that a separate proposal to offer a County-owned parcel near Apple Valley to the State for the reentry facility is in the final stages of approval, and once approved, the County will not be required to offer additional sites to the State to secure the $100 million grant. Therefore, the value of the RDA owned parcel to the County has been diminished and the City’s ability to leverage the parcel’s value for significant debt reduction is not as likely as may have previously been thought. Nonetheless, these measures by the City demonstrate the seriousness of the financial situation that has developed for Adelanto in the past several years. Other proposals to sell or lease the Maverick Stadium have been made, which are akin to the two primary proposals discussed in this report. Given the circumstances, we believe these efforts are appropriate. However, once the City divests itself of interest in the major capital assets that it owns, it will have very little that it can turn to during times of financial difficulty. For example, the City has suggested that the sale of the correctional facility will provide sufficient funding to cover the General Fund deficit for approximately six years. At the end of that period, the City will once again be faced with serious difficulties, unless it can successfully obtain approval from the voters to create a fire district or identifies other stable sources of income. Harvey M. Rose Associates, LLC 15 5. Summary of Conclusions and Recommendations The Adelanto General Fund has a structural deficit of as much as $4.2 million that has been exacerbated by the severity of the current recession. In the last three fiscal years, General Fund operating revenues have declined by 27.5 percent and the City has had to make up this structural deficit by using non-operating revenues received from other funds. Scheduled Payments for Purchase of Wastewater and Water Utilities Principally, the Adelanto Public Utility Authority (APUA) has been making payments to the General Fund to pay the City for the Authority’s 1996 purchase of the wastewater and water utilities. When General Fund operating deficits began to climb during the economic downturn, the City reacted by accelerating the APUA purchase payment schedule to finance the cost of basic General Fund services. In FY 2009-10, the General Fund will receive income of $5,400,000 from this source, which is $3,325,000 more than the $2,075,000 received in FY 2005-06. Going forward, as an assumption underlying the 2009 Series A - Adelanto Public Utility Authority Refunding Bond issue, payments to the General Fund will decline by $3.2 million to $2.3 million in FY 2010-11, and continue at that reduced level until the debt is fully retired in FY 2022-23. It is unlikely that the APUA will default on its debt obligations to the City. In August 2009, wastewater fees were increased to levels that would cover operations plus the debt incurred with the 2009 refunding, including the payment of outstanding principal and interest to the General Fund for the asset purchase. Similarly, in that same month, water rates were increased by approximately 229 percent through FY 2014-15 for the same purposes. RDA Accumulating Debt From 1996 County Settlement Agreement Similar to the General Fund, the Adelanto Redevelopment Agency (RDA) is also operating with a structural deficit. Specifically, the RDA has long-term debt obligations that have forced it to borrow from the County through mechanisms defined in a 1996 RDA settlement agreement between the RDA and the County. These borrowings have risen substantially in recent years as property taxes have declined and the RDA has been unable to service its debt through the Property Tax increment that it receives. Without debt relief or substantial economic development within the redevelopment project area, the RDA will be faced with continued difficulties funding its current debt obligations and will be challenged to meet its low and moderate income housing set-aside requirements. Further, the RDA’s financial situation has a direct impact on the General Fund. First, it is highly unlikely that the RDA will be able to repay the $2,524,243 advance that it received from the General Fund in prior years, since this obligation is subordinate to all other debt. Further, to the extent RDA resources are needed to meet the terms of the County settlement agreement and retire accumulating County debt, the City will be hampered in its ability to develop and attract Sales Tax generating retail businesses. Harvey M. Rose Associates, LLC 16 Section 5: Summary of Conclusions and Recommendations Sale of Assets To Resolve Financial Difficulties It is likely that the City will continue to use income from the sale of assets to fund operations in the foreseeable future. Several proposals are in the final stages of negotiation or implementation that would provide some temporary financial relief. Nonetheless, if the City wishes to obtain voter approval of tax initiatives for long-term solutions to its financial difficulties, it must first increase confidence in the perception of its financial difficulties by making the production of up- to-date financial statements a priority.

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Additional Recommendations 9

Not linked to specific findings.

R10: Most of this increase occurred in FY 2007-08 and FY 2008-09 as a result of a unilateral decision by the County to replace pay-call firefighters with full-time firefighter-emergency medical technicians (EMT), providing constant staffing at the facility with EMT trained personnel. However, even after considering this dramatic rise in costs, since FY 2007-08, the City’s cost of fire services has increased at rates surpassing those charged by the Sheriff for police services, by an average of approximately 7.9 percent per year. At the time of this report, the County Fire Department had not notified the City of contract cost increases for FY 2010-11. Absent this information, but assuming that these expenses rise at the same average rates as in prior years, the City could face additional costs of over $580,000 for basic police and fire services next year. Financial Outlook The General Fund financial outlook for the City is not promising. The lingering effects of the recession continue to adversely impact sales tax and other sources of local tax revenue, and financial consequences arising from the State’s budget crisis make the reliability of certain tax revenues uncertain. Further, building and development activity remains low. The City’s own projections of operating revenues assume that income will remain stagnant or continue to decline in the short term. Based on discussions with the City’s Finance Director and as noted in the City’s most recent Interim Financial Report6 , payments from APUA for the purchase of the sewer and water systems will be reduced by $3.2 million in FY 2010-11. According to the Finance Director, these reductions are necessary to conform with the underlying assumptions contained in the $76.8 million in the 2009 Series A - Adelanto Public Utility Authority Refunding Bonds issued earlier this fiscal year. Stagnant revenues, the potential for substantial additional costs for police and fire services, and the loss in income from the sale of the sewer and water utilities, present serious financial difficulties for the City. To resolve these financial difficulties, City representatives state that they are relying on the sale of the Adelanto Community Correctional Facility to a private correctional services provider for approximately $28 million. Reported widely in the press, a final agreement has been entered into with a closing date of June 4, 2010. The City has also taken steps to terminate employees who currently operate the jail facility as of that date, as part of the transition plan from City to private operation of the facility. These actions will provide such staff with a severance package that will extend pay and benefits to August 4, 2010. November 17, 2009, Thirteenth Amendment to Contract with City of Adelanto for the Sheriff’s Department to Provide Law Enforcement Services, Schedule A 6 City of Adelanto Interim Financial Report, Fiscal Year 2009/10, 50% of the Fiscal Year Complete, July 1, 2009 – December 31, 2009 Harvey M. Rose Associates, LLC 6 Section 1: General Fund Financial Condition For the long-term, the City has discussed the possibility of asking the voters to create a fire district that would be financed through an additional property tax levy or parcel tax. This may provide a long-term, partial solution for addressing the structural budget deficit. However, the experiences of a neighboring jurisdiction earlier this decade, to extend property taxes established to support fire district operations7, failed to obtain approval from a 2/3 voter supermajority that was necessary for passage. In Adelanto, voters may be even more reluctant to impose additional taxes on themselves, given the City’s current economic environment and recent decisions by the City to increase water service charges by 229 percent over the next five years.8 Lastly, the City should seriously consider long-term cost savings solutions to its structural deficit. This could include reductions in the number of hours that fire stations are manned, based on call volume and activity, as well as the number of hours that patrol deputies are on duty. Although the review of such alternatives was outside of the scope of this analysis, the City should immediately evaluate the impact they would have on the Adelanto community. Further, the City Council should convene a public workshop to evaluate the current and long-term financial condition of the City and to explore solutions to the structural deficit. This process should be designed to obtain input directly from Adelanto taxpayers. Lack of Reliable Financial Data It should be noted that this analysis was conducted primarily from data reported in the City’s various budget documents and interim financial reports. Audited financial statements were not finalized for the year ending June 30, 2007 until just prior to the release of this report, although a draft report was provided earlier; and, financial statements for the years ending June 30, 2008 and 2009 have not been prepared. This is a significant cause for concern, since the City cannot expect confidence in its financial data without a thorough review by an independent auditor. This deficiency was noted in the September 2009 LAFCO Community Service Review. At that time, the Adelanto Finance Director stated in a letter to LAFCO that the final June 30, 2007 comprehensive annual financial report (CAFR) would be produced in September 2009, a draft June 30, 2008 CAFR would be available in September 2009 and the audit of the June 30, 2009 financial statements would begin in October 2009. When we initially met with the City in early February, we were told that the June 30, 2007 CAFR would be finalized within days, the June 30, 2008 CAFR would be complete within “one to two weeks” and that the June 30, 2009 CAFR would be completed “within six months.” At the exit conference for this report, we were provided with a copy of the final 2007 CAFR. However, the City also confirmed that work on the 2008 and 2009 CAFRs had been suspended because the financial auditors needed to complete work on the June 30, 2008 Adelanto Public Utility Authority financial statements and June 30, 2009 Adelanto Redevelopment Agency financial statements. Work on these CAFRs has now resumed with a goal of completing them as expeditiously as possible. November, 2002, City of Hesperia, Measure B 8 2009 Series A - Adelanto Public Utility Authority Refunding Bond Issue, Harvey M. Rose Associates, LLC 7 Section 1: General Fund Financial Condition We understand the current challenges facing City staff. However, the successful completion of the City’s financial statements is essential for increasing the public’s confidence in the reported financial condition of the City. Unless this situation is resolved, it will become even more difficult to convince voters of the need to approve additional local taxes. Given the inability of the City to meet self-imposed deadlines to date, this continues to be an area of concern. Harvey M. Rose Associates, LLC 8

R21: This proposal is pending and the outcome is uncertain. The RDA’s financial situation has a direct impact on the General Fund. First, it is highly unlikely that the RDA will be able to repay the $2,524,243 advance that it received from the General Fund in prior years, since this obligation is subordinate to all other debt. Further, to the extent RDA resources are needed to meet the terms of the County settlement agreement and retire accumulating debt, the City will be hampered in its ability to develop and attract Sales Tax generating retail business or other development that would benefit the General Fund. Adelanto Redevelopment Agency Basic Financial Statements, June 30, 2009, Notes to Basic Financial Statements, Note 7H. Harvey M. Rose Associates, LLC 13

R23: These funds are substantial. However, the bond agreement rate model assumes that the City will no longer be able to accelerate payments from the Water Utility to resolve a General Fund deficit, should one occur. Accordingly, beginning in FY 2010-11, the decision by the City to re- fund APUA debt essentially contributed to a $3.2 million General Fund operating deficit from FY 2009-10 levels. Because the payments to the General Fund will remain fixed through FY 2022-23, the impact from this decision will grow with inflationary cost increases, unless other sources of income are identified by the City. The basis for this analysis is provided in Table 3 and Table 4, below. Table 3 Schedule of APUA Payments to the General Fund FY 2005-06 through FY 2008-09 Beginning Scheduled Surplus Total Ending Balance Payments Revenues Payments Balance Wastewater FY 05-06 6 ,431,169 3 21,558 (49,583) 271,975 6 ,431,169 FY 06-07 6 ,431,169 3 21,558 26,439 347,997 6 ,431,169 FY 07-08 6 ,431,169 3 21,558 37,613 359,171 6 ,431,169 FY 08-09 6 ,431,169 3 21,558 46,716 368,274 6 ,431,169 Total 1,286,232 61,185 1,347,417 Water FY 05-06 2 6,485,464 1 ,324,273 478,752 1,803,025 2 4,562,413 FY 06-07 2 4,562,413 1 ,228,121 2,023,912 3,252,033 2 1,841,391 FY 07-08 2 1,841,391 1 ,092,070 2,848,759 3,940,829 1 8,255,019 FY 08-09 1 8,255,019 9 12,751 3 ,718,975 4,631,726 1 4,089,328 Total 4,557,215 9,070,398 13,627,613 Grand Total FY 05-06 3 2,916,633 1 ,645,831 429,169 2,075,000 30,993,582 FY 06-07 3 0,993,582 1 ,549,679 2,050,351 3,600,030 28,272,560 FY 07-08 2 8,272,560 1 ,413,628 2,886,372 4,300,000 24,686,188 FY 08-09 2 4,686,188 1 ,234,309 3,765,691 5,000,000 20,520,497 Total 5,843,447 9,131,583 14,975,030 Note: Budgeted payments in FY 2009-10 were $5.4 million with a note that the transfer will decline to approximately $2.2 million in FY 2010-11. Harvey M. Rose Associates, LLC 10 Section 2: APUA Asset Purchase Payments Table 4 Schedule of Anticipated APUA Payments to the General Fund FY 2009-10 through FY 2022-23 Fiscal Year Wastewater Water Total FY 10 3 86,835 5,013,165 5 ,400,000 FY 11 3 41,601 1,888,399 2 ,230,000 FY 12 3 44,077 1,885,923 2 ,230,000 FY 13 3 47,079 1,882,921 2 ,230,000 FY 14 3 50,791 1,879,209 2 ,230,000 FY 15 3 55,492 1,874,508 2 ,230,000 FY 16 3 61,629 1,868,371 2 ,230,000 FY 17 3 69,966 1,860,034 2 ,230,000 FY 18 3 81,929 1,848,071 2 ,230,000 FY 19 1 ,365,711 864,289 2 ,230,000 FY 20 2 ,230,000 - 2,230,000 FY 21 2 ,230,000 - 2,230,000 FY 22 2 ,230,000 - 2,230,000 FY 23 1 ,424,507 - 1,424,507 It is important to note that the APUA increased both wastewater and water rates to finance operations and pay its debt obligations in preparation for the 2009 Series A - Adelanto Public Utility Authority Refunding Bond Issue. In August 2009, wastewater fees were increased to levels that would cover operations plus the debt incurred with the 2009 refunding, including the payment of outstanding principal and interest to the General Fund. Similarly, in that same month, water rates were increased by approximately 229 percent through FY 2014-15 for the same purposes. Therefore, it is highly unlikely that the APUA will default on its debt service obligations, so the General Fund can rely on these payments as a stable source of income for the next twelve to thirteen years. Harvey M. Rose Associates, LLC 11

R10-40: Direct the City Manager and staff to complete the comprehensive annual financial audit reports for the fiscal years ending in June of 2008 and 2009 no later than July 31, 2010.

R10-41: Direct the City Manager and staff to produce the completed annual financial audit report of the year ending June 30, 2010 by September 30, 2010. This is contingent on the schedule of the independent auditor that the City contracts with.

R10-42: Request that the City Manager develop and present a comprehensive financial projection and plan for resolving the City’s structural deficit in the next five years, by using the audited numbers and expenditure trends shown in the ending budget of June 30, 2010 as the base. This should be 57 2009-2010 San Bernardino County Grand Jury Final Report completed and committed to by the staff and Council by the end of the year.

R10-43: Immediately start discussions with the San Bernardino County Sheriff’s Department and the San Bernardino County Fire Department in a concerted effort to reduce the cost of services provided to the City by both departments. This may involve the very difficult task of reducing selective services provided by the departments for a period of time until the financial situation begins to improve. This could include but is certainly not limited to the reduction in the hours that patrol deputies are on duty or the hours that fire stations are manned. There are other services that both departments provide that could be limited depending on the work load or specific requirements of the City.

R10-44: It is strongly recommended that a series of public workshops be held to discuss the financial condition of the City and to explore all possible solutions to the deficit that faces the City. We understand that the problems are many, very complex, and some very hard decisions will have to be made. The more input and assistance that can be obtained from the citizens would be of tremendous help to the Council and Staff. One possibility would be requesting the citizens to approve a fire district to assist in funding this function. Although we understand this is a very unlikely possibility due to the present economic situation and the recent failure to obtain the necessary support in local adjacent communities. This is another reason that we recommend the Adelanto taxpayers be made aware of the problems that are facing the city and the possible alternatives if the situation is not dealt with in a timely fashion.

R10-45: It is recommended that the City negotiate with the County to modify the terms of the Redevelopment Agency (RDA) settlement agreement to 58 2009-2010 San Bernardino County Grand Jury Final Report permit a long term debt relief, which could possibly include the exchange of property which is owned by the RDA.

July 01, 2010 — Human Services and Economic Development Committee Report

7 pages 3 findings 4 recommendations

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Findings & Recommendations 3 findings

F1: The EDA failed to monitor and enforce the affordability covenants as homes were sold or resold. There was little oversight of covenants during subsequent turnovers of home sales and few homes, (3 of 63), were bought by non-profit organizations within the city.

F2: The EDA had no data base or process to track the Dollar Homes Program.

F3: The EDA exercised limited oversight or vetting of future homebuyers. No first time homebuyer education or training was provided to program participants to the extent they were not low-income to moderate-income homebuyers seeking EDA Financial Assistance.

Additional Recommendations 4

Not linked to specific findings.

R10-15: Establish a data base which will track the critical program information for each home and a process for monitoring subsequent home sales.

R10-16: Include a detailed covenant history within the data base while filing with the County Recorder a “Notice of Affordability Covenant” on each property. 22

R10-17: Assure that all EDA partners are well versed in HUD or other program requirements.

R10-18: Institute an in-house program or engage an outside vendor to provide vetting and homeownership responsibility education for first-time homebuyers. COMMENDATION The EDA has already taken steps to implement a number of the above-mentioned recommendations. EDA now keeps a detailed data base to track the sale and resale of Dollar Homes, as well as all covenant agreements. An outside agency has also been contracted to assist with monitoring, marketing and reviewing all sales agreements to qualified buyers. The Grand Jury commends EDA personnel for the time and effort they spent in complying with this committee’s requests. Upon review of all the facts provided by EDA and after conducting interviews with EDA personnel, it is obvious that EDA has taken corrective action to address implementation and oversight deficiencies in affordable housing projects, such as the HUD’s Dollar Home Program. These types of projects provide for the betterment of cities, such as the City of San Bernardino, and they can only be successful when they are administered as they are intended.

July 01, 2010 — San Bernardino Law and Justice Committee Report

17 pages 13 findings 13 recommendations

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Findings & Recommendations 13 findings

F1: Dianne Burns was hired as the Barstow Chief of Police on July 2, 2007.

Related Recommendations (2)

R10-24: Retire officers deemed “Permanent and Stationary” who are unable to perform regular police duties. (Findings 1, 9)

R10-25: Expand the SID facility to alleviate overcrowding working conditions which will provide adequate workspace for current and future staff. (Findings 1, 2, 13)

F2: Prior to her arrival, not all of the Barstow Police Officers had received basic firing range and tactical training. Since becoming Chief of Police, Ms. Burns has instituted a shooting and tactical training school just outside of Hinkley and all officers receive shooting and tactical training for two days every six months.

Related Recommendations (2)

R10-20: Assign modified duty only for officers whose injuries are not classified as “Permanent and Stationary.” (Findings 2, 6)

R10-21: Continue the Meet and Confer process with the Police and Fire Benefit Association on the issue of Modified Duty Policy. (Finding 2)

F3: The Department Policies and Procedures Manual had not been updated since 1983 and the department lacked an Internal Affairs Manual. Chief Burns is now in the process of re-writing this manual and is also writing an Internal Affairs Manual for the department.

Related Recommendations (2)

R10-22: Adopt an alternate dispute resolution program patterned after the program adopted by the City of Long Beach. (Findings 3, 11)

R10-23: Provide medical services immediately to prevent further injury and to shorten off duty time. (Finding 3)

F4: Chief Burns has worked to improve the interdepartmental relationship with the Sheriff’s Station in Barstow. 27

F5: She has encouraged department involvement in community programs such as Cops for Kids and the Neighborhood Watch Program. Chief Burns plans to start a street fair in the poorer neighborhoods in town with hopes of developing good relationships with those citizens. Her officers also participate in the “Cook and Serve” of the homeless that is held at a local pizza parlor. Chief Burns is also involved in the “Reading for Kids” program and is an active member of the local Rotary Club.

Related Recommendations (1)

R10-26: Provide SID with the additional staffing of 18 personnel required to eliminate their existing backlog and stay abreast of their heavy workload. (Findings 5, 6) 38

F6: Chief Burns has used the “Cop’s Grant” money ($100,000 per year) to update equipment, buy new computers, and provide the officers with protective vests. COMMENDATION The Grand Jury commends Police Chief Dianne Burns for the changes, improvements, and upgrades she has made since becoming Chief of Police. It is hoped that the citizens of Barstow and the surrounding area appreciate her fine work. RIALTO POLICE DEPARTMENT

Related Recommendations (1)

R10-19: Make disability retirement determinations within the time limit required by Government Code Section 21157. (Finding 6) 31

F7: The Permanent Modified Duty program pays the injured officers full safety officers’ salary while they work in low level positions that normally have been filled by civilian personnel, cadets, or volunteers. 30

F8: Officers who have injuries and are deemed “Permanent and Stationary” have been placed on Administrative Leave with full pay, effective April 13, 2010, pending disability retirement. Certification for retirement has not been filed by the City as of May 13, 2010.

Related Recommendations (3)

R08-52: Provide additional workspace for the Sheriff’s Scientific Investigation Division taking into account the growth of the county.

R08-53: Increase the number of Crime Scene Investigators from 12 to 24

R08-54: Increase the number of Deoxyribonucleic Acid (DNA)/Forensic Analysts from 10 to 20. Findings and Responses are as follows:

F9: Currently, there are six (6) officers working permanent modified duty assignments. The monthly payroll for these six is $40,892. This averages to $6,560 per officer each month. If these positions were filled with full time civilian employees with a pay of $15 per hour the monthly costs would be $15,840; thus saving the taxpayers $25,052 per month. Some of these officers do not perform forty hours a week of work, further reducing the need for civilian employees.

F10: The Finance Department provided the cost of retiring the six officers on “Permanent and Stationary” status. The cost of retiring the officers amortized over 30 years would total $2,457,991. In contrast, the annual cost of paying the salaries of these six officers, excluding benefits, at an average salary of $6,560 per month totals $472,320. The cost of continuing the Modified Duty Plan would exceed the cost of retiring the officers within six years, assuming the six officers remain employed by the City.

F11: Departments within the City are reviewing the City of Long Beach’s Alternate Dispute Resolution Program for possible future adoption.

F12: In regards to working space at the SID, they indicated that according to the American Society of SIDs, 750 to 1000 square feet per analyst is recommended. Currently, they have 250 square feet for each of their 14 analysts and have 17,000 square feet of storage space in the warehouse where 300,000 items are stored. With the ever increasing rate of crime this number of items collected will increase as well.

Related Recommendations (1)

R10-28: Provide additional warehouse space for storing and securing physical evidence. (Findings 12, 13)

F13: The current facility cannot accommodate additional staffing. Therefore, a new facility is required. It was reported that the SID is in the process of looking for a larger building and one that can handle the overcrowding situation, as well as to provide adequate workspace for their current and future staff. A commercial building identified as the Hallmark building has been looked into and is located in the northern area of San Bernardino. The Hallmark building has 60,000 square feet for the lab, plus warehouse space and space to expand in the future. The cost of the Hallmark building is within the $25 million allocated by the Board of Supervisors, but the question is, will they have adequate monies for the modification. Discussions are in the process at this time as to the costs and needs of the SID. It appears that it will take 1½ to 2 years to complete the project.

Related Recommendations (1)

R10-27: Provide the SID with additional office furnishing required of adding 18 personnel, including computers, desks, and any other office items that maybe required. (Finding 13)

📋June 30, 2010 — County of SAN Bernardino Grand Jury

9 pages 12 findings 3 recommendations

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Findings & Recommendations 12 findings

F1: At the start of the 2009-2010 budget year, there was a total of $16,124,895.00 budgeted for Priority Policy Needs and Board Elective Projects.

Page 15

Related Recommendations (1)

R10-01: Transfer remaining balance from both Priority Policy Needs and Board Elective Projects discretionary funding back into the County general fund for the next couple of years to help offset the County budget shortfall, and especially to help fund necessary improvements. (Findings 1, 11)

F2: Over the last several years, Supervisors have transferred hundreds of thousands of dollars from their Discretionary Funds to fund additional staffing of their Districts.

Page 15

F3: For the Final 2009-2010 Budget, the five Supervisors transferred $2,671,810.00 from their Priority Policy Needs Allocations to fund additional staffing in their Districts.

Page 15

F4: During the first 6 months of the current budget year, the Supervisors spent a total of $1,570,665.00 from Priority Policy Needs funds. However, only $321,357.00 (21%) was spent on Priority Policy Needs projects, but $1,249,308.00 (79%) on their office staffing.

Page 15

F5: Funding for the Board of Supervisors’ additional staffing taken from the “Priority Policy Needs” allocations appear with the code “Budgeted PPN Offset.” It is difficult to know this line is for Supervisors’ staff.

Page 15

Related Recommendations (1)

R10-02: Budgeting for all Board of Supervisors’ staffing should be included in the general budget and coded the same as all county personnel costs. (Finding 5)

F6: One District transferred $765,499.00 from the 2009-2010 Budget to fund additional staff, which is $15,499.00 more than the amount the District was allocated from the Priority Policy Needs budget. 2009-2010 San Bernardino County Grand Jury Final Report 6

Page 15

F7: Since the 2003-2004 Budget, the number of Supervisor’s budgeted staff has increased from 39.5 to 65 in 2009-2010, a 63.5% increase.

Page 16

F8: According to the Secretary of State, since 2004, the County population has only increased by 5.85%, from 1,946,993 to 2,066,950 at the beginning of 2010, an increase of 113,957.

Page 16

F9: There are no guidelines or specific written documentation which states how many staff a Supervisor may hire.

Page 16

F10: All Supervisors’ staffs are contract employees.

Page 16

F11: For the 2009-2010 Budget year, the Districts’ budgeted staff size, including the Supervisor, are

Page 16

F12: With the current state of the economy and the County facing a $90 million budget shortfall for the 2010-2011 budget, the County will undoubtedly have to make considerable cutbacks in all departments and services. 2009-2010 San Bernardino County Grand Jury Final Report 7

Page 16

Additional Recommendations 1

Not linked to specific findings.

R5: RESPONDING AGENCY RECOMMENDATIONS DATE

Page 14

📋June 30, 2010 — Calendar Number of Year Departments

106 pages 3 findings 4 recommendations

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Findings & Recommendations 3 findings

Page 35

F2: The EDA had no data base or process to track the Dollar Homes Program.

Page 35

Additional Recommendations 4

Not linked to specific findings.

R10-15: Establish a data base which will track the critical program information for each home and a process for monitoring subsequent home sales.

Page 35

R10-16: Include a detailed covenant history within the data base while filing with the County Recorder a “Notice of Affordability Covenant” on each property.

Page 35

R10-17: Assure that all EDA partners are well versed in HUD or other program requirements.

Page 36

R10-18: Institute an in-house program or engage an outside vendor to provide vetting and homeownership responsibility education for first-time homebuyers.

Page 36

📋June 30, 2010 — County of SAN Bernardino Grand Jury

50 pages 4 findings 3 recommendations

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Findings & Recommendations 4 findings

F1: Language used throughout the ICCM is more “advisory” than “directory” with no presence of giving command resulting in varied response from management to the findings of the auditors. The 2008-2009 Grand Jury had recommended that the language in the ICCM Manual be revised. Ambiguous language results in differing interpretations and therefore differing responses. The ACR had agreed with the recommendation with the changes scheduled to be included in the next revision of the Manual in June 2010. An introductory paragraph would also be included stressing that the Manual is not a guide, but a requirement that must be followed.

Page 62

Related Recommendations (2)

R10-29: The ACR comply with the response to the 2008-2009 Grand Jury recommendations and revise the language in the ICCM. Replacing the words should and must with the word will results in a document that is more commanding than instructional and provides clearer direction to management and staff. (Finding 1)

R10-30: The ACR follow up with its commitment to an introductory paragraph explaining that the ICCM is not a guide, but a requirement that must be followed with non-compliance resulting in reports to the Board of Supervisors, County Administrative Office and the Grand Jury as is the current practice. (Finding 1)

F2: The six month follow-up audit called for in the November 2009 audit may be extended for a few months to give the Library time to work on changes being implemented at the recommendation of the County Administrative Office (CAO).

Page 62

F3: Audit recommendations need to be responded to in the appropriate manner with suitable oversight. This corresponds to a 2008-2009 Grand Jury

Page 62

Related Recommendations (1)

R10-31: The Board of Supervisors and the County Administrative Office enforce the implementation of ACR audit recommendations by overseeing and following-up on compliance. (Finding 3)

F4: The Library anticipates a reduction in actual cash handling over the next several years thus reducing its risk due to the implementation of the PayPal system. This system allows for payment of library fines and fees from either one’s home PC or at a library computer. 2009-2010 San Bernardino County Grand Jury Final Report 48

Page 62

📋June 30, 2010 — Sensitive Property Report

39 pages 11 findings 16 recommendations

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Findings & Recommendations 11 findings

F1: The County has no specific “Policy” to maintain control of sensitive property; it only has a Standard Practice Procedure.

Page 22

Related Recommendations (1)

R10-03: Generate a mandatory “County Policy” regarding sensitive property control. (Finding 1)

F2: Departments are not following Standard Practice 11-04 SP3, Equipment Control for sensitive items; adhering to the Standard Practice is not enforced. 2009-2010 San Bernardino County Grand Jury Final Report 13

Page 22

Related Recommendations (1)

R10-04: The County Administrative Officer generates and distributes an Interoffice Memorandum each year, to each department head, regarding the annual reporting of sensitive equipment. (Finding 2)

F3: The Standard Practice 11-04 SP3, Equipment Control, has no named regulator to enforce compliance.

Page 23

Related Recommendations (1)

R10-05: Designate a department to oversee and implement the Policy and Procedure. (Finding 3)

F4: The Standard Practice does not specify a due date for filing the sensitive property lists.

Page 23

Related Recommendations (2)

R10-06: Enhance Standard Practice 11-04 SP3, Equipment Control Procedure, to be clear and concise. (Finding 4)

R10-13: Include an annual due date on Standard Practice 11-04 SP3 for filing the sensitive property lists with the Recorder/County Clerk. (Finding 4)

F5: The Standard Practice 11-04 SP3, Equipment Control does not mention the tagging process.

Page 23

Related Recommendations (2)

R10-07: Assign a property tag number and issue to the respective department to be placed on the identified sensitive equipment. (Finding 5)

R10-08: Conduct an annual physical inventory before filing an updated list with the County Clerk. (Finding 5)

F6: Disasters of any nature could destroy equipment and/or records of equipment. There would be no records of equipment less than $5,000.

Page 23

Related Recommendations (1)

R10-09: Implement policy for inventory of equipment that has a unit value of less than $1,000 in Standard Practice 11-04 SP3. (Finding 6)

F7: There is no uniformity in filing the sensitive equipment report; each department submits their list in different format.

Page 23

Related Recommendations (1)

R10-10: Create a spreadsheet with headings that list the necessary information for the control of equipment. The spreadsheet must be utilized by all departments when filing their sensitive equipment report to the Recorder/County Clerk. (Findings 7, 8)

F8: The sensitive equipment report reviewed has no monetary value listed on the items.

Page 23

F9: Sensitive equipment valued between $1,000 and $5,000 is not classified as fixed assets; many items can be easily transported without detection or easily diverted to personal use.

Page 23

Related Recommendations (2)

R10-11: Establish a sensitive equipment list for departments to use as a guideline of equipment that must be reported. (Finding 9)

R10-12: Ensure that each department maintains an on-site inventory list of sensitive property at each satellite office. (Finding 9)

F10: The Standard Practice does not specifically address equipment valued under $1,000 that could make for a heightened risk of theft (“walk-away” items).

Page 23

F11: There were no on-site inventory lists of sensitive property at offices that were randomly audited.

Page 23

Related Recommendations (1)

R10-14: Mandate all County departments and elected official’s offices update and reconcile their current holdings and provide current inventories of sensitive properties at the end of each Fiscal Year and submit to the County Recorder’s Office by an assigned due date. (Finding 11)

Additional Recommendations 4

Not linked to specific findings.

R1: Each department is responsible to maintain a list of sensitive equipment items (not defined as fixed assets in 11-04SP2) as identified: (a) All electronic devices with a monthly access or rental lease fee including, but not limited to, cellular telephones, photocopiers and radio communication devices. (b) All personal digital assistants (PDAs), digital cameras or video cameras and any electronic equipment or photography equipment with a purchase price of $1,000 up to $5,000. (c) All computer central processing units (CPUs), laptop computers, and all printers, scanners, monitors and facsimile machines with a purchase price of $1,000 up to $5,000. (d) Each department may make a determination to include items in addition to those identified in this Standard Practice on its list.

Page 19

R2: “Purchase price” is defined as the acquisition cost of an item, including the purchase price, before trade- in allowance, less discounts, plus freight, transportation and installation costs and sales or use tax.

Page 19

R3: Each department will be responsible to ensure that employees return County property, which is provided for use off site, to the department in the event of the transfer, termination or separation from employment.

Page 20

R4: Once a department establishes the list of sensitive equipment (as well as those items added to the list pursuant to 1(d) above), the list shall be updated on an annual basis and filed with the County Clerk. ATTACHMENT 1 complaints COMMITTEE 2009-2010 San Bernardino County Grand Jury Final Report 16 COMPLAINTS COMMITTEE

Page 20

February 15, 2010 — Administrative/Finance Committee Report

17 pages 12 findings 19 recommendations

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Findings & Recommendations 12 findings

F1: At the start of the 2009-2010 budget year, there was a total of $16,124,895.00 budgeted for Priority Policy Needs and Board Elective Projects.

Related Recommendations (3)

R10-03: Generate a mandatory “County Policy” regarding sensitive property control. (Finding 1) 13

F2: Over the last several years, Supervisors have transferred hundreds of thousands of dollars from their Discretionary Funds to fund additional staffing of their Districts.

Related Recommendations (2)

R10-04: The County Administrative Officer generates and distributes an Interoffice Memorandum each year, to each department head, regarding the annual reporting of sensitive equipment. (Finding 2)

F3: For the Final 2009-2010 Budget, the five Supervisors transferred $2,671,810.00 from their Priority Policy Needs Allocations to fund additional staffing in their Districts.

Related Recommendations (2)

R10-05: Designate a department to oversee and implement the Policy and Procedure. (Finding 3)

Related Recommendations (3)

R10-06: Enhance Standard Practice 11-04 SP3, Equipment Control Procedure, to be clear and concise. (Finding 4)

R10-13: Include an annual due date on Standard Practice 11-04 SP3 for filing the sensitive property lists with the Recorder/County Clerk. (Finding 4)

Related Recommendations (4)

R5: RESPONDING AGENCY RECOMMENDATIONS DATE Board of Supervisors 10-01 through 10-02 09-30-2010 7 SENSITIVE PROPERTY

R10-02: Budgeting for all Board of Supervisors’ staffing should be included in the general budget and coded the same as all county personnel costs. (Finding 5)

R10-07: Assign a property tag number and issue to the respective department to be placed on the identified sensitive equipment. (Finding 5)

R10-08: Conduct an annual physical inventory before filing an updated list with the County Clerk. (Finding 5)

Related Recommendations (1)

R10-09: Implement policy for inventory of equipment that has a unit value of less than $1,000 in Standard Practice 11-04 SP3. (Finding 6)

F7: Since the 2003-2004 Budget, the number of Supervisor’s budgeted staff has increased from 39.5 to 65 in 2009-2010, a 63.5% increase.

Related Recommendations (1)

F8: According to the Secretary of State, since 2004, the County population has only increased by 5.85%, from 1,946,993 to 2,066,950 at the beginning of 2010, an increase of 113,957.

F9: There are no guidelines or specific written documentation which states how many staff a Supervisor may hire.

Related Recommendations (2)

R10-11: Establish a sensitive equipment list for departments to use as a guideline of equipment that must be reported. (Finding 9)

R10-12: Ensure that each department maintains an on-site inventory list of sensitive property at each satellite office. (Finding 9) 14

F10: All Supervisors’ staffs are contract employees.

F11: For the 2009-2010 Budget year, the Districts’ budgeted staff size, including the Supervisor, are District 1 16 District 2 11 District 3 13 District 4 17 District 5 10 Currently, District 1 has one vacancy and District 4 has four vacancies, so there are only 62 staff and Supervisors.

Related Recommendations (1)