It’s now a matter of trust.
Meeting days after city management made public auditing issues that essentially question the validity of municipal budget assumptions and the accuracy of various accounts, the Manteca City Council on Tuesday made it clear the public’s trust has been broken and that the trust must be regained.
The council meeting resulted in another bombshell— Caltrans has placed Manteca on a “do not fund list”. That designation jeopardizes funding the state may have committed — or may — toward municipal projects such as the McKinley Avenue interchange.
Many of the 20 observations and concerns that are the basis of the accounting mess the City of Manteca finds itself in were among 43 significant deficiencies Maze & Associates — the city’s auditors — noted in annual reports from 2009 through 2018 that were either ignored or not implemented by the finance department and senior city management.
Of those, 22 deficiencies were reoccurring points made in audit reports for more than one year. Eight deficiencies were repeated for five years or more.
“I put my trust in city staff,” Councilman Gary Singh said in explaining how his reaction finding about the disarray of City of Manteca financial accounting prompted him initially to be angry and disappointed. “. . . They get paid real well to do their job. I expect them to do the job.”
Singh said it was a violation not just of his trust and the rest of the council but “all of the residents in the community. It is their money.”
Stephanie Beauchaine, who has spent the last six weeks wading through numerous accounting irregularities since starting work as the interim city finance director, agreed trust had been broken with the council and the community. She added by uncovering problems, correcting them and putting in a system that follows accounting standards and laws restricting the use of certain funds as well as creating transparency through monthly and quarterly reporting to the council and public that the trust can be earned back.
Beauchaine summed it up as “an accounting problem not a financial problem.”
That does not mean necessarily that Manteca has as much money on hand that it thinks it does. The reason is simple, as Beauchaine pointed out in response to a council question. If accounting information is erroneous going back several or more years and wasn’t corrected, that mistake is rolled into subsequent budgets.
It could mean Manteca counted on money it never had or failed to deposit and withdraw money from the right accounts when posting revenue and expenditures.
The $67 million in cash deficits identified in various accounts includes a $40 million cash deficit that accrued over three years. That involved work financed by a bond where the city never accessed the bond holding to draw down the account.
In order for construction costs of major projects the bond funded to have been paid, the city had to use cash — of which they have more than $200 million on hand with most of it legally restricted for specific purposes — from somewhere.
It is that borrowing between accounts that created the $67 million cash deficit.
The city is essentially trying to untangle such inter-fund borrowing as well as address the general ledger not being reconciled, various departments working from off-the-book spreadsheets to track expenditure and revenue decisions, and not following stipulations that grants have attached to them.
Beauchaine repeatedly emphasized Manteca’s reserves — which no exact dollar amount was provided since the city called its accounting of the public’s money into doubt — are ample enough to cover the identified cash deficits in various accounts at least for the current fiscal year.
“There are deficits but we can cover them from (the reserves),” Councilwoman Debby Moorhead noted.
The accounting deficiencies — and money not being in the right accounts — could call into question numerous assumptions about the financial status of accounts that impact everything from sewer, water, and solid waste rates to funding of general fund services such as public safety. As such once everything is corrected that Beauchaine expects the bulk to be after about two years, it could impact utility service rates and service levels.
The discussion about the city’s accounting issues that Beauchaine said could change as deeper drilling takes place is occurring just weeks before the Nov. 3 election when voters will decide the fate of a one cent sales tax plan.
Measure Z, based on projections by city staff, and would raise $12 million annually it is passed by a simple majority.
It has been billed as a way to maintain service levels and add amenities to the city.
Mayor Ben Cantu attributed the problems to “starvation funding” over the years in reference to city efforts not to add staff to various departments — including police and finance — as Manteca has grown.
At one point City Manager Miranda Lutzow noted that historically Manteca city leadership took pride in being “lean” when it came to staffing.
She also emphasized the city can’t yet determine how things went haywire over the years whether it was lack of training, insufficient staff, simple mistakes, malice, or other reasons.
Lutzow added the city has “a lot of hard workers” that are eager not just to correct the problems in finance and do things correctly going forward but other municipal workers who do everything from providing public safety and picking up garbage to making sure water comes out of the tap when they are turned on.
The issues started coming to light after top employees in the finance department departed. That underscores Beachauine’s point in noting the answer is to put a system in place instead of relying on people for institutional knowledge.
To contact Dennis Wyatt, email email@example.com