It appears former City Manager Miranda Lutzow was crying wolf — to a degree — when she announced to the public 18 days before they voted on a proposed one cent sales tax increase in the November 2020 election that the City of Manteca had “roughly $67 million” in cash deficits.

The voters rejected that tax measure by 1,526 votes after being broadsided with the October surprise.

More than two years after painstakingly revisiting endless financial entries and with the help of retired finance director Suzanne Mallory on whose watch the municipal books were still in order, the $67 million “cash deficit” has virtually all been accounted for and rectified although the city has yet to complete the process of addressing all issues in the finance department.

The biggest issue was the failure to draw down on $31 million in redevelopment agency bonds to pay for work that had been done on two 120 Bypass interchanges — the diverging diamond at Union Road and preliminary work and site acquisitions for the McKinley Avenue interchange.

The other large chunk of the $67 million involved what Lutzow and hired financial consultants perceived to be interfund borrowing by the water and sewer funds in the neighborhood of $20 million plus that had to be paid back with interest which — based on what they were seeing — wasn’t happening.

It turns out the money in question was being taken from growth-related fees collected for the purpose of distribution and capacity that were needed to accommodate more homes and businesses. It was never a loan per se but money legally collected for the purpose the city spent the money on.

On Tuesday in response to a citizen’s inquiry about the status of the $20 million plus Lutzow had warned water and sewer ratepayers were on the hook for in paying back interfund loans, staff indicated there had been a misunderstanding on the part of the city’s administration 17 months ago.

After the meeting staff elaborated on what had been unearthed since October 2020.

“We are working hard to get our house in order,” said Toni Lundgren who officially becomes Manteca’s interim city manager today after being awarded a contract for that position through Dec. 12 by the council Tuesday while they search for a permanent city manager.

Lundgren added the city was appreciative of how Malloy — the former finance director — came out of retirement to help the city get its books back in order.

Water, sewer rates still

on horizon; general fund

has $3.1M structured deficit

Unfortunately, resolving the cash deficit issue that would not have been an issue if basic financial practices were followed doesn’t mean that city water and sewer ratepayers won’t be in for what could be sizeable rate increases in the coming months. Those rate increases likely will be phased in over multiple years

The city hasn’t raised sewer or water rates for more than 14 years. The city actually adopted rate increases for both enterprise accounts back in 2008. Then, due to the housing recession, they suspended the four planned annual rate hikes over the next four years.

As a result, Manteca has not raised water or sewer rates to cover increased operating and maintenance costs as well as to plan for replacement projects as the system ages. Neighboring cities since 2008 have imposed between six and 10 rate increases since 2008.

The city’s general fund that covers day-to-day municipal operations such as police and fire protection, street maintenance crews, and such has a $3.1 million structured deficit for the current year.

That means the city will spend $3.1 million more than it will collect to run day-to-day services. They are drawing down reserves to cover the gap.

Such a practice is unsustainable as ultimately reserves will be depleted unless new revenues are secured or cutbacks in services are made.

How the $67 million

‘cash deficit’ was

figured out by staff

In a memo Tuesday, Deputy Finance Director Jared Hansen noted the accounting  snafu involved roughly  $31 million in the RDA Bonds Fund. They are restricted funds and were spent on portions of the Union/120 and McKinley/120 interchange projects.

The expenses have been reviewed and identified as eligible expenditures for the bond funds. A drawdown of these funds from the project account will be forthcoming. In addition, the expenditures paid in excess of the cash reserves of approximately $10.5 million have been moved to the appropriate funding source which has fixed the negative cash issue identified.

In addition, the RDA Housing had funds of $2.7 million which also will be drawn down to city funds. These were previously spent on low- and moderate-income housing projects as outlined by the housing agency and reviewed and determined to be eligible expenditures.

Other remaining cash deficits are due to time lags between goods and services provided or reimbursable expense occur and when payments are received. These are covered by short-term loans from other funds and are expected to be repaid within the year they occur. In addition, some funds have sufficient monies recorded in investment accounts to cover cash deficits.

Since cash and investments are “pooled” the individual funds do not have a deficit. Other interfund loans of approx. $19 million have occurred when one impact fee has sufficient reserves to fund projects needed for another impact fees such as transportation funding storm drain projects. These interfund loans have been identified and the terms and conditions of those loans are being reviewed and have been determined to be accurate and payment schedules identified.

The other item to note is the deferral of approximately $11 million in development fees and the tax-sharing agreements which will be paid from future hotel room revenues from Great Wolf.

The city also on Tuesday received its 2020 audit a year behind schedule.

The audit was delayed due to issues that occurred in the finance department after Mallory retired.

The 2021 audit is now underway.

Among the issues the 2020 audit brought up was the fact a city management team member — who is no longer in the city’s employ — opened a bank account for the distribution of small business loans as part of the COVID pandemic response without the finance department’s knowledge.

While all of the money was accounted for and properly spent, the auditor noted the act of a checking account being opened in such a manner does not reflect good practices.

To contact Dennis Wyatt, email dwyatt@mnantecabulletin.com