Is the City of Beaumont Solvent?

A lot of information came out of the last Beaumont City Council meeting much of it was reported in our local newspapers. In my opinion our local press is missing the biggest story of all.

Here is some of what was reported: 

• An article/blog in Press Enterprise reported on comments that were made by me and other “frequent council critics.”
• The Record Gazette reported that Council Woman Knight argued multiple investigations of the City’s financials proved our Finance Department has been held to a higher standard.
• It was reported by every news service that our Mayor and his colleagues will follow the advice of their auditing firm and not order an internal control audit.
• And, in a press release the day after the council meeting, the State Controller’s Office (SCO) announced they had sent a letter to the City of Beaumont informing the city they were delinquent on submitting financial reports from 2010-2011 and warning them that habitual offenders will be subject to an audit from their office. 

Here’s the BIG STORY that wasn't given the attention it deserves:

The city declared a $21.5 million debt to the former Beaumont Redevelopment Agency as an asset in order to show, on paper, a positive balance in their funds of $17 million. In the audit the council accepted last week,  the auditors expressed doubt that the City will be able to collect this debt from the State.

The following is Note 21 on Page 59 of the Audit Report and it references this $21.5 million debt:

Management believes, in consultation with legal counsel, that the obligations of the former redevelopment agency due to the city are valid enforceable obligations payable by the successor agency trust under the requirements of the Bill. The City's position on this issue is not a position of settled law and there is considerable legal uncertainty regarding this issue. It is reasonably possible that a legal determination may be made at a later date by an appropriate judicial authority that would resolve this issue unfavorably to the City.

One local news report correctly pointed out the 2011-2012 “audit showed a surplus of $283,000 for the fiscal year and a (fund) balance of $17.6 million, but $21.5 million is due to the City state from the former redevelopment agency, resulting in a $4 million deficit.”

I didn't see any news reporting the fact that the city also back-filled the 2011-2012 budget shortfalls with a $2 million transfer from the 2012-2013 budget. This means the City of Beaumont was not only in the hole as of July 2012, the council is digging the hole deeper by authorizing the City Manager to borrow from future years to balance the budget. If you take away the RDA debt and the $2 million transfer, the City of Beaumont operated with a $6 million deficit for the year 2011-2012. In the State of The City address 6 months later, Mayor Roger Berg claimed the city had $11 million in reserves.

What about now? Are we any better off?

Well, consider this - the State Controller’s Office’s website has a page where you can follow the efforts of California local governments to collect on their RDA debt from the state.

Here’s the link: (http://www.sco.ca.gov/eo_completed_RDA_reviews.html)

The SCO rulings on local governments’ claims on RDA debt from the State of California can be found on this page. Pending claims which the SCO will consider next are also listed. There is no record of Beaumont being approved by the state to receive any part of the $21.5 million debt. There isn't any record of the City of Beaumont even filing a claim to the State for reimbursement of the debt.

We aren't any better off.

The mayor and council members can discredit the private audit by claiming the accountant doesn't have a CPA license and the sponsor of the audit has an ax to grind. They write off a request by citizens for an audit of the internal controls because their auditing firm tells them they don’t need one. But none of the City Council Members, nor their auditors, were able to answer my specific question concerning the solvency of our city without collecting the $21.5 million. Either they don’t want to admit how bad off our city is or they don’t know.

Our City Manager Alan Kapanicas knows the real state of the city and he also didn't answer my question at the council meeting. I saw reporters from both the Record Gazette and the Press Enterprise in the audience last week. It appears from their reports, Mr. Kapanicas will answer their questions. I wonder if or when they will get around to asking the question that really matters:  Is the City of Beaumont Solvent?