RICHMOND — A state auditor has put Richmond on a list of municipalities most at risk for waste, fraud, abuse and mismanagement. The inclusion is another blow added to criticism in recent months that the city is not doing enough to address its financial problems.
Citing a persistent budget deficit, shortage of cash reserves and high level of overtime usage in its fire and police departments, the California State Auditor has included Richmond among six cities showing signs of impending financial problems.
Indicators include concerns about the ability to pay short-term obligations, change in primary source of revenues and the capacity to respond to financial emergencies.
The cities of Chico, Monrovia, Ridgecrest, Hemet and Maywood are also on the list, but only Richmond failed all five risk criteria.
The evaluation was performed by the state auditor’s newly created Local Government High Risk program, formed in July, that identifies cities considered to have a potential for fiscal mismanagement.
The independent entity, which audits cities, special districts and other public agencies, evaluated more than 400 cities using publicly available information to make its assessment. It zeroed in on municipalities and has recommended an audit by the Joint Legislative Audit Committee for three, including Richmond. But the hearing to consider an audit was canceled due to time constraints, with no new date set for 2016, according to Margarita Fernandez, a spokeswoman for the state auditor’s office.
However, the state auditor’s office sent a letter to Richmond in October asking for further documentation that the city is taking steps to address its fiscal issues, including its substantial unfunded pension and other post-employment retirement benefit liabilities that total more than $440 million. The documentation is due to the state by Dec. 31.
“We’re going to evaluate what the city submits, although currently we believe that the city warrants an audit,” Fernandez said.
Richmond City Manager Bill Lindsay said his office was working to provide documentation by deadline but added that he didn’t believe an audit was a good use of the state or the city’s time. He also expressed concern that Richmond was put on a list of “at-risk” cities before it was given an opportunity to present additional information.
“The fact that we would be put on a list before we are asked to respond to something is a little odd,” Lindsay said. “But if the state audit committee wants to come in and audit us, they are welcome here. The only thing I object to is if they want to charge us for it.”.
It was not immediately clear if the city would be required to pay for a state audit.
Earlier this year, Richmond became the only California city to have its credit rating reduced to junk bond status by Moody’s Investors. High debt obligations, growing expenses and reliance on one-time revenues were cited for the downgrade. The decision forced the city to issue new bonds at a less than favorable rate, estimated to cost Richmond taxpayers an additional $10 million.
The bond sale was needed to generate cash after the reduced rating gave the bond holder — J.P. Morgan — an option to end the deal, which would force the city to pay a $33 million early termination fee or face a lawsuit.
Among issues raised by Moody’s are the city’s use of Measure U, the half-cent sales tax passed in 2014 and $3.4 million from a bond sale to fill this year’s budget deficit. Measure U, which does not sunset, was touted as being primarily for road repairs when it was proposed last year and is projected to bring in roughly $8 million per year.
In September, Standard & Poor’s, another credit rating agency, also lowered Richmond’s rating, citing a multiyear structural budget imbalance and potential higher expenditures from issuing new bonds at less favorable rates.
Contact Karina Ioffee at 510-262-2726 or kioffee@bayareanewsgroup.com. Follow her at Twitter.com/kioffee
