A new state audit of the city of El Cerrito’s financial management concludes that city officials did not curb overspending practices even as revenues began to fall, negligently sending the city to the brink of bankruptcy.
The 64-page report, titled “Excessive Spending and Insufficient Efforts to Address Its Perilous Financial Condition Jeopardize the City’s Ongoing Fiscal Viability,” prompted a detailed response this week from City Manager Karen Pinkos, which the state auditors have since criticized as dismissive of their findings.
El Cerrito has long been flagged on the California State Auditor’s dashboard of cities in distress. The city ranks as the sixth most troubled on that list, and the audit lays out how it wound up in such bad shape.
In addition to painting a grim picture of El Cerrito’s financial outlook, the audit pillories the City Council and staff for outspending revenues in eight of the past 11 years and describes how officials skated by taking short-term loans at great expense to the city’s credit rating.
More than half of the city’s total expenditures have gone to the police and fire departments’ salaries and benefits, the audit states. And as pension liability costs have continued to rise, the city has done little to set aside the money needed to cover it.
“El Cerrito’s failure to adequately address these deficiencies can be partially attributed to the absence of a comprehensive financial recovery plan to ensure a sustained and coordinated approach for reducing its costs and creating a sufficient financial reserve,” the report states.
When stopgap measures such as transferring funds or selling city-owned land came up short of keeping the city afloat, the City Council and then-City Manager Scott Hanin resorted to dipping into budget reserves to pay the bills. As a result, those reserves were almost totally depleted by the 2016-17 fiscal year, the report says.
To solve the mess, the audit lists a number of recommendations, including that the city develop a recovery plan, establish monthly fiscal updates and reduce excessively high salaries for police and fire management.
The audit does not name the El Cerrito officials most responsible for the present crisis.
On Tuesday, City Manager Pinkos issued a 16-page response to the audit that mostly agreed with its findings but pushed back on the idea that the city deserves a “high-risk” designation.
The response concurs with 14 of the audit’s recommendations, partially agrees with three others and disagrees with freezing salaries, consolidating positions or reducing spending in the police and fire departments.
Pinkos also criticizes the audit’s tone, insisting that the city has already made progress in the past two years to address its financial problems despite major disruptions caused by the coronavirus pandemic.
“Our work is not complete, but we also have not sat idle by any means,” wrote Pinkos, who served for 12 years as assistant city manager before being promoted to the top job.
In an interview, Pinkos said city staff had only five days to formally respond to the state audit. Adjusting police and fire salaries can’t easily be done, she said, because that has to be negotiated with unions.
Pinkos added that the audit wasn’t neutral in its criticism of how officials have reacted to the looming financial crisis and didn’t acknowledge her efforts since becoming city manager to fix past mistakes.
“I have had to work very hard to change the culture of the organization,” Pinkos said. “But we depleted our general fund reserves by continuing to provide services to residents — there was no fraud or (other unethical acts).”
In a response to the city’s response, the auditors criticized El Cerrito officials for resisting the “high-risk” designation. The city’s response, the auditors wrote, “appears to prematurely dismiss a potential approach to reduce costs.”
“El Cerrito’s statement and previous comments appear to imply that our audit was not a fair assessment of the city,” the auditors added. “We disagree … we stand by our findings and conclusions.”
