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Home My WebLink AboutNB 2 BAILOUT FUNDS 06-16-80DATE: June 9, 1980 NEW BUSINESS 6-16-80 Inter-Cora TO: FROM: SUBJECT: HONORABLE MAYOR AND CITY COUNCIL DAN BLANKENSHIP- CITY ADMINISTRATOR BAILOUT FUNDS 1978-79' Efforts have been unsuccessful in convincing the State Controller's Office that the "obligated reserves" the City established at the end of the Fiscal Year 1977-78 met the criteria established by the State legislature in SB 154 and subsequent bills. The State Controller still claims that the City should return $177,536.20 of the $267,710.20 the State provided the City in the "Pro- position 13 Bailout." The State does not question the pr6priety of the reserves, but will not re- cognize them for the purposes of evaluating the City's fund balance in light of the restrictions placed on eligibility for bailout funds. The inequities are numerous, as we have argued with the State, as can be seen from some of the attached correspondence. Nevertheless, without further legislation the City's position appears to technically not meet the criteria. It therefore appears appropriate for the City to return the $177,536.20 under protest, in the event that the ground rules change. RECOMMENDED ACTION Authorize the Finance Director to issue a check in the amount of $177,536.20 from General F'u~d Reserves to the State Controller in accordance with their audit, to'be'sent With a letter of'protest. ully submitted, ' ' DB/hl r KENNETH CORY SACRAMENTO. CALIFORNIA 95805 (916) 323-2322 May 27, 1980 Mr. Dan Blankenship City Administrator City of Tustin · 300 Centennial Tustin, CA 92680 Dear Mr. Blankenship: This is in response to your letter of May 16, 1980 regarding the exceptions to the bailout audit. In your letter, you listed three items to which you wanted this office to respond. The first item was the disqualification of non-negotiable certificates of deposit. In response, I would refer you to our June 13, 1979 letter which states our position on investments. It is also my understanding that the League of California Cities sponsored an amendment to SB 180 which proposed to include certificates of deposit within the meaning of investments. I understand that this amendment has been removed. The second item (Redevelopment Loan) was disallowed because according to Resolution No. RDA-17, the $350,000 was to be repaid by June 30, 1978. The June 23, 1978 loan of $450,000 was also to be repaid within a year making it a current asset as opposed to a long term or "non-cash" asset. The disallowance of the entire amount of'the lease purchase agreement was based on our position that is was the intent of the legislature that only amounts which can reasonably be construed to be paid from the unap- propriated balance (as opposed to future revenue) or amounts formally 'committed on reserved are deductable from the General Fund Reserves pursuant to Government Code Section 16250 (e) or (4). Mr. Blankensh£p Page 2 May 27, 1980 I hope the above clarifies our position. We will gladly review any additional information you would care to submit. If you are in agreement with the audit findings, we would again request payment of the amount due the State. Thank you for your cooperation. Cordially, KENNETH CORY, STATE CONTROLLER Div. of Local Government Fiscal Affairs Earl L. Lucas, Chief Ralph Martinez Property Tax Unit RM/njl May 16, 1980 Mr. Kenneth Cory, Controller State Capitol Sacramento, California 95814 Attention: Mr. Ralph Martinez Dear Mr. Cory: We are still not satisfied with the disqualification of our "obligated reserves." Some points of equity we recognize may be due to the language of the legislation rather than your interpretation and that is not your problem. However, we do take issue with the following: Disqualification'of non-negotiable certificates of deposit while approving similar investments such as Local Agency Investment Fund investments or federal securities. This is a strained interpretation which considers neither the practical aspects or spirit of the legislation. Disqualification of our revolving loan to the Redevelopment Agency which is obviously a continuing loan, and we can show that Council intended to fund the Redevelopment Agency in that manner as opposed to the expense of issuing bonds. This was in our citizens interest due to lower costs of issuing and servic- ing the debt. 3. Disqualification of our lease purchases principle outstanding for future payments. To restrict such obligations to only the amount due early in the next fiscal year does not seem realistic. If Council has approved the lease purchase transaction, then the authorization to establish such a reserve should be considered implied. We have other concerns which will apparently require legislative action and will pursue those avenues as possible. If, however, you can specifically address the three areas above, we can then decide whether to pursue our appeal or remit the contested portion of bailout funds remaining. yyours, 'Dan Blan~ens~ City Administrator DB/hl r _ City Center 300 Centennial Tustin, California 92680 (714) 544-8890 KENNETH CORY SACRAMENTO, CALIFORNIA 95805 (9[6) 323.2322 April 11~ 1980 1 '2 I BO Mr. Dan Blankenship City Administrator City of Tustln 300 Centennial Tustin, CA 92680 Dear Mr. Blankenship: This is in response to your letter of March 27 1980 regarding the Controller's final reconciliation letter on the bailout. Included in the Controller's letter of March 4, 1980, were copies of our audit work papers. The one exception taken was for the "Ob- ligated fund reserves" as listed in the June 30, 1978 independent audit report of the City. We are not allowing or disallowing any particular type of reserve. We are merely adhering to Section 16250 (e) which states that ". . . General Fund Reserves shall not include: . . . reserves established by law or governing board policy adopted prior to June 6, 1978." We would require such documentry' evidence as city council resolution establishing the reserves prior to June 6, 1978. If such documents are available, we would be most willing to review them. If you would prefer to meet with us to discuss this matter, please call Ralph Martinez of this office. Cordially, KENNETH CORY, STATE CONTROLLER Div. of Local Government Fiscal Affairs Earl L. Lucas, Chief Property Tax Unit RM/njl March 27, 1980 Mr. Kenneth.Cory, Controller State of California Sacramento, California 95805 AttentiOn: RalphMartinez Dear Mr. Cory: We are not in agreement with the results of the "General Fund Reserve" audit for the City of Tustin. In order to evaluate whether to object to, or concur with, part or all of the audit conclusions, we need additional information. First, it would be helPful to receive lists of the types of reserves you are approving or disapproving in general to help us better judge the con- sistency of the rules being applied to our case. Second, we need the specific reasons our reserves are being disqualified by individual item, or at least grouped into common categories. Third, we would appreciate copies of your audit worksheets if they show any indication of the reason for disqualification. Thank you for your assistance in this matter. We Will be happy to work with you for an early resolution of the questions. Sincerely yours, City Admi ni strator DB/hlr City Center 300 Centennial Tmti~, California 92680 (714) 544-8890 Ms. Betsy Strauss, Attorney at Law League of California Cities 1480 K Street Sacramento, California 95814 CITY COUNCIL Stephen L. Schuster, Mayor Donald J. Saltarelli, Mayor Pro-tern Ursula E. Kennedy James B. Sharp Ralph Welsh, Ir. Dear Betsy: Enclosed letter dated November 9, 1979, and memo dated October 30, 1979, should provide you with the necessary background information on our SB Bail-out Audit by the State Controller's Office. Additional legislation may be necessary to allow the fotlowing: recognize that sequential annual loans to a redevelopment agency in order to establish debt to entitle receipt of tax increment funding on a pay-as-go basis for improvements represents a continuous debt and qualifies as "obligated reserves." recognize that establishing reserves for previously unfunded liabilities such as accrued sick leave, accrued vacation (in our case, general leave), accrued compensatory time, un- funded retirement liabilities, etc., are prudent fiscal man- agement practices and do not require formal Council action to qualify as "obligated reserves." recognize that existing lease-purchase agreements on equipment represent a continuing liability until paid off, and do "qualify as "obligated reserves" for the purposes of bail-out reserve criteria. If you have any other information or ideas on avoiding this re-capture of bail-out funds by the State Control)er's Office, please let me know. Sincerely yours, City Administrator DB/Mr Attachments (2) City Center Centennial at Main Tustin. California 92680 (714) 544-8890 O~tober 3~, 1979 Dan Blankenship, City Administrator Ed Bushong, Finance Director $U~35~7: AUDIT OF 1978-79 SB154 BAILOUT FUNDS A staff auditor from the State Controller's office was in my office today to audit City records regarding the reported General Fund Reserves as of July 1, 1978. Both June, 1978 fin~! accounting ledger records and the City's annual audit rep?rt' for June 30, 1978 were reviewed during the state audit. A5 a result of this audit, the entire $801,192.65 reported as unavailable on the City report to the State Controller, ~=~=~ August 24, 1979, (copy attached) has not been allowed as an exclusion from %he General Fund Reserve. The City au55t report shows the General Fu~d balance is $870,239 and tki~ f~gure k~5 ~e~n used by the State in calculating the a~t'2~! General Fun5 balance for bailout determination purposes.. Ea~a5 on the aLove information the City owes tke State approxi- mateS-.° $174,7~$. it is not clear whether this amount would be de£urce~ from subsequent bailout subventions or the State would ~eru~re a lump sum pa~ent. In any case, until this matter i~ re~o!ved, ~ recommend the Council authorize a reserve for $~7~,7~0 be established as a contingency until a final dis- ~c~ition is d~termined. A c~?~' of the State Auditor's worksheet is attached for your reviews;. If you have a copy of Council resolutions, etc. and ctker ~etail %-;hich will support the exclusion of the items ~;hlrh comprise the $801,000 figure, please provide me with a copy. The Finance Department file contains no supporting da~a. ~he State Controller's office will review the field audit re~Drt along with any supporting documents or explanation you provide, or, if you have any questions about the audit, please call (916) 323-2374. A letter from the State Controller to tke City is anticipated, however, all supporting data tha~ you can find should be submitted as soon as possible a!cn~ with your reasons for excluding each item. Ed Bushong Finance Director (' ( t~) :'general fund reserves as of 3uly 1, 1978" Section 16250(c), Covernment Code General Fund Contingencies Fund Revenue Sharing Fund(s): Fund Fund Fmud Fund (B) (C) (D) (E) Available Additions Fund Balance lnvestmen~ Capital 6/30/78 Reserves Projects Deductions ( ). ( ) ( ) ( ) (F) Total Other Fund(s): Fund Fund Fund Fund Fund Reserves ~$:abllshed by governSng kcard policy after 3unm 5~ 1978 Totals Total 1977-78 city revenues Less property tax collections for debt service Nat -~977-78 city revenues Analysis of fund balance unavailable: Description Date ( ) ( ) ( ) ( ) ( ) Resolution No. (if applicable) .~mount Excluded --:lephome ( ) 1978 Signed ~9 (- City of Tustin "general fund reserves a:.; of July 1, 1978" Section 16250(e), Govt~rnment Cod~: (B) (C) (D) Available Add i t ion~ Fund Balance Investment Capital 6/30/78 Reserves Pro~ec~s Deductions General Fund Contingencies Fund Revenue Sharing Fund(s): Revenue Sharing Fund Fund Fund Fund Other Fund(s): None F~nd Fund Fund Fund Fund Reserves az~ablishad by governin~ ~ard policy after J~c~ 5, 1978 32,384 --01 $ -o- $ -o- 21,402 -O- -O- Totals $ ,53,786 $ -0- $( -o- (F) Total $ 32,384 ( -0- ) 21,~02 _( ) ~ ) ( ) -o- ( -o- ) -o- ( ) ( ) ( ) . -0- $ -0- $( -0- ). $ 53t786 Total 1977-78 city revenues Less proper~y tax collections for debt service Net 1977-78 city revenues Analysis of fund balance unavailable: Description I Date See attached Resolution ~:o. __(if applicable). $6,977,556 _(_ 2_~_~ $*. ? 6_rule.! ,? A~oun~ Excluded $801,192.65 , , August 24, ;ephone (714) 544-8890 1978 DAN BLANKENSHIP // £ I TY ADM I N I STP.,~TOR // 17. Analysis of fund balance available: DESCRIPTION Outstanding balances - Lease Purchase Contracts Two 45OO Xerox Copies Last Payment Telephone System' Vacuum Street Sweeper Final.Equipnent for Haintenance Yard Accrued Employee LiabiliLies Sick Leave General Leave (Vacation) Compensatory Tim~ Loan from County Sanitation District Loan to Tust~n Redevelopment Agency Loan to Se!f-funded Health Plan (clai~ greater than"premiums") TOTAL OBLIGATED RESERVES DATE Re sol A~,~un t 615178 ..... $ 26,776.20 8/74 ..... 23,700.00 2/76 ..... 26,800.00 2/78 '- ..... 7,000.00 Ongoing ..... 169,729.O7 Ongoing ..... 120,502.60 Ongoing ..... 5,353.30 8/76 36,331 '~ 7/77 ..... 350,000.00 12/77 ...... 35,OOO.OO $801,192.65 NO?-~v,~ 9, 1979 Office of the State Controller Audit Se~ion-State Bail-out F~nds State Capitol Sacramento, California 95814 On Oct~er 30, 1979, the City of Tdstin r=~eived a~n audit by G~e ~s of }~t~r de~ant in r~ards to ~qe City's re~rt of rese~%'es ~nd relat~ matters afl, thiS ~e City's. elig.~i!ity for S~te ~il-out f~nds in Fiscal YA-~ 1978-79 (S~ ~: E). ~. ~oli~ that ke was r~,~ndLn9 disqualifi~tion of a n~er of res~es est~nblish~ by the Ci~ which, ~ effect, r~uc~ ~e entitlan~nt of Ci~, for suJn bail-out f~ds. We ~ke issue wi~ his inter, ruCtions m~d e~e taking this ~po~ %o present o~ ~jec~ons. 1. ~'o 4500 Xerox Copiers purchase~ by 'the City $26,776.20 ~px~s ;,;ere au~.orizec] t.o ~lk.TM- purchd, sed by ~?,~ City Co'~.cil ,~,~ a ].ease purchase b~vin~ +~ fut~-e contract cost ll~bz~ty to ~ty cf $26,776.20 ov~ a fiva-ye~ ~ri~. We fail to see h~.' it is L~pro~}r. to .... o:fsz: ~his r~l !i~i!ity. It was o~ ~,p:.~a cs-~lish a rese/~'e ~ a~t~ropriate ~he neces~, Jn each fis~l y~r as r~%tircd. The auditor c!a~-d ~]at %.;e ~2st have a reserve esb~!i~}~2 by a ~?mcil resolution ¥;hen res~,es kave been ~a~tioP~!ly es~- blist~ a~is~atively ~ He also appeared to q~jestion our approach in annually budget~_ng the e~cpenditures for the fiscal year th~n t~yi~ directly frc~ the r~serve. ~ese are not en_~m"Dr~nces whic/~ have be-~n sh~.-,,~ as e~.~.'~,~Jiture in prior fiscal year and ~:st be later budgeted to a proper reflection of ~he eJ~e~di~ure Ln the year actually Office of t]%e State Controller Re: ;~',dit Section-State Bail-out Funds(city of Tust~n) ~$~.:cmber 9, 1979 Pag~ 2 2. Last Pa}~nt of City's Private Telephon~_ Sys~_em This, e. gain, is a reS~_cve for a liability for a Counui!-appro'~d purchase. The auditor se.-~T=~d ho ~take issue with this e~\~3e~nse beL~.9 budgeted in the 1978-7-9 y~ar, a!tP~ugh this again was required to reflect an ex/~ndi'ture. · Vacua-0. Street ~.~eeps Lease Pa~,-nents This also is a reserve for the fi?_al h~o pak~nts on the City's street s..:eeper. 4. FLnal Eq~ai~.rent for ~.~Lnt~nance Yard In 1977-78, bhe City c,_~.,-pleted a n~,: corporation yard, a~n~ ~be ~quippLng spilla~t ovo~ into 1978-79. ~is rese_--~ refl.-~s the ~wount due .to acquire fiP~l ye=_r -r=?ai~.~na in the foll~..;L~ year's budget. 5. Ack, ed -_--~.__n!=yee Liabilities Sick i~_ave Tine e_~o,,_nt of sick leave on [k.e City's bod<$ at ~e an~ of ~e fiscal year repre~ s~nts a r~l li~ility, which a coq>oration Ln ~qe pri-~he sector would c~,ly ~ne Ci~ is n~.; fmnd~;g ~is li~ili~ u~n ~e anco~ag~mnt of o~m a~itor. It is es- pecially ~r~nt, s~ce ~qe City ch~n~ from ~e ~adi~o?~! sick leave plan d~irg ~e 1977- 78 Fiscal Y~ (See ~nex A, pa.~e 3) and was no long~ a~Lng additional sick leave cr~its, but ~e previo,~ly acc~ sick l~ve cr~ts r~ a l%~ili~. General Leave (Vacation) Ge~neral leave replaced vacation ar~l oth~ nec~,.ssary leaves, arrl the credits on the bocf<s at the e~nd of the fiscal year represent a real li-~hilitY. $23,700.00 $26,800.00 $ 7,000.00 $169,729- 07 $120,502.60 ¢ ( Office of the State ContrOller Re: Audit Section-State Bail-out Funds (City of TustJ~n) Nov~Joer 9, 1979 Page 3 c. C~p~nsa ~ory Time $ At the s~ time as the Sick Leave_ P~]sion Plan was elLv,3~t~.,r/, a recfHr~.-unt tJnat c~?~ pe~nsatory tim~ be .maid off at the end of t~he fiscal yaar was initiated. Th~efore, this ~-T~y~t on the bod~.s at the ~i of the year was subject to i~r~.ediate pa~m-nt (See ~mnex A, page 2). 5,353.30 ~n fr~m County Sanitation District ~e auditor apparently interpret~,l this ite~ as not a General Fu~..~d liability. ~."2qat was not ~nderstocd, appar~-tly, ~.,~s the fact that the interest ~lr~.cd on the City's S=~.er ~:~in Trz~.%k FL~n~ was transferr-cd to the City's C~n-~al F~nd u~er the belief ti]at t~here was no req-air~ant to segregate tlqe ~n~erest, and t2aat other agencic, s haa also tr~_nsf~r~ such interest to their C~.~ra! ~nd (See ~._~-.~< B). This %,'as later fo,m~ to be not ~ae case, and the Co'~_ncil agresd to replace the J_nt~_rest. It .~herefcre is cleat' t~':at th~ a~.o-~mh of th.e rer.'aLnLng aro~.t c~:;~--/ to tl~.e S~--~tation Dis~ict is a claim also against the G~---.era! ~c-.d, L~. ad~it~on to future sc~,,;ar cc.m~cction fees. $ 3~,331.48 Lo~. to ?astLn ?~=develo~.v~m~t Agency The attac/~_~d doo_.~.~ntaticn (7~nex C) sh~.;s clearly tb~t there was a !om~n frc~.m t/~.e C~ne~a! ~mnd to the P, edavelo?r.,unt Agep:,%' of the City for $390,009 d~mring Fiscal Y~ 1977-78, ~.d for $450,000 cu~:ncing Ju_ne 25, i978. I c-~n see no possible reason %.,-~y tlais eb!igation was ezc!udcd from our "obligated" reserve Lo~_n to Self-fu3r/~ Health Plan $ 35,000.00 ClaL~ were greater th~n "prami~-as" tmid into th~ City's self-fur~ed Health Plan, , %.;hidq required a l~n or at]- v~nce by the City to the P!~ of $35,000.00. ~nat was tb.~= status as of J,~ne 30, 1978. Since that tL.~, we have been able to adjust pr~i,m~s to get t~he self-~u~n~ed plan on a solvent basis. Here, again, I c~n see no re-~son why. these "dmligated" funds were disqualified. Attache/ for y~ar information as Ann~: D is Schedule 12 of the city's L-.de~=~ndent audit report by the firm of Hzmson, .~,~ers & Kile Z._~count~.~fCo~'~poration titled Sta-t~w~nt of Obligated Fund Res~ves, June 30, 1978~ Your auditor's co~.~lusions are in direct conflict with that report. Office of the State Controller P~e: Audit S_~:tion-State }k~il-out F~nds (City of T~tin) ~:o~.:F~=~ 9, 1979 Pa,~e 4 If you naked furt/a=~r information, please let us )~av. We will aPPreciate y(~ review ar~ accep~mnom of t_hese it~v.~-, or as m~.y as possible, as accept~)~le obligated reserves. We will further appreciate kn=~.ing the sp~_cific re~]son why any items are disqualified so that. we can consider mppropriate action. ~'~. B!a.~k~'.'~hip C~-ty .~,.~L. nistrator