Important Comments in the "Draft Audit"

Last night, under an agenda item titled "Budget", the city council presented a "Draft Audit". The City's auditor sent a representative to answer questions, as long as the questions were in writing. Council Members DeForge, Fox and Mayor Knight claimed they had received a copy of the draft audit less than an hour before the meeting. However, Councilman Castaldo said he received the document the night before. No one in the audience, the citizens, were even aware there was a draft audit or that it was to be presented. 

After comments from the audience, the council authorized the release of the draft to the public. They also agreed to bring the auditor back to address questions during the July 15 Council meeting.

Here is a link to the document:
I only had a few minutes this morning before I leave for work to look over the draft but I found the following important comments. 

Regarding a $6 million deficit:

As discussed in Note 19 to the financial statements, the City’s General Fund had a deficit in unassigned fund balance of $6,866,481 at June 30, 2013. These conditions raise substantial doubt about its ability to continue as a going concern.

Regarding the $21 million debt from the defunct RDA that the City claims is the ONLY reason the city is in the red (Page 61):

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.


Accrued interest payable for the interest due on WRCOG TUMF settlement has not been reported in the governmental funds. (358,363)

On May 22, 2014, the judge in this case issued an oral ruling expressing its intent to award WRCOG a Judgment against the City for $42,994,879 plus interest of no more than 7% per annum. Currently, the City is using the US Treasury Securities rate to calculate the interest portion. The amount of interest payable outstanding as of June 30, 2013 was $358,363. The rationale for the ruling was the failure of the City to contribute that amount of money towards WRCOG's TUMF program. A Judgment has not yet been filed and will not be filed until after a statement of decision has been prepared and signed by the Court.

On June 2, 2014, the City Council authorized its trial counsel to file an appeal when such a Judgment has been filed by the Court. Once the appeal is filed such a Judgment will be automatically stayed or suspended and will not have any binding effect or legal financial impact on the City pending the outcome of the appeal. In other words, the City does not have to comply with the Judgment while the appeal is pending.

The City believes that the appeal will be successful in as much as, among other things, the Court failed to consider 22 boxes of evidence supporting the City's actions. The Court also failed to address 18 different legal issues raised by the City any one of which would arguably be sufficient to preclude such a Judgment.

The appeal will likely take from one to three years for processing and briefing before the Court of Appeal makes a decision.