The $43 million dollar settlement against the City of Beaumont has awakened a lot of interest in many people who have not been paying much attention to the political and financial actions of the City Council, City Manager, City Attorney and their consultants, Urban Logic. Living in a bedroom community, many of us spend so much time driving to and from work each day that we have little time for our families. This leaves even less time for attending City Council meetings, following agendas and reading supporting documentation for each agenda item. I have struggled myself to find enough time to stay on top of everything.
There are many people who have heard about the settlement in the WRCOG case who are now interested in what’s happening to the City. I am hearing from many Beaumontians who are just starting to pay attention. They are unable to get very much information about the Beaumont’s financial status. The local press has never been very good at investigative reporting and the City’s reaction to the judgment has been to claim they can’t talk about pending litigation and then hold a secret meeting about what to do next. It is likely they will appeal the decision, continue to claim it is pending litigation and still not have to discuss it.
I started taking a close look at the City’s audits and other financial records about a year ago. Since I’m not an expert in local government finance, I didn’t know how to determine conclusively if there was anything seriously wrong. There were a few people trying to warn us about the finances of the City but the council members claimed it was just people trying to tear down the City and ignored the handful of us beginning to take an interest in their actions and beginning to ask questions about the claims. At first they decided not to respond but their decision not to dispel the “rumors” indicated to me that there might really be a problem. Then they started holding council study workshops which were just marketing slide show presentations. I was becoming more and more concerned about what I wasn’t hearing, solid answers to the accusations. I had a friend who was closely associated with the City and I asked him if he thought there was anything to worry about and he told he believed there were some serious problems.
I took my concerns and the audits to a friend I’ve known for 30 years, a partner of one of the large national accounting firms. He put me in touch with another partner who was well versed in city finance and we reviewed the audits together. These guys told me there was a lot of smoke but maybe not much fire, they had no way of knowing for sure by just reviewing audits prepared and released more than a year after the close of the fiscal year they were covering. They told me they needed to know more about the City’s internal controls, the rules, processes and contracts the City had put in place over the years to govern how the finance department would conduct their business activities and accounting procedures.
They recommended against the Forensic audit I was requesting of the City saying it might be perceived overreaching and too costly. They told me that without a better understanding of the City’s internal controls, a forensic audit would be premature. They suggested I ask for a more focused internal control audit by an outside firm with experience doing internal control audits. They believed the auditors’ comments regarding the inefficiencies of the City’s existing controls and the fact that each audit was taking longer and longer to reach the public, warranted a closer look. The last audit took the City 17 months to release and we are still waiting to see the 2012-2013 audit as we are now in the final month of the 2013-2014 fiscal year. I addressed the City council with my request for an internal control audit and received no support from any council member. In fact, the Mayor at the time, Roger Berg, told us that no matter how many signatures we gathered on a petition he would never support an internal control audit. Others on the council made light of my suggestion.
The last audit we saw from the City (2011-2012) showed a $17 million dollar balance. But, it required a $20 million receivable listed as an asset from the now defunct Redevelopment Agency and a two million dollar loan from the next year’s budget (2012-2013) to reach a positive balance. The City’s own auditing firm believes the RDA debt might not ever be collected and said so in the 2011-2012 audit. Without the creative financing by the finance department, I calculated Beaumont was in the red by about $6 million on June 30, 2012.
Mayor Brenda Knight, on the same day the WRCOG ruling was made public, argued the City had $11 million in reserves. This was the same claim we heard a year ago from the previous mayor, Roger Berg. When we questioned Mr. Berg last year he argued reserves were assets minus liabilities. Most accountants consider assets minus liabilities to be equity, not reserves. Reserves are considered cash and cash equivalent or very liquid assets. The City wouldn’t be able to sell many of their assets easily, if at all, and these assets shouldn’t be considered in the calculation of reserves.
I still believe an internal control audit is more important now than it was even a month ago. How can the council trust the advice of their staff and consultants on how to manage the $43 million judgment if they don’t fully understand the City’s financial position and the finance department’s methods to report the financial condition? Whether or not I continue to ask for an audit, doesn’t really matter much in the long run. What matters is who is doing the asking.
I, and others, have asked for help in reviewing the finances of the City from the County District Attorney, the State Controller’s Office, and our State Assemblyman now running for US Congress - Brian Nestande, as well as the former State Senator, Bill Emerson. Others have gone to the State Attorney General, the Grand Jury and the FBI. I keep hearing from the officials I have spoken to, that they are concerned about Beaumont but their investigative resources are limited. A representative at the State Controller’s office told me Beaumont is on their top ten watch list but they only have resources to address the top three. When I warned him after the WRCOG ruling, that our City is in trouble, he suggested that if a City Council member was making the same request for help, it would carry more weight.
Therein lies the problem. Do we have a council member willing to stand up and begin asking the tough questions and showing a desire to get to the bottom of what’s happening to our City. Will the current council members, 4 who have received so much financial support from the developers who benefited from the failed TUMF strategy, be motivated to bite the hands that feed them? Will the City Manager and City Attorney who worked so closely with the out of town developers to structure the CFD agreements to unfairly benefit the developers want to risk a closer review of their activities? Especially after we heard them described by the judge as displaying a “pattern of deception.” I don’t hear Mr. Kapanicas calling for the developers to pay their fair share as he has of 30,000 new residents. I guess only the homeowners paying the Mello-Roos fees are expected to pay their fair share.
So what can we do now?
Tonight, the council and administration will hold a closed door, secret meeting to discuss the WRCOG law suit and other legal action. On Tuesday, the Council will hold their regularly scheduled meeting at 6 PM. This may be our only opportunity if the Council appeals the WRCOG ruling to demand action from our council members. If we don’t like what we hear on Tuesday we have to take the next step, vote them out of office in November. There has been many calls for the City Manager and City Attorney to resign and for council members to be recalled. Defeating the council members and their financial supporters, the developers, might be easier than a recall, especially if they remain silent and do nothing on Tuesday. A recall effort against the two not up for re-election, Knight and Fox, may look like a tough fight but now is the time to fight. If we don’t stand up and fight to be heard now, don’t expect any change in the direction our City is headed, towards bankruptcy and becoming known as Bellmont.