Upcoming Council Meeting 3.1.22

There are a number of items on the consent calendar, but the only significant item to discuss will be whether we have a quorum for the scheduled April 5, 2022 meeting.  This falls during the MDUSD scheduled spring break time and we'll discuss if there are enough of us present to conduct a meeting.

Please let me know if you have any thoughts or questions on the above.

2.15.22 Meeting Summary

Tonight the council discussed two significant items:

- The first was receiving the FY21 audited financial statements.  Normally this is a perfunctory process where we get a read out of the results and accept them.  The audit is completed already and there isn't going to be anything that happens that changes that.  Tonight however, was a bit different.  

For a number of reasons, including staff turnover and generally poor financial practices, the City got some disappointing news.  In every audit, there are required communications from the independent auditor to the governing body, in this case the City Council. We were informed that during the course of the audit, there were four material weaknesses identified, and one significant deficiency in internal controls. 

These are industry terms - a material weakness is a a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.

As an accountant, I'm very familiar with these terms.  Even a single material weakness could have severe consequences in a private corporation.  Four together is an indication of severe problems in an organization.

We discussed how subledgers in the City's accounting system don't reconcile to the main GL.  We discussed the fact that the ledger is not closed on a monthly basis, or that books are open for several months at a time.  We discussed that one of the key controls in any organization - reconciling bank accounts, was not being performed.  We discussed an instance of fraud where nearly $40K was stolen (mostly recovered through insurance) due to poor controls over financial systems.  And with the City receiving federal funding for ARPA, there will be even greater requirements over internal controls next year.

What we heard painted a bleak picture of the control environment at the City.  Rather than relitigate what happened, I felt it would be more productive to focus on how we can right the ship.  I requested a plan of action that identifies all the challenge areas, develops a game plan and timeline for remediation, a list of resources necessary to achieve those outcomes, and an identification of the biggest potential impediments to being successful.  I asked that more frequent updates are made so we can compare actual results to this established plan.  It's a tall order, and it will take dedicated effort over time to achieve these outcomes.

- Next we discussed whether to appropriate $30K to engage a consulting firm to perform research related to a potential tax measure for the November 2022 ballot.  The idea was to conduct polling to determine the amount and type of tax that people would generally support.  Because the required vote is actually 2/3 (we found that out tonight), there is this sentiment that the city should advance a tax measure that would fall within some acceptable range so people would support it.

I felt this approach was backwards.  Rather than trying to determine the most people would support, I suggested we determine what the minimum amount is that is necessary to fund critical government functions.  Ultimately the city is projected to be in deficit spending starting with FY23.  We can determine what is necessary to avoid that, and then place on the ballot that amount.  I did not think it was a prudent use of $30K in order to conduct polling on what would be palatable to our residents when the actual issue at hand is a budget shortfall that is orthogonal to what people are comfortable paying.  It's not about what is palatable, but rather what is necessary.  

If we are going to be asking residents to tighten their belts and contribute more to the City every year, it would behoove the city to do the same and demonstrate frugality.  Over the past year or so, the City has engaged more consultants than I am comfortable with and I've expressed opposition where appropriate.  It's difficult to go to the people hat in hand asking for money, while at the same time not use the people's money as judiciously as possible.

Unfortunately, as it has been with many other issues, the vote was 3-2 with myself and Councilmember Diaz voting no.  As a result, it looks like the City will be spending $30K to do this polling to determine how much additional taxes would be acceptable to residents.  In the grand scheme of things, $30K is not going to bankrupt the city.  And if the City is to maintain its current level of services it certainly needs more revenue (taxes).  But it's hard to say the City ought to get more money until the house is in order and the City acts responsibly with the money it already has.

Upcoming Council meeting 2.15.22

There are a couple significant items on the agenda for the next meeting:

• We will receive the audited financial statements for the fiscal year ended June 30, 2021.  There are a number concerning items within the financials that will be discussed.
  
  
• We will discuss appropriating $30K to engage a consulting firm to perform research related to a potential tax measure for the November 2022 ballot.

If you have any thoughts or questions on these items please let me know.

2.1.22 Meeting Summary

There were a few significant items discussed at last night's meeting:

- We agreed to send a letter to the BART Board of Directors expressing the City's desire to remain in the current central county district, rather than be placed in the east county district.  If Clayton were to be moved to east county, it would contradict existing transportation planning in the county and not be representative of where the majority of Clayton residents use BART services.

- We discussed the 10 year general fund forecast and it is bleak at best.  Here is a look at the operational deficits that are projected beginning with the next fiscal year (Jul-22 - Jun-23):

The outlook is actually worse than the above indicates because it doesn't include deficit projections in some of our special revenue funds for things like streetlights and stormwater.  Those shortfalls align with the above and would need to be made up from the General Fund.  This would only be the baseline - there are other areas that the city has not been able to keep up with that require significant one time spending, and ongoing spending to support.  Things like police staffing, market rate wages for city staff to improve retention, rising costs of services for maintenance and audit services, etc.  If we aggregate all of these current unmet needs, it would put additional negative pressure of nearly $400K/year every year.

We have enjoyed a healthy reserve balance for quite some time.  But with operating expenditures increasing approximately 4% each year, and revenues only increasing 1.4%, it's an unsustainable pattern that needs to be addressed.

- Next we discussed how to address these financial challenges.  Back in July 2021, I raised this issue - either raise taxes, cut services, or both.  https://www.jeffwanforclaytoncitycouncil.net/2021/07/question-raise-taxes-reduce-services-or.html . I also started a poll on Nextdoor (https://nextdoor.com/news_feed/?post=193887740&is=neighbor_profile) with the same article, and there was quite a bit of discussion around that time.  Since then I've requested that we begin talking about the process for putting a ballot measure before the voters.  I'm glad we are now revisiting the issue, though it would have been more desirable to start earlier.

The Council went over different types of tax measures, amounts, whether it should be a general tax or a special tax (specific purpose), and whether we should engage outside consultants to help with polling, communications, and drafting ballot language.

There was general agreement that a parcel tax would be the best choice, rather than a sales, business, or utility tax.  A general tax can be used for any purpose, and has a lower threshold for voter approval (50% +1) so that was the direction the Council was moving towards.  

The amount of the potential tax was discussed, but a figure wasn't settled on.  I requested additional information about what could be achieved at different levels of funding.  This will allow a more informed discussion when we seek approval - we need to be able to clearly articulate what it is the people will get if they approve any tax.

We were split on whether outside consultants should be engaged.  I think the city has been to liberal with its spending on outside consultants.  I don't believe a polling firm will tell us anything that we don't already know, and the results of any poll are not likely to influence the outcome of what we do regardless.  We know we need to raise revenue - we should determine what the lowest amount possible is, and set the number there.  There is no poll that will change that outcome.  

I am also opposed to hiring a communications consultant.  Again, we know the channels and methods we can use to reach out to Clayton residents.  Compound that with the fact we just engaged consultants to help communication efforts around ARPA, and the housing element, and the downtown lot - it's not like there are going to be new novel approaches that were not previously considered.  

I think if we are asking the people of Clayton to agree to a tax increase, the City needs to demonstrate that it is using its resources as effectively and frugally as possible.  If we are loose with our spending, it would be more difficult to persuade the people to give the city more money.

In about a month, staff will come back with more information regarding the level of funding to seek, as well as information about potential costs of various outside consultants and what services they can provide.