City of Hemet audit Where are we now? Part 2

Understaffed fire department, unforeseen expenditures plague city

State Auditor Elaine Howle designated the city of Hemet as a “High Risk” city due to its high turnover of executive management, its unfunded liabilities, and revenue growth rate.

■ Melissa Diaz Hernandez / Reporter

[Editor’s Note: In Part I, published March 30, we discussed City Manager Alex Meyerhoff’s hiring and contract specifics, and also the continued turnover of key positions.]

The issues regarding the underfunding of the Hemet Fire Department can be addressed with the passage of Measure U. The audit addressed the need for updated equipment and infrastructure as well as the need for more staff. The high demand of the fire department is an issue as its bare-bones staff responds to a large number of calls.
In 2015, the Hemet Fire Department responded to more than 16,000 calls for service. We recently reported [March 23, 2017] that the city council approved the purchase of a vehicle to be used by the battalion chiefs once hired. The award did not go to the lowest bidder but the “most responsive bidder.” Chevrolet of Watsonville came in $12,834.41 under the awarded bidder Reynold’s Buick in Covina. Hemet Fire Chief Scott Brown did not respond to emails requesting comment.
$133,800 of Community Block Development Grant (CBDG) funds will be used to rehabilitate Fire Stations 1 and 2. The office space, existing offices and living quarters were “revamped” to accommodate the additional needs for the new battalion chiefs, and to create a “more usable workspace and more efficient working and living conditions” for Brown’s new command staff with $95,000 from the Fire Suppression Facilities Development Impact Fees budget.
“The project itself is essentially going to reconfigure the rest areas, expand the existing restroom facilities and expand office space for the addition of the command staff previously approved by Council,” explained Public Works Director Kris Jensen at the February City Council meeting, where she and Brown requested project funding. “When the project is under construction, we’re also going to take care of some deferred maintenance on the facilities side. So while walls are open and while things are happening, we’re going to do some other work as well.”
On Sept. 27, 2016, the City Council decided not to pursue Emergency Medical Service (EMS) Cost Recovery, as suggested by State Auditor Elaine Howle. However, Brown implemented a pilot program to reduce the calls for service to assisted living facilities in the city.
On Dec. 13, 2016, the City Council unanimously approved the following expenditures for the fire department, as provided in the Action Plan given by Brown, with the use of Measure U funds: Three fire captains, two firefighters, two dispatchers, emergency service coordinator (part-time to full-time), a part-time office specialist (20 hrs per week), personal protective equipment, NFPA-compliant uniforms, Motorola PSEC portable radios, a command vehicle, communications command box, adult ALS full body trainer, pediatric ALS full body trainer, emergency medical services coordinator (increase to 96 hours per month) and a recruiting/marketing/HR professional services totaling $746,429.

Budget deficit and unforeseen expenditures
Per the audit report, the ongoing budget deficit has been an issue for the city since FY 2006/2007 with the exception of FY 2012/2013, when the city took funds from the refuse account and transferred it over to the General Fund. The state auditor pointed out that “Hemet disagreed with our designation of the city as high risk. It plans in August 2016 to submit its corrective action plan, in which it will outline how it will address our recommendations.”
The state auditor is uncertain that the budget projections, as provided, are accurate. Howle expressed concern that projections do not allow for any unforeseen expenses that may incur over the next few years. One expense that the city did not prepare for was placing Measures E and U on the June and November 2016 ballots, respectively. Measure E cost taxpayers approximately $130,000 that included “$63,000 for two contracts with a consultant to develop the tax measure and an estimated $67,000 for Riverside County to place the measure on the ballot.” Any unanticipated costs, such as legal defenses, will hinder the city’s ability to produce a balanced budget sooner than later as the city’s plan to balance the budget was to remain status-quo. The city has been giving quarterly updates regarding the status of the city’s budget during the council meetings and will be receiving additional tax revenue as a result of the passage of Measure U. However, as previously reported, the city has been loaning itself substantial sums of money, which it hopes to regain with the collection of the sales tax.
At the March 14 meeting of the Hemet City Council, interim Finance Director Joy Canfield gave the midyear report and the council adopted Resolution Bill No. 17-016 amending the Fiscal Year 2016-17 Operating Budget in the amount of $475,800. The following adjustments were made: Human Resources received an additional $110,300 for an office specialist and employee investigations; the Finance Department received an additional $50,000 for sales tax audit services; contracts with Apple One & 3M for $11,000; the Parks Department received an additional $193,000 for water bills and park patrol; the Fire Department received $39,000 to replace the Alert radio base station, EMS supplies, and defibrillator batteries; and Engineering received $72,000 to cover additional salaries & professional services.

Retiree medical costs have improved
The city has made improvements regarding retiree medical costs. This took some negotiating but the city was able to cut this cost down significantly with all but 20 retirees, at the time the audit report was published, shifting from high-cost plans to less expensive ones.
According to the audit report, retirees who switched over to the low-cost plan received a $5,000 incentive. Even though improvements were made, Howle warned that the unfunded liability was still an issue. With the work of Deputy City Manager/Finance Director Jessica Hurst [before her resignation], the city established an OPEB Trust to address the unfunded liability issue.
According to Hurst’s council presentation, the prefunding amount of $750,000 in addition to a yearly investment should address the issues pertaining to the unfunded liability. Hurst also worked to reduce the cost of the CalPERS unfunded liability.
The council unanimously approved staff’s recommendation to move to a 20-year amortization schedule on Nov. 15, 2016. The projected 20-year annual cost would be $165,531,104 with a projected savings of $12.5 million. The city will get a 2 percent to 3 percent prepayment discount by paying the unfunded liability in July instead of in monthly installments. By switching to the 20-year amortization schedule, the city can never change the amortization period back to 30 years.

Hemet’s response and auditor’s rebuttal
In a letter dated July 11, 2016, the city of Hemet responded to the audit report stating that “the City strongly disagrees with the State Auditor’s designation of the City as High Risk.”
The response goes on to state that the city took “numerous cost saving measures to improve its financial position” since 2008 such as reduction in staffing levels, balancing services with revenue, employee compensation and benefit reductions, retiree medical benefit reductions, public private partnerships, contracts for service, grant funding, external funding sources, financial sustainability and responsible financial practices.
The city stated its intent to submit a corrective plan to the State Auditor by Aug. 4, 2016. Howle responded with the following comments: “We stand by our designation of Hemet as high risk. Although throughout the report we acknowledge that Hemet has undertaken various actions focused on achieving cost savings, the city’s expenditures continue to outpace revenue, impeding its ability to meet its financial obligations.”
The auditor goes on to state that “Hemet’s statement that its five‑year plan will end its historic practice of deficit spending by fiscal year 2019–20 is misleading,” with a budget deficit closer to $268,000 than the projected $17,000.
The city was supposed to provide an update to the state auditor in February 2017. At press time, neither the city of Hemet nor the State Auditor was able to provide such an update.

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