THE CAFR is out and it ain’t pretty

The city’s Comprehensive Annual Financial Report was posted today. I am going to report on what stood out to me in no particular order.

1. On page 10 (all page numbers correspond to the pdf page number) it states that city management began to tackle financial issues in 2020. This made me laugh since 2017 the auditors have told the city there has been an issue with the concept of the city continuing as a going concern. So they are admitting it took three years to address that.

2. The city lost 1 million in revenue during COVID. Considering the huge loss of revenue to the Recreation Department this is pretty good. It is also worth pointing out that if the city had an actual reserve a million dollar loss would have been easily manageable. On page 99 the city themselves states “Although these losses are not significant thus far, the ultimate impact is uncertain at this time and the City management continues to monitor the situation.”

3. The City of El Cerrito’s Organizational Chart shows the residents on the city on top. Just a reminder of that fact.

4. On the chart for El Cerrito Full-Time Equivalent City Government Employees by Function Last Ten Fiscal Years on-page 160, it shows only 3 fewer staff people in the last two years. I do know that some additional layoffs happened in January 2021 but 3 is not a lot of people. Not sure why the totals are xx’d out but I added and it was 154.7 for 2019 and 2020.

4. It appears that even with all the cuts that were made expenses were not reduced. From the report page 12 “At $54.8 million, total expenses across all funds in FY20 were almost identical to that in FY19. This was partly due to cost controls put in place in the latter half of FY20 and partly due to reduced expenditures in the wake of the Countywide shelter in place order in response to the Covid-19 pandemic.”

5. Our overall net position dropped by over 4 million dollars as indicated in Table A-2 found on page 25.

6. Police calls were way down as indicated in the chart El Cerrito Operating Indicators by Function/ Program Information as available – Last Ten Fiscal Years found on page 162. 

7. The same chart shows demand for senior services was way up. This past year there were 3173 enrollments as opposed to 2214 the prior year. Points 6-7 above may give us an idea where there is room to cut while reducing the impact on our most vulnerable citizens. 

8. And most importantly the auditor again raises the question of whether El Cerrito can remain as a going concern i.e. not go bankrupt. He uses his toughest language yet. He first mentions on page 18

“Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the City will continue as a going concern. As discussed in Note 21 to the financial statements, the City’s General Fund has a very limited fund balance that indicates that the City may not be able to continue as a going concern. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 21. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.”

He also brings it up in Note 21 found on page 99.

“The accompanying financial statements have been prepared assuming the City will continue as a going concern. The City’s unassigned fund balance in the General Fund was a deficit of $1,777,532. The ability of the City to continue as a going concern and meet required operating obligations is dependent on the City’s ability to develop and implement a plan that will successfully increase cash flows. The financial statements do not include any adjustments that might be necessary to continue as a going concern.”

Some next steps are:

Tomorrow night is the Financial Advisory Board Meeting. The agenda and information on attending is found here. The preliminary 5-year general fund forecast is on the agenda but as of the evening before had not been posted on the website.

Next Tuesday is the next council meeting and both the CAFR and 1 million dollars in proposed cuts will be on the agenda. This is a must-attend meeting!

Also, we have begun to research a city ordinance to dictate how much reserve the city needs to have and how it is accessed. We would like to see new protections put in so that this situation we are in never happens again. Stay tuned.