Four + Years of Financial Mismanagement and Missed Opportunities

El Cerrito’s Unresolved Crisis: “Four Years of Financial Mismanagement and Missed Opportunities” sheds additional light on the city’s persistent inability to navigate its financial quagmire, highlighting a series of missteps and inaction by city leadership.

Despite several years of clear indicators of fiscal distress and specific recommendations by the independent auditor for reform, the City of El Cerrito, under its current management, has struggled to implement effective solutions. This in-depth examination reveals the complexities of the city’s financial woes and the critical need for a course correction.

The City Manager asserts that the challenges highlighted by the State Auditor have been fully addressed. The council says they are monitoring closely. Yet, aside from federal assistance, little effective action has been taken by the City. Over time, these problems have become more severe rather than being resolved. The City Manager inherited an AA- bond rating, however having been Assistant City Manager for many years, she has demonstrated that she is not equipped to lead the City.  This chronology outlines the unfolding events and the city’s deteriorating financial situation under the City Manager’s tenure:

2019 Developments:

• The State Auditor issued a going concern statement for El Cerrito for the second consecutive year, signaling financial instability. Despite the City Finance Director’s and City Manager’s optimism for improvement, the issues persisted.
• Unlike neighboring cities, El Cerrito maintained a relatively large administrative structure, including a City Manager, an Assistant City Manager, and a City Clerk – positions not found in comparably sized or larger cities like Richmond, Albany, and San Pablo.
• El Cerrito was ranked both six and seventh on the State Auditor’s list of California cities most at risk of bankruptcy, leading to a unanimous decision by the Joint Legislative Audit Committee for a comprehensive audit.

2020 Challenges:

• The State Auditor identified El Cerrito as the most financially at-risk city in the Bay Area and faced a significant downgrade in bond rating, impacting its borrowing capacity.
• Repeated warnings from state auditors about the city’s financial viability went unheeded, with significant increases in personnel costs, including pension.
• The General Fund balance plummeted, tax rates soared, and the city increasingly relied on an ongoing reliance on short-term borrowing – municipal payday loans, highlighting a pattern of fiscal mismanagement.

2021 Escalations:

• Attempts to engage the public and necessary budget cuts were delayed, and the city faced a downgrade in its risk ranking and bond rating eventually dropping to BBB-, one step above junk bond status.
• Financial decisions, including settling legal claims where the City paid $544,000 to settle a sexual harassment lawsuit.
• Four separate tax increases led to high tax rates, with little improvement in service levels or fiscal health.

2022 Partial Improvements:

• A slight improvement in the city’s management ranking ended reliance on short-term borrowing. This short-lived improvement, sparked by a federal bailout, was overshadowed by continued financial challenges, including rising pension liabilities of $70 million, not rightsizing expenditures, and a lack of action on suggested performance standards for the City Manager.

2023 Continued Concerns:

• Despite a minor upgrade in bond rating, the city continued to struggle with financial reporting practices, excessive spending, and growing pension liabilities.
• A controversial comment by the City Manager where she told a direct report to STFU.
• Issues around transparency and governance underscored ongoing leadership and accountability problems.

2024 Outlook:

On March 16, the city made a request to the state auditor requesting that the city no longer be classified as high-risk. Yet, the City remains in a perilous financial position, with continued issues around pension liabilities, budget management, and a lack of significant progress in addressing long-standing challenges:

• El Cerrito remains the 13th highest-risk city for bankruptcy in California.
• Unfunded Pension Liability is $85 million and climbing, yet the city has allocated just $1 million or 1.1 % of the principal. Moreover, the $1 million will be invested and not planned for repayment of the debt in the foreseeable future.
• Expenses continue to outpace revenue resulting in $4 million in cost overruns.
• Unrestricted general fund balance of just $1.8 million, falling from over $16 million
• Missed Opportunities to increase revenue.
• Classification and Compensation Study Conducted without recommended staffing and organizational study.
• El Cerrito has BBB bond rating.
• El Cerrito does not have a senior center or a fully functional library.

The City Council insists they are closely monitoring El Cerrito’s finances. Yet, this timeline and current crisis reveal a pattern of inadequate response and management and the same practices that previously forced reliance on “municipal payday loans”, underscoring the need for more effective leadership and strategies to truly address and rectify the city’s financial and administrative issues.

Legislators and taxpayers are less inclined to endorse public funding if they perceive El Cerrito as unreliable stewards of their finances.

A Call to Action

The detailed account of El Cerrito’s financial and administrative challenges underscores the urgent need for comprehensive reform. The city requires a concerted effort to realign its budgetary priorities, streamline its administrative structure, and engage meaningfully with its residents.

El Cerrito residents have waited far too long.  The City Council must embrace transparency, accountability, and strategic planning to navigate El Cerrito toward a more stable and prosperous future. City officials must take immediate and decisive action to rectify the current course, leveraging community input and expertise to implement sustainable solutions. The time for half-measures and deferred decisions has passed.

El Cerrito has pushed for a $300 forever tax when a limited-term bond measure should suffice. A limited-term construction bond could be used to finance a library.

Don’t be fooled by a forever tax designed to cover over expenditures. Instead, El Cerrito must commit to a path of genuine reform and renewal.

Sources:

1. Independent auditor expressed the going concern statement for the second year in a row
2. State Auditor’s High-Risk Designation 3/16/21
3. Summary of Risks identified by the State Auditor
4. State Auditor Fact Sheet–  
5. High Risk Issues Listed
6. El Cerrito disagrees with Audit Report
7. Auditor’s Response to El Cerrito letter of disagreement –
8. El Cerrito Reliance on TRAN (pay day) loans
9. State Auditor Corrective Action Plan Reports
   • Summary
   • May 2021
   • September 2021
   • March 2022
   • September 2022
   •  March 2023
   • September 2023
10. Mar 16, 2021 — El Cerrito’s credit rating over four years deteriorated from an AA- rating in 2016 to a BBB- rating in 2020-
11. El Cerrito Unfunded Pension Liability (unpaid pension) increases to $85 million
    • https://www.auditor.ca.gov/reports/2020-803/issues.html
    • https://www.eastbaytimes.com/2022/10/23/these-bay-area-cities-are-facing-the-greatest-financial-risk-state-auditor-says/
    • https://www.el-cerrito.org/ArchiveCenter/ViewFile/Item/6027
    • https://elcerritocommitteeforresponsiblegovernment.com/category/budget/
12. state auditor recommended that El Cerrito should evaluate its staffing levels before undertaking the Classification and Compensation Study.

Here’s how you can help:

1. Share this post with other residents.
2. Write to the State Auditor and share your concerns about City Finances

Grant Parks

California State Auditor

621 Capitol Mall, STE 1200

Sacramento, CA 95814

3. Council meetings are both remote and in-person.
4. The schedule is here.
5. Share your voice with the Council Members, the Mayor, and the City Manager.
   • Karen Pinkos-City Manager kpinkos@ci.el-cerrito.ca.us
   • Councilperson Gabe Quinto gquinto@ci.el-cerrito.ca.us
   • Councilperson Carolyn Wysinger cywysinger@ci.el-cerrito.ca.us
   • Councilperson Tessa Rudnick trudnick@ci.el-cerrito.ca.us
   • Mayor Lisa Motoyama lmotoyama@ci.el-cerrito.ca.us
   • Councilperson Paul Fadelli pfadelli@ci.el-cerrito.ca.us