In a letter dated March 2024, the City of El Cerrito claims it has addressed all recommendations from the California State Auditor’s Report (Report No. 2020-803) in 2021 and has requested removal from the Local High-Risk Program. However, a deeper look into the city’s letter to the State Auditor and the progress report reveals several crucial omissions that raise concerns about the city’s actual adherence to some of the recommendations. These areas of concern are essential for the city’s long-term financial and operational well-being.
As you may recall, Karen Pinko’s initial response was to discredit the State Auditor by saying the report was wrong. Then she said the recommendations were not binding – in other words she was not required to comply
She later wrote a 16-page response agreeing to only some of the recommendations. However, after public outcry and newspaper articles illuminated the auditor’s report, she finally began taking the findings seriously. Here are a few outstanding recommendations:
1. Dependency on Reserves
One of the key recommendations from the State Auditor was to eliminate the city’s reliance on reserves to cover over expenditures. While El Cerrito reports a General Fund reserve of $16.3 million, representing 32% of expenditures, it is essential to note that this figure includes $9 million in restricted funds in the Emergency Disaster Relief Fund (EDRF), which can only be used in severe economic downturns or disasters, and an additional $1 million set aside for the Section 115 trust.
The city claims to have exceeded revenue targets and met expenditure targets for two consecutive fiscal years. However, this claim omits the significant increase in expenses during this period. It is crucial to consider that a substantial portion of this apparent success stems from an unusually robust real estate market, as the city relies heavily on real property transfer taxes. This dependency on a volatile revenue source does not fully align with the recommendation to avoid using reserves for ongoing operational costs, posing a risk to financial sustainability if market conditions change. Which is why shortly after the letter was issued, the city used $1 million in reserves to cover the RPTT shortfall.
Moreover, in June 2024, the City Council passed an operating budget of $68.3 million, with unrestricted reserves standing at $6.3 million, which falls short of what the Government Finance Officers Association (GFOA) recommended 17% of operating expenditures. El Cerrito has set a 10% target for its unrestricted fund balance, but this is less than ideal for ensuring financial resilience, especially given the city’s history of relying on reserves to balance its budget.
2. $85 Million Unfunded Liability with CalPERS
El Cerrito has established a Section 115 Trust and allocated $1 million as an initial deposit to address its unfunded pension liability with CalPERS. However, the city’s approach lacks a concrete long-term funding plan to address the substantial $85 million unfunded liability. Without a strategic plan for ongoing funding and employee contributions, the city’s ability to meet its pension obligations remains uncertain. The city mentions efforts to negotiate increased employee contributions to CalPERS, but this alone may not be sufficient to address the looming financial obligation that could jeopardize the city’s financial stability and ability to provide services.
3. Staffing Analysis Study
The State Auditor recommended that El Cerrito conduct a staffing analysis study to identify overlapping responsibilities and inefficiencies within the city’s organizational structure. While the city completed a classification and compensation study, it primarily focused on aligning job classifications and compensation with market rates. The report suggests implementing the study’s recommendations over time, subject to resource availability. However, could not have a report on overlapping expenses or staffing levels because the city has shelved the study in favor of other studies.
The lack of detailed evidence in the progress report on eliminating redundancies or optimizing staffing raises questions about the effectiveness of the city’s efforts to achieve operational efficiency and cost reduction.
Conclusion
While El Cerrito has made strides in addressing some recommendations from the State Auditor, the city’s claims of having fully implemented all recommendations are woefully incomplete. The critical areas of dependency on reserves, unfunded pension liabilities, and thorough staffing analysis require more transparent and strategic planning. These elements are crucial for ensuring the city’s long-term financial health and operational efficiency.
Call to Action
El Cerrito residents deserve a transparent and responsible approach to fiscal management. We urge all stakeholders, from community members to oversight bodies, to demand accountability from city leadership. Attend city council meetings, ask questions, and insist on clear answers about our financial future. Your voice matters in shaping a sustainable path forward for El Cerrito.
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El Cerrito Committee for Responsible Government (ECCRG) 