In the past decade, El Cerrito has experienced a tumultuous financial journey, marked by repeated warnings from the State, declining credit ratings, and a high risk of bankruptcy. This blog will outline the significant events that have shaped the city’s fiscal landscape, highlighting the key figures and decisions involved.
Early Warnings and Declining Ratings
December 2, 2013: The State issued a warning to El Cerrito by lowering its credit rating from AA- to A+. This initial downgrade was an early indicator of the city’s emerging financial difficulties.
December 2014: Gabe Quinto took office, facing an immediate challenge with the city’s financial health already under scrutiny.
December 2016: Paul Fadelli took office, joining Quinto in grappling with the city’s fiscal woes.
October 1, 2018: The city’s credit rating was lowered again, from A+ to A-. This downgrade reflected ongoing concerns about financial management and sustainability.
December 26, 2018: Karen Pinkos became the city manager, inheriting a city on a downward financial spiral.
November 26, 2019: The credit rating was further downgraded from A- to BBB, signaling a critical deterioration in financial stability.
Crisis Point and State Intervention
September 24, 2020: The rating was downgraded yet again, from BBB to BBB-, indicating a severe financial crisis.
March 2021: The State Auditor declared El Cerrito at high risk of bankruptcy. The city was ranked as the 6th most likely among 400 + cities in California to face bankruptcy, highlighting chronic overspending, poor budgeting practices, and insufficient efforts to address financial challenges. Key quotes from the State Auditor’s report included:
- “Excessive Spending and Insufficient Efforts to Address Its Perilous Financial Condition Jeopardize the City’s Ongoing Fiscal Viability”
- “In general, we determined that the city is at high risk of financial instability because of its continual overspending, poor budgeting practices, and lack of a comprehensive plan to address its financial challenges, all of which threaten the future provision of city services.”
- “Because It Consistently Overspends, El Cerrito Is in a Weak Financial Position, as Demonstrated by a Deficit in Its General Fund, Reliance on Costly Short-Term Loans, and Rising Pension Costs”
- “The amount El Cerrito pays toward its pension liability continues to grow because the city pays only the minimum amount required each year as determined by an actuary…. According to El Cerrito’s finance director, the city does not plan to pay more than the minimum required employer contribution each year.”
- “Because of its financial condition, El Cerrito has delayed efforts to address the maintenance and repair of its facilities and the development of needed capital projects…. At that rate of spending, it would take the city more than 50 years to fund the projects it has currently identified, even though many of these projects involve the need to address existing deficiencies.”
For those new to this issue and interested in understanding the city’s initial response to the state auditor, we recommend watching the following videos:
- Financial Advisory Board (FAB) Meeting on April 13, 2021 (start at 58:40): Watch here
- Town Hall Meeting on April 10, 2021: Watch here
- City Council Meeting on April 20, 2021 (start at 1:17): Watch here
With the upcoming elections, it is time for a change in city management. Before the state auditor’s findings, “going concern” letters were issued to the city, indicating serious doubts about its ability to continue functioning financially. Yet, the city did nothing.
December 2020: Lisa Motoyama and Tessa Rudnick took office, adding new leadership perspectives amidst the fiscal crisis.
Financial Performance and Deficits
El Cerrito’s financial performance over recent years has been mixed, with alternating deficits and surpluses (achieved through ARPA funding) requiring the use of reserves to balance the budget:
- 2019: Deficit
- 2020: Deficit
- 2021: Surplus
- 2022: Surplus
- 2023: Surplus
- 2024: Deficit
- 2025 forecasted Deficit
The city has had to rely on its reserves to cover these deficits, depleting much of its financial safety net. This approach has left the city in a precarious position, needing a significant portion of the remaining reserves to balance the FY25 budget.
Steps Towards Recovery
December 2022: Carolyn Wysinger took office,
March 2023: The “going concern” warning was removed, indicating some progress in stabilizing the city’s finances.
September 29, 2023: The credit rating was upgraded from BBB- to BBB, a positive sign but the city still ranks 13th most likely to go bankrupt. This is due to inflated expenses leading to continued use of reserves to cover over-spending, and the $85 million pension liability
Conclusion
El Cerrito’s financial journey has been fraught with challenges, from repeated downgrades in credit ratings to being flagged as a high risk for bankruptcy. While the city has seen some changes in leadership and minor improvements in its credit rating, significant financial recovery efforts and effective management strategies are still needed to ensure the city’s ongoing fiscal viability.
For more detailed information, you can refer to the State Auditor’s report here and the latest credit rating details here.
El Cerrito Committee for Responsible Government (ECCRG) 
“Going concern” is a positive attribute in accounting terms, so the sentence about it in bold doesn’t really make sense.
LikeLike
In public finance, going concern letters are negative.
LikeLike