Long term liabilities are sobering
By Chris Frost
Oxnard-- The city’s financial report, given to the finance and governance committee Jan. 22, picks up with council questions, and Councilwoman Gabriela Basua said Oxnard has a lot of work to do with their general fund.
She feels the business-type activities will strive in the future.
“Some of the water funds are no longer being charged to the general fund,” she said. “Is that because we were charging things that we weren’t supposed to be charging to the general fund?”
Former Interim Chief Financial Officer David Millican answered the question and said over the last couple of years, the infrastructure use fees charged to the enterprise funds by the general fund have been the subject of controversy and a lawsuit.
“The council, as a matter of policy, stopped charging fees related to public safety, primarily police, to those funds and continued to charge for the impact of utility options on rights-of-way, in terms of heavy trucks running on the streets, utility cuts and the general degradation of the road surfaces as a result of utility operations,” he said. “The increase in the expenses in the general fund, it’s expenses, it’s a loss of revenue from the proprietary funds to the general fund. To reimburse it for the police services methodology developed in 2014 and that’s about $3 million a year.”
Basua asked how often the city reviews its cost allocation plan.
“There were recent reviews, and there was one for internal service funds and one for direct costs, and the most recent review of that was last year,” Millican said. “Ordinarily you would review that every couple of years with cost-of-living increases in the interim but it’s probable that you are going to have to do more looking at that allocation.”
Basua commented the cost allocation is significant.
“Especially when we are looking at a loss within the general fund,” she said. “My suggestion is that we look at that on a yearly basis to make sure we are cost-allocating appropriately.”
Also, she said the city’s staff needs to account for its time when they are working on those special projects to get the money back into the general fund.
“Especially with the accounting practices now changing,” she said. “I know the software change is coming and I know it’s going to be important. I hope the accounting team has the right people on staff for that conversion.”
Councilman Bert Perello said there had been a couple of departments that exceeded their budgeted costs and he asked about the city attorney’s department and asked if the costs are allocated to that department or other departments?
Millican said the city allocates a core of city attorney costs through the indirect cost system across all departments.
“That’s litigation with significant costs is often charged to the department budget,” he said. “Litigation related to utilities is in the utility fund expenses, rather than allocation from a central department.”
Perello mentioned a -$6 million change to the fund balance and wanted to know if it is an ongoing shortfall.
Millican said the city staff has “a bunch of vacancies” including new public safety positions, and other departments like development services.
“I looked at the adopted budget for 2018-2019, and the city was able to budget resources to cover the costs of the positions that caused that increase,” he said. “The other thing that’s going on is these actuarial changes, so there are some actuarial changes that are reflected in current financial statements, especially in the enterprise funds. In this case, what you see are increased staffing, the development of an allowance for uncollectable accounts, which is the first time that’s been done because of a more detailed 2-year analysis by the finance department.”
He said another issue is the limited benefit employees that are standardized and given a set of benefits, instead of a “patchwork” system of compensation.
“When we talk about interfund transfers, we have funds, and they have line items in the funds," Millican said.
“When we borrow from one line-item in a fund to give to another line item, is that called an interfund transfer,” Perello asked.
Millican said it wasn’t and an interfund transfer is between two separate funds.
“When you are moving money from one line item to another, that’s allowed to the city manager consistent with the budget resolution allowed by the council,” he said. “As long as the fund allocation is not exceeded, the funds are allocable by the city management.”
Perello wanted to know what will happen during the next budget cycle and when they will “true it up to the council” when they borrow from one line item to another, and the council asks for the same amount in a line item they borrowed and are not aware they’ve acquired it.
“How do you propose to true that up, so the council members understand that,” he asked.
Millican said the best tool is to see what the original budget was, then the amended budget.
“Then you can compare the new proposed budget line-item to the originally adopted and amended and look for items that have an increase and decide if it’s an ongoing expense or brought back to the level it was before it was increased,” he said.
Mayor Tim Flynn said the city is doing better in the short term, but in the future, has plenty of financial challenges.
“Especially with pension costs and post-employment benefits is a train wreck," he said. “In the time I have served on the city council, and I am complicit in this, the city council has never weighed in on the long-term liabilities facing this city, which over time, over the next 20 years, we have a 20-year time-frame, we have to get this under control. If we don’t get this problem under control in the next 20 years, what we are going to see each year is that several larger chunks of the general fund are going to be absorbed with covering these post-employment benefits and pension costs.”
He was not stating preferences but was mentioning conditions outlined in the report.
“I ask my council colleagues that we bring an item back to this committee in short order after we get the stakeholders in a room and we get a presentation from our financial advisors,” he said. “They’ve done this before, but it led to absolutely nothing.”
451 West Fifth Street
Oxnard, California 93030
1000 Town Center Drive
Oxnard, CA 93036
(Walk-in & Drop-off)
9 a.m. - 5 p.m.