City of San Bernardino Mayor’s Office Chart as of July 23, 2012

By Michael Reiter, Attorney at Law

As a follow-up to the post on San Bernardino’s Fiscal Emergency Operation Plan Memorandum, the snapshot of the City of San Bernardino’s Community Development Department Code Enforcement Division, and  Enforcement salaries, and  organization of the City Manager’s Office in San Bernardino, dated July 23, 2012, this is a look at the organization of the Mayor’s Office, headed by San Bernardino Mayor Patrick J. Morris.

As you might guess, Mayor Patrick Morris is at the top of the organizational chart. The first branch under the top of the tree is a branch with the Executive Assistant to the Mayor, Julie Frazier-Matthews.  To the right of that is a leaf that says “Education Partnerships.”  In this chart, an Office Assistant, Raymond Lomeli, reports to the Executive Assistant to the Mayor.  To the right of the Office Assistant is another leaf that says “Administration & Customer Service.”

Below the branch with the Executive Assistant to the Mayor is another branch, on the left side of the organizational tree.  It has one leaf, Chief of Staff Jim Morris.  Jim Morris is the son of Mayor Patrick Morris.

Then, directly below the Executive Assistant to the Mayor and the Chief of Staff, but reporting directly to the Mayor (according to the organizational chart) are three branches, “Environmental & Healthy City Partnerships,” Transportation Partnerships & Intergovernmental Relations,” and “Community Safety Partnerships.”  Each has one employee.  Under the first, “Environmental & Healthy City Partnerships,” is Assistant to the Mayor I, Avianna Cerezo.  Next, under “Transportation Partnerships & Intergovernmental Relations” is Assistant to the Mayor III, Casey Dailey.  Lastly, under “Community Safety Partnerships” is Kent Paxton.

In all, we see as of July 23, 2012, there are seven positions in the Mayor’s Office.  However, according to the proposed budget attached before the organizational chart, there is no line item showing amounts budgeted for salary or benefits for Chief of Staff.  The requested budget for FY 2012-2013 shows $730,434 (an 18.8 percent increase over projected FY 2011-2012)  for salary and benefits for the Mayor’s Office, and $931,715 for the requested budget for FY 2012-2013 (a 1.9 percent decrease from projected FY 2011-2012.  The decrease in the proposed non-personnel budget comes from just two line items: a decrease of $13,700 (to zero) in Professional/Contractual Services and $700 (from $800 to $100) in Fleet Charges, fuel.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708

City of San Bernardino City Manager’s Office Organizational Chart July 23, 2012

By Michael Reiter, Attorney at Law

As a follow-up to Tuesday’s post on San Bernardino’s Fiscal Emergency Operation Plan Memorandum, Wednesday’s snapshot of the City of San Bernardino’s Community Development Department Code Enforcement Division, and Code Enforcement salaries yesterday, here is more from the City of San Bernardino’s Fiscal Emergency Operation Plan Memorandum showing the organization of the City Manager’s Office in San Bernardino, dated July 23, 2012.

This was found on page  36 of the Fiscal Emergency Operation Plan Memorandum.

The chart shows Interim City Manager Andrea Travis-Miller at the top, with a vacant Assistant City Manager position, and Executive Assistant to City Manager Tanya Romo below Interim City Manager Andrea Travis-Miller, and co-equal on the chart to the vacant Assistant City Manager position.  Below those two positions are two divisions, Community Relations – Public Information, and Administrative Support.  In the Community Relations – Public Information column are nine positions, two of which are vacant.  At the top is the “Manager of Communications,” listed as vacant.  Next is Neighborhood Services Coordinator/Assistant of the City Manager, also listed as vacant.  There is a “Community Relations Supervisor/Assistant of the City Manager, who is above five SB Direct Call Taker (including a Senior SB Direct Call Taker.

On the Administrative Support division, there is one Assistant To The City Manager, a CDBG (Community Development Block Grant) Project Manager/Assistant of the City Manager, a Management Analyst II/Assistant of the City Manager, and an Administrative Assistant to [the] City Manager.

We see four kinds of nomenclature for assistants in the City Manager’s Office.  There is the vacant Assistant City Manager, there is the Executive Assistant to the City Manager, and an Assistant to the City Manager, and there are two Assistants of the City Manager (one is vacant).

When I was last employed by the City of San Bernardino, only one of the twelve people in the City Manager’s Office was there.

There will probably be some cuts to the City Manager’s Office in the reorganization process / bankruptcy, but I do not imagine it will be as severe as the cuts to other departments.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708

City of San Bernardino Code Enforcement Salaries and Benefits as of July 24, 2012

By Michael Reiter, Attorney at Law

As a follow-up to Tuesday’s post on San Bernardino’s Fiscal Emergency Operation Plan Memorandum, and yesterday’s snapshot of the City of San Bernardino’s Community Development Department Code Enforcement Division contained in the memorandum, here are more details from the Operation Plan Memorandum regarding Code Enforcement Salaries.

This was found on page 48 of the Fiscal Emergency Operation Plan Memorandum.

As you can see, it shows the Code Enforcement Division Manager budged at $132,565 in salary and benefits, including salary, the employee portion of PERS, the employer portion of PERS, unemployment, fringe benefits, and the employer portion of Medicare.  The City of San Bernardino does not pay into Social Security.  You can also see that a portion of the Community Development Director’s salary is shown in Code Enforcement, $53,347 in total.  The three supervising code compliance officers each are budgeted $113,545.  Of course, that doesn’t mean they are taking home $113,545, but that is the current budgeted cost of the position.  The two Senior Code Compliance Officer positions are set at $102,915 in salary and benefits.  The lowest-cost employees appear to be the Code Compliance Processing Assistants without special pay.  They are budgeted at $53,007 each.

In total, $3,024,254 are allocated towards Code Enforcement salaries in the City of San Bernardino.  As the Mayor and Common Council make cuts in anticipation for Chapter 9 Bankruptcy, this amount going forward could be cut through agreed-upon give-backs or lay-offs.

The thing that seems strange about the numbers is that all similarly situated code enforcement officers and other positions are receiving the exact same amount of pay, which if they were all stepped-out would make sense, and like I said before, a lot of the officers were there when I started as a Deputy City Attorney in 2001.  Also, it shows salaries for more officers than positions that are currently filled.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

Milligan, Beswick, Levine & Knox, LLP
A: 1447 Ford St. #201
      Redlands, CA 92374
T: (909) 296-6708

 

City of San Bernardino Code Enforcement Organizational Chart as of July 17, 2012

By Michael Reiter, Attorney at Law

As a follow-up to yesterday’s post on San Bernardino’s Fiscal Emergency Operation Plan Memorandum, here is a snapshot of the City of San Bernardino’s Community Development Department Code Enforcement Division contained in the memorandum.

On Page 50 of the Memorandum is an organizational chart for Code Enforcement dated July 17, 2012.  It details the names and titles of the code enforcement officials responsible for code enforcement in the City of San Bernardino as of July 17, 2012.  In all, it shows 34 filled positions, and two vacant positions.  There is a Code Enforcement Manager, Steve Wilkomm, and three Supervisor Code Enforcement Officers.  The three Supervisor Code Enforcement Officers were all with the City when I was last a Deputy City Attorney, and two of them were with Code Enforcement before I became a Deputy City Attorney in 2001.  In all, there are still 19 code enforcement employees that were employed at the time I left the City of San Bernardino to become the Assistant City Attorney of Redlands.

While this organization chart is likely to change in the coming months because of the Chapter 9 bankruptcy and the planned (but heretofore proposed) reorganization, likely retirements and possible further attrition, this chart gives the public insight into how Code Enforcement in San Bernardino is organized at the moment.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

Milligan, Beswick, Levine & Knox, LLP
A: 1447 Ford St. #201
      Redlands, CA 92374
T: (909) 296-6708

San Bernardino’s Fiscal Emergency Operation Plan Memo Dated July 23, 2012

By Michael Reiter, Attorney at Law

The City of San Bernardino recently released this memorandum.  The authors of the memorandum, dated July 23, 2012, are Interim City Manager Andrea Travis-Miller and Director of Finance Jason Simpson.  The memorandum is addressed to the Mayor and Common Council.

The summary on the first page says:

On July 18, 2012, the City Council directed the filing of a petition under Chapter 9 of the
United States Bankruptcy Code following the declaration of a fiscal emergency in the
City of San Bernardino. These actions were in response to findings that the financial
state of the City is such that the health, safety, and well-being of the residents of the
City will be jeopardized absent Chapter 9 bankruptcy protection.
This report proposes a Fiscal Emergency Operating Plan, which will enable the City to
operate while it is under Chapter 9 protection and includes recommendations for various
actions related to the City’s Preliminary FY 2012-13 General Fund Budget, which
combined will represent the City’s Financial Plan for FY 2012-13. This Fiscal
Emergency Operating Plan is necessary for the City to operate until the Pendency Plan
is developed under Chapter 9 and is presented for Council consideration as part of this
staff report.

This report covers the funding and operations of the City’s General Fund and does not
include any special purpose or restricted funds with the exception of capital projects.
The budgets for those funds will be provided to the Council by the end of August 2012.

Some other highlights:

From Page 2:

The Preliminary FY 2012-13 Budget has an operating shortfall of $45.8 million and does
not provide for any reserves nor does it address the estimated $18 million negative cash
balance in the General Fund. At Fiscal Year end, the negative cash is expected to grow
to $59.2 million in the absence of drastic measures to reduce the City’s obligations
through restructuring. The City’s financial situation is dire with no revenue or other
funding sources available to balance the City’s budget and address prior years’ deficits.

 

In bold, from Page 2:

The City must create a plan to emerge from this
fiscal crisis that is truly sustainable, with reliable ongoing revenues covering the
full operational costs, both direct and indirect, and sufficient reserves to weather
economic uncertainty, revenue fluctuations, and emergency spending
requirements.

From Page 3:

City staff will be reducing costs through the realignment of the organization and will
present a balanced budget for consideration by the Council during the coming weeks.
However, the actions to date have been insufficient and without further reduction of
costs through restructuring of obligations and severe service level reductions, the City
will be unable to adopt a balanced budget as required by the City’s Charter and the
State Constitution.

General Fund Negative Cash Balance of $18 million dollars as of June 30, 2012:

Overall, the balance of the City’s total cash and investment portfolio, as reported in the
most recent financial statements for the year ended June 30, 2012, (unaudited) was $27
million. Of this balance, 100% was held in restricted funds (assessment districts,
bonds, trust funds, special revenues, and tax measures), and the General Fund has a
negative cash balance of $18 million. While the City continues to hold investment
balances, the balances are from restricted sources not available for general operations.

City’s Unfunded liabilities of $296 million:

In addition to the City’s bonded indebtedness and lease obligations, unfunded liabilities
total approximately $296 million. Unfunded liabilities include unfunded pension
obligations of $195 million, retiree medical of $61 million, compensated absences of $20
million, general liability of $10 million, and worker’s compensation of $10 million.

Actions for the next three months:

The
remainder of the schedule details the actions proposed to be taken to meet the cash
flow needs of the City during this interim time frame. Measures proposed include:
1. Deferring debt and lease payments due in the First Quarter in the amount of
$3,556,972 until some later date. Debt and lease payments include payments for
Pension Bonds and Infrastructure Bank Loans.
2. Deferring the annual debt payment on the New World system in the amount of
$645,000.
3. Maintaining vacancies resulting in a savings of $531,000 per month in salaries,
$158,031 per month in PERS payments, $53,919 per month in health insurance
costs, and $9,200 per month in other benefit payments.
4. Continuing the employment concessions agreed to by the General Unit, Middle
Management Unit, and Management/Confidential Unit in the amount of
$2,994,764. The agreements with the Police Safety, Police Management, and
Fire Management have not expired, and there currently is no contract with the
Fire Union.
5. Deferring the ARC contribution for retiree health due in the First Quarter in the
amount of $2,219,332.
6. Deferring capital improvement projects for the foreseeable future.
Unfortunately, these measures are intended to enable the City to meet its obligations
over a 3-month period and will not result in a sustainable, balanced budget. City staff is
preparing a Pendency Plan which will serve as the budget until the bankruptcy court
approves a long-term Plan of Adjustment. Over the next 30 days, staff will work to
prepare a Pendency Plan that focuses the City’s limited resources on sustaining basic
service delivery, addressing contractual obligations, and establishing a fair,
compensation structure so the City can retain quality employees to provide essential
public services. The Pendency Plan will balance anticipated revenues against
expenditures through a restructuring of the organization and service delivery
necessary to reduce expenditures by roughly 30% of the Preliminary Budget.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708

A Tribute to Bernard E. Witkin

By Michael Reiter, Attorney at Law.

Most practicing attorneys have an appreciation for practice guides, which are succinct, helpful volumes dedicated to how to do particular things.  Usually, we are taught in law school, we should not cite directly to practice guides, because they are secondary sources.  One exception may be (and still, it should be done sparingly) is a citation to Bernard E. Witkin’s treatises, the Summary of California Law, California Procedure, California Evidence, and California Criminal Law.  My legal research and writing instructor even referred to Mr. Witkin as “Uncle Bernie.”  Our courts in California have had little trouble citing to Witkin (according to one source over 20,000 times) versus using primary law, but that is an honor usually reserved to the judiciary.

To say that Bernard Witkin is held in high esteem is an understatement.  Here are some epithets given to Bernard Witkin and judicial sentiments reflecting the esteem felt towards Mr. Witkin  in California case law:

“the eminent Bernard E. Witkin” Continental Airlines, Inc. v. McDonnell Douglas Corp. (1988) 216 Cal.App.3d 388, 421.

“the venerable Bernard E. Witkin” People v. Hinton (2004) 121 Cal.App.4th 655, 662.

“Bernard E. Witkin, beyond question the foremost commentator on California law” People v. Barraza (1979) 23 Cal.3d 675, 695.

“The legal sage Bernard E. Witkin authoritatively advises” Corbett v. Franchise Tax Bd. (1985) 167 Cal.App.3d 808 (Not officially published).

The California Legislature held Bernard Witkin in similar esteem; California Education Code section 19328(a)  reads:

The Legislature hereby finds and declares that Bernard E. Witkin’s legendary contribution to California law is deserving of a lasting tribute and an expression of gratitude from the state whose legal system, he, more than any other single individual in the 20th century, helped to shape.

The Supreme Court of California convened in San Francisco on December 3, 1996 to remember Bernard Witkin about a year after he died.  The Supreme Court holds such sessions when someone connected to the court dies, but according to his remarks on that day, then-Chief Justice Ronald M. George said it was the first time an individual other than a staff member or justice of the court was so honored.  Justice Ming Chin said that Governor Pete Wilson called him “the Guru of California Law,” that former Chief Justice Lucas said that the “Witkin summaries of California Law made us the envy of the nation” and Justice Ching said that “Bernie Witkin and California law have always been synonymous.”  Justice Norman Epstein of the Second District Court of Appeal called him “the Justinian of California.”

The reason why Witkin was– and is –so revered is that he laid down black letter law without the nonsense that you see in more academic writing about the law.  Even more than 16 years after his death, I am indebted to the work he pioneered in the last century.

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708

The Wrong Answer to Post-Bankruptcy San Bernardino

By Michael Reiter, Attorney at Law

There is a lot of misinformation out there about the City of San Bernardino regarding proposed reform efforts to the system of government for the City of San Bernardino.

One was a suggestion to transform the City of San Bernardino from a Charter city to a general law city.  There are generally benefits to being a charter city in that you have a modicum more home rule then a general law city.  However, if people think that converting to a general law city will get rid of the ward system they are mistaken for two reasons.  First, general law cities can have elections by district.  Redlands (a general law city), briefly, had elections by district, and Colton, a general law city, still has districts.

Second, when City Attorney Penman suggested a charter measure to do away with the ward system, he was met with challenges from rights groups.  I believe that effort was before the California Voting Rights Act was passed, which makes it easier to prove dilution in an at-large election.

If the City of San Bernardino’s structure (the composite Strong Mayor, Strong City Manager, Strong Council Form of Government) is the problem, removing the Charter gives the residents less choice in creating a government. If this is just an end-run to trying to get rid of the elected City Attorney, the voters have already shown with the resounding defeats of Measures C and M that they do not want that.  Going to a general law council-manager form of government would not have prevented this kind of insolvency, because if there were illegal activities by staff, they council still would not detect it, and if the council refused to listen to staff regarding the need for cuts, it wouldn’t matter if they were elected according to general law or a charter.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

Michael Reiter, Attorney at Law

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708

City of San Bernardino Bankruptcy: What Did They Know and When Did They Know It?

By Michael Reiter, Attorney at Law

We do not yet know the full story about what went wrong as far as misstatements or miscalculations (incompetence) or concealment (fraud) of numbers in the City of San Bernardino that led to the situation wherein the City of San Bernardino had or has, at some point, less than $150,000 in its bank account.

First, from primary sources, City staff (on July 9, 2012) stated that as of April 3, 2012, City staff was still misreporting the fund balance.

The Finance Department of the City of San Bernardino created a report, dated July 9, 2012 , Page 7:

Starting General Fund balance has been erroneously stated for the past 2 fiscal
years

Fiscal Year                                July 1st Audited Fund Balance              Staff Reported Fund Balance
FY 2009-2010                           $2,708,319                                                     $2,557,900
FY 2010-11                               $410,293                                                             $1,770,400
FY 2011 -12                              $(1 ,181,603)                                                       $2,044,100*
*Mid-Year report presented April 3, 2012.

Going back to the April 3, 2012 meeting in the City of San Bernardino’s online archives, I was unable to find any minutes after January 23, 2012.  Here is the April 3, 2012 Agenda for the Joint Adjourned Regular Meeting of the Mayor and Common Council.

In a staff report by Rebecca Garcia, through City Manager Charles McNeely, for Item 3A, the purpose of the workshop was to “Discuss proposed revenue enhancements and cost containment strategies and provide direction
as to measures to be researched and presented for further Council review, analysis and consideration at a future meeting.”  This staff report includes the chart that gives the $2,044,100 opening fund balance for FY 2011-2012, but also has a different number (then in the July 9, 2012 report) for 2010-2011: $2,998,000.

In the staff report by Jason Simpson, Director of Finance, for Item 1A,  on the April 3, 2012 agenda he warns on Page 10:

A major concern that needs to be noted is that the City’ s General Fund continues to be in an
increasing weakening condition and immediate changes need to be made to reverse this financial
condition, build the General Fund Reserve, and stabilize this fund. If these efforts are not made,
insolvency or bankruptcy may result. The Council has an opportunity to resolve the issue and
change the City’ s course. If not, control may be taken out of the Council’ s hands. [Emphasis Added]

However, on packet page 12, Jason Simpson’s report gives the opening fund balance for 2012 as $2,044,100.

Imran Ghori wrote an article published April 3, 2012 at 9:15 p.m., “San Bernardino: City Faces $3.8 millon shortfall[;] The decline in sales and property taxes are hurting the city, a mid-year budget report shows.”  The story starts:

San Bernardino could be headed for insolvency or bankruptcy if it’s not able to get its general fund budget under control, according to a mid-year budget report presented to the mayor and City Council on Tuesday. [Emphasis Added].

The first time the fund balance issue was in the traditional press is in The Sun, “San Bernardino facing bankruptcy if deep cuts aren’t made” by Ryan Hagen, posted online on July 7, 2012 at 8:13:10 p.m. PDT.  In the article, ”

“[Council member Wendy] McCammack also said she was troubled by the budget report’s note that the general fund’s starting balance has been erroneously stated for the past two fiscal years.

That reached a peak several months ago, when then-City Manager Charles McNeely said the fund had a balance of $2 million but the audited fund balance on July 1 turned out to be in the red by $1.2 million.

It appears that the first time that City Attorney James F. Penman mentioned, in public, that 13 out of 16 budgets may have been falsified (and I am paraphrasing from the press account) was at the July 9, 2012 Council Meeting.

As far as what did people know and when did they know it, the rest is from press articles. This article, from public radio station KPCC, “San Bernardino authorities confirm probe into city finances” by Steven Cuevas with Nick Roman, posted 6:00 a.m. on Friday, July 13, 2012 says:

Before the San Bernardino City Council’s bankruptcy vote Tuesday, City Attorney Jim Penman announced that unidentified city administrators had cooked the books to make it appear the city had more cash in reserve than it actually had.

The alleged deceit was uncovered during an audit by new finance staff working under interim city manager Laura Travis-Miller, who took over four months ago.

. . .

Sixth District [sic] councilman Rikke van [sic] Johnson said Penman gave a short briefing to council members prior to the council’s emergency budget meeting Tuesday. But he said it was short on details.

“It wasn’t nothing as far as, ‘OK, this year that happened’ or ‘that year, this happened’ or anything like that,” said Van [sic] Johnson.

“There wasn’t no specifics, other than he said that it’s under investigation. And unfortunately, what was said in that so-called briefing should have stayed in that so-called briefing and went to the right parties. Because we’re dealing with an even bigger issue then that that as far as bankruptcy. All the sudden your issue becomes the lead issue when it shouldn’t be.”

Presumably, this information was given in closed session.
This blog piece comes from an interview yesterday with Interim City Manager Andrea Travis-Miller:  The piece appears in the Los Angeles Times Blog LA NOW, posted July 13, 2012 at 7:25, by Abby Sewell and Phil Willon, labled “Criminal Probe

Miller said the city’s financial problems had been evident for many years, but the full scope was not evident until more recently, when she and the new finance director took a hard look at the books.

She said there had been inaccurate financial reporting in the city for many years, which delayed the process of understanding the full financial picture, but she said she had not seen evidence of deliberate wrongdoing.

“I have not found that there’s anything more than negligence, maybe sloppiness,” she said, adding that staffers at the time were stretched thin because of cuts.

Andrea Travis-Miller became acting City Manager on May 8, 2012, but was assistant before.  Jason Simpson began work on March 28, 2012.  So, if the quotes from Andrea Travis-Miller are correct, the problem was found sometime between March 28, 2012 and when the July 9, 2012 report was posted.

Bankruptcy was first mentioned in the April 3, 2012 staff report.  The misstating of the fund balance was found some time after March 28, 2012, but not reported on April 3, 2012 by Jason Simpson in his staff report.  The first public document showing the wrong data for two years was in a report for the July 9, 2012 meeting.  Time will tell  what they knew, and when they knew it.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708

What Charter Reform Measures Might Have Helped the City of San Bernardino Avoid Bankruptcy? An Elected Auditor and an Elected City Prosecutor.

By Michael Reiter, Attorney at Law

We do not yet know the full story about what went wrong as far as misstatements or miscalculations (incompetence) or concealment (fraud) of numbers in the City of San Bernardino that led to the situation wherein the City of San Bernardino had or has, at some point, less than $150,000 in its bank account.  Some political campaigns in San Bernardino County have more than that in their accounts right now.

The Finance Department of the City of San Bernardino created a report, dated July 9, 2012, that blames, on page 1 in the Executive Summary:

. . . the City is still facing insolvency due to a variety of issues including accounting errors, deficit spending, lack of revenue growth, and increases in pension and debt costs.

Something went wrong with the way government is supposed to work, with checks and balances regarding these unspecified accounting errors.

The Charter of the City of San Bernardino has a variety of checks and balances, and there are also external checks and balances in the municipal system of government from California law and to some extent in Federal law.

Within today’s Charter, there are eleven elected officials in the City of San Bernardino: Council members from seven geographical wards, an elected Mayor, an elected City Clerk, an elected City Treasurer, and an elected City Attorney. However, the structure if the City lacks an appropriate check and balance to find either a well-concealed fraud, or even a miscalculation of numbers that appeared on financial reports but did not reflect actual amounts.

Here is the problem, from the same July 9, 2012 report, Page 7:

Starting General Fund balance has been erroneously stated for the past 2 fiscal
years

Fiscal Year                                July 1st Audited Fund Balance              Staff Reported Fund Balance
FY 2009-2010                           $2,708,319                                                     $2,557,9oo
FY 2010-11                               $410,293                                                             $1,770,400
FY 2011 -12                              $(1 ,181,603)                                                       $2,044,100*
*Mid-Year report presented April 3, 2012.

Shouldn’t an audit have found the problem? Maybe, but if there was actual fraud, it can be difficult to find because some skilled in financial deceit can falsify document to make the numbers match up.  Even if a skilled City Council member with a background in accounting exists, they probably won’t find the discrepancy.   However, from these numbers, it seems that an audit did catch these numbers, though it doesn’t say when and who it was reported to.

What about the City Treasurer?    The Treasurer’s Duties are:

The Treasurer shall receive and pay out all moneys belonging to the City, and shall keep an account of all receipts and expenditures, under such rules and regulations as may be prescribed. He/She shall make a
monthly statement to the Mayor and Common Council of the receipts and expenditures of the preceding month, and shall perform all duties required of him/her by law and the Mayor and the Common Council. He/She shall not pay out any monies belonging to the City except on claims presented, allowed and submitted in the manner provided by this Charter.   Charter section 70.

However, if numbers are falsified by members of the Finance Department (which the Charter gives day-to-day supervision to the City Manager), the City Treasurer’s Office may not catch the problem.

What then, is the answer?  Part 1, Create a City Auditor, like the City of Los Angeles Controller, that is elected and has the power to audit, investigate, and request prosecution or discipline according to the needs of the situation.

The Controller in Los Angeles, per the Los Angeles City Charter, has these duties:

BookmarkSec. 260.  Auditor and General Accountant.

The Controller shall be the auditor and general accountant of the City and shall exercise a general supervision over the accounts of all offices, departments, boards and employees of the City charged in any manner with the receipt, collection or disbursement of the money of the City.  The Controller shall be elected as provided in Section 202.

BookmarkSec. 261.  Powers and Duties.

The Controller shall:

(a)     appoint assistants, deputies, clerks and other persons as the Council shall prescribe by ordinance;

(b)     prescribe the method of keeping all accounts of the offices, departments, boards or employees of the City in accordance with generally accepted accounting principles, except that any change of the system of accounting shall first be authorized by the Council;

(c)     regularly review the accounting practices of offices and departments and upon finding serious failings in accounting practices, be empowered to take charge of the accounting function, and thereafter assist the office or department in implementing appropriate accounting standards and practices;

(d)     maintain a complete set of accounts which shall be deemed the official books and accounts of the City, which shall show at all times the financial condition of the City, the state of each fund, including funds of departments responsible for managing their own funds, the source from which all money was derived and for what purposes all money has been expended;

(e)     in compliance with generally accepted government auditing standards, audit all departments and offices of the City, including proprietary departments, where any City funds are either received or expended; be entitled to obtain access to all department records and personnel in order to carry out this function; establish an auditing cycle to ensure that the performance, programs and activities of every department are audited on a regular basis, and promptly provide completed audit reports to the Mayor, Council, and City Attorney and make those reports available to the public;

(f)     maintain a reconciliation between the accounts in all offices and departments with the accounts in the Controller’s office, and from time to time, verify the condition of all City funds in the City Treasury, and report to the Mayor and Council thereon;

(g)     allocate among the several respective funds all public money at any time in the City Treasury not otherwise specifically allocated and appropriated by law or ordinance, and promptly notify the Treasurer of the allocation or appropriation;

(h)     report to the Mayor and Council, at times established by law, the condition of each fund, and make other reports as the Mayor or Council requests;

(i)     maintain each fund on a parity with its obligations at all times by transferring from the Reserve Fund as a loan to any fund which may become depleted through tardy receipt of revenues, and upon receipt of revenues sufficient to make an allocation as will restore each fund to parity, retransfer the amount of the loan to the Reserve Fund;

(j)     monitor the level of debt incurred by the City and report periodically to the Mayor and Council on City debt; and

(k)     conduct performance audits of all departments and may conduct performance audits of City programs, including suggesting plans for the improvement and management of the revenues and expenditures of the City.  Nothing in this subsection shall preclude the Mayor or Council from conducting management studies or other review of departmental operations.

BookmarkSec. 262.  Approval of Demands on Treasury.

(a)     The Controller shall, prior to approval of any demand, make inspection as to the quality, quantity and condition of services, labor, materials, supplies or equipment received by any office or department of the City, and approve before payment all demands drawn upon the Treasury if the Controller has adequate evidence that:

(1)     the demand has been approved by every board, officer or employee whose approval is required by the Charter or ordinance;

(2)     the goods or services have been provided, except that advance payment may be authorized by ordinance for specified categories of goods and services;

(3)     the payment is lawful;

(4)     the appropriation for the goods or services has been made;

(5)     the prices charged are reasonable;

(6)     the quantity, quality and prices correspond with the original specifications, orders or contracts; and

(7)     any additional criteria established by ordinance have been satisfied.

(b)     Notwithstanding subsection (a), the Controller shall delegate to the various offices and departments the duties of inspection of goods and services and approval of demands, in accordance with methods for inspection and approval established by the Controller, but the Controller may suspend the authority delegated pursuant to this subsection upon a finding of abuse of that authority or on a determination that the office or department lacks adequate controls to exercise that authority properly.  In the event of suspension of the authority delegated pursuant to this subsection, the Controller shall assist the office or department to achieve adequate controls and standards prior to reinstatement of that authority to the office or department.

(c)     The Controller shall withhold approval of any demand, in whole or in part, if there is a question as to whether it is improper, illegal, or unauthorized, and immediately file a report with the Mayor and Council stating the objections to the demand.  The Council shall promptly consider the report and may overrule or sustain the objections of the Controller.

(d)     The Controller shall keep a record of all demands on the Treasury approved by the Controller and of all demands to which objections have been made and overruled.

BookmarkSec. 263.  Approval of Expenses of Controller.

All demands for the expenses of the office of the Controller shall, before payment, be presented to the Mayor, who shall have the same powers as to approval or disapproval as are exercised by the Controller in the case of other demands. The action of the Mayor shall be subject to review by the Council.

BookmarkSec. 264.  Reduction of Demand on Treasury.

No demand upon the Treasury shall be allowed by the Controller in favor of any person or entity indebted to the City without first deducting the amount of the indebtedness, to the extent permitted by law.

BookmarkSec. 265.  Payment of Bonds.

Nothing in this Article shall be construed as interfering with or preventing the payment by the Treasurer of principal and interest on bonds payable by the City in accordance with the California Constitution, laws and ordinances authorizing the issuance and payment of those bonds.

BookmarkSec. 266.  Periodic Surveys of Proprietary Departments.

(a)     The Controller, Council and Mayor shall jointly cause, at least once in every five years, an industrial, economic and administrative survey to be made of the business and property of each of the Harbor, Water and Power and Airports Departments and shall select an independent qualified industrial engineer or organization specializing in such surveys to conduct the survey.  The cost of each survey shall be paid for from the funds of the surveyed department.

(b)     Each survey shall be made in consultation with the Mayor and City Council to ascertain if the surveyed department is operating in the most efficient and economical manner.

(c)     A copy of the report of each survey shall be transmitted to the Mayor, Council, and board of the surveyed department and shall be made available to the public.

Solution Part 2: Create an Elected City Prosecutor.  The City Attorney in San Bernardino is already the City prosecutor.  However, by splitting the functions, the City will have the best of both worlds.  An elected City Attorney will give advice to the City as an entity without the fear of being fired for not giving advice to the other elected officials in power, and a City prosecutor can prosecute violations of the Municipal Code and the areas of State law given by Charter or state law with the independence necessary, with the independently elected City Auditor, to root out these kinds of corruption.

If an elected City Attorney is an elected watchdog, a City Prosecutor would be doubly so.  The City Attorney’s client is the City of San Bernardino, the entity, and the City Attorney must protect the entity’s pocket book.  The role of exposing corruption sometimes is at odds with that goal.  Adding a separate elected City Prosecutor can rectify that situation and protect, in the long run, the People’s interest without regard to the City’s financial interest.

Of course, the bad numbers shown above do not add up to the alleged deficit, but if Council members were going on the correct numbers to start with, perhaps they would not have made the political choices that led to the fiscal emergency.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog. You should consult an attorney for advice regarding your individual situation.

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708

Why the Impending City of San Bernardino Bankruptcy Matters

By Michael Reiter, Attorney at Law

The news that the Mayor and Common Council voted 4-2-1 to authorize the City Attorney to file for bankruptcy under Chapter 9 of the United States Bankruptcy Code is important from a legal perspective.  We appear to be moving into a new era where bankruptcy is not something to be feared, but is embraced as a solution for municipalities.  San Bernardino is the third municipality in California to move towards bankruptcy this year, and no doubt is not the last.

According to the Administrative Office of the United States Courts,

The purpose of chapter 9 is to provide a financially-distressed municipality protection from its creditors while it develops and negotiates a plan for adjusting its debts. Reorganization of the debts of a municipality is typically accomplished either by extending debt maturities, reducing the amount of principal or interest, or refinancing the debt by obtaining a new loan.

Although similar to other chapters in some respects, chapter 9 is significantly different in that there is no provision in the law for liquidation of the assets of the municipality and distribution of the proceeds to creditors. Such a liquidation or dissolution would undoubtedly violate the Tenth Amendment to the Constitution and the reservation to the states of sovereignty over their internal affairs. Indeed, due to the severe limitations placed upon the power of the bankruptcy court in chapter 9 cases (required by the Tenth Amendment and the Supreme Court’s decisions in cases upholding municipal bankruptcy legislation), the bankruptcy court generally is not as active in managing a municipal bankruptcy case as it is in corporate reorganizations under chapter 11. The functions of the bankruptcy court in chapter 9 cases are generally limited to approving the petition (if the debtor is eligible), confirming a plan of debt adjustment, and ensuring implementation of the plan. As a practical matter, however, the municipality may consent to have the court exercise jurisdiction in many of the traditional areas of court oversight in bankruptcy, in order to obtain the protection of court orders and eliminate the need for multiple forums to decide issues.

What this means is that the City will be able to renegotiate its debt, change certain contractual terms, including agreements with its employees, and possibly reduce or eliminate debts.  The City will not give up control to a trustee in the same way seen in corporate bankruptcy.  There will be no effect on code enforcement prosecutions, and the City will not have any special way to raise money through taxes outside of California law.

What about AB 506, the law codified at Government Code section 53760 et seq.?

That section reads:

A local public entity in this state may file a petition and exercise powers pursuant to applicable federal bankruptcy law if either of the following apply: (a) The local public entity has participated in a neutral evaluation process pursuant to Section 53760.3. (b) The local public entity declares a fiscal emergency and adopts a resolution by a majority vote of the governing board pursuant to Section 53760.5.

There has been no mention of AB 506 in the coverage so far, and the agenda for yesterday’s meeting does not have any mention of such a resolution, but presumably, the City of San Bernardino will take the (b) path.

Posted on our sister site is an analysis of the political implications of such a move.

The information you obtain at this blog is not, nor is it intended to be, legal advice. No attorney-client relationship is established by reading or commenting on this blog.  You should consult an attorney for advice regarding your individual situation.
Michael Reiter, Attorney at Law

A: 300 E. State St., Suite 517
Redlands, CA 92373-5235
T: (909) 296-6708