10:31 PM PST on Sunday, February 28, 2010

By DARRELL R. SANTSCHI
The Press-Enterprise

Grand Terrace will have to cinch its belt tight for the next four months to make up a $423,240 budget gap this year and then brace for an $800,000 shortage in the fiscal year that begins July1.

City Manager Betsy Adams told the Grand Terrace City Council this week that new construction has ground to a halt, sales tax revenue has plunged and earnings on the city’s investments have dropped more than expected. All of this, she said, is the result of a slumping economy in a community of 12,500 people.

The council met with city staff members in a budget workshop before announcing at their council meeting Tuesday night that cuts are coming.

In a written report, Adams said she will freeze spending on all but the most “mission critical” expenses; that department heads will have to gain her approval for spending more than $500 on anything; and there will be a freeze on hiring.

She said the city will look for ways to cut costs of services provided by outside contractors. That will not include the city’s contract with the San Bernardino County Sheriff’s Department, which is expected to increase next year.

Adams will also meet with city employee groups to discuss “labor savings.”

Even with all of that, she warned, the council will likely have to dip into its general fund reserve to balance the budget.

That could be especially painful, the council learned, because its $3.7 million reserve in a fund that pays for most day-to-day city services will be taking a $2.6 million hit to guarantee repayment of money placed in the general fund for more than a decade that should have gone to the citywide Redevelopment Agency.

Adams told the council that she has not yet determined details of the funding mix-up, but that by putting the reserve money on hold and treating it as a loan, “The city would be recognizing that part of the city owes money to itself.”

The comment prompted a question from the audience later in the meeting.

“What does the statement ‘We owe ourselves money’ mean?” resident Charles Hornsby asked. “There is either money there or there is not.”

Adams said in response that tax money that should have gone to the Redevelopment Agency, which pays for low-income housing programs and infrastructure construction, was placed in the general fund.

City Attorney John Harper said by phone after the meeting that San Bernardino County, which collects taxes, had sent checks to the city without specifying that the money was for the Redevelopment Agency.

“It was a long time ago,” he said. “I don’t even know if the law was particularly clear when the Redevelopment Agency was formed.”

He said the money accumulated in the general fund, building as a reserve, and that “nothing nefarious” went on at City Hall. The error was discovered by a financial analyst handling a redevelopment program involving the city, he said.

Harper said the $2.6 million is now being treated as a loan until the city recovers enough financially to pay back the Redevelopment Agency.

Councilman Walt Stanckiewitz said he is still not sure whether the problem was the result of “mismanagement or sleight of hand.”

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