March 12, 2011 1:00 PM
Brooke Edwards

VICTORVILLE • An independent auditor is questioning whether Victorville can stay solvent over the next three months after discovering tens of millions of dollars in internal loans that were never approved, three funds that are $180 million in the hole and dwindling cash reserves.

Mayer Hoffman McCann’s audit report, released more than two months late with Tuesday night’s City Council agenda, expresses “substantial doubt about the city’s ability to continue as a going concern.”

The city’s utility fund is now $78 million in the hole, while cash in the Water District dropped from $15 million last year to $8 million as of June 30 — and that’s with a $20 million loan made to the district from Southern California Logistics Airport Authority.

SCLAA is now more than $101 million in the hole, according to the report. That’s nearly double the deficit reported on last year’s audit, after Victorville wrote off $50 million lost to General Electric last spring when the city failed to make payments on power plant equipment.

As the federal Securities and Exchange Commission continues its investigation into how Victorville has used hundreds of millions of dollars in bond funds, Mayer Hoffman McCann’s report flagged some $21.8 million that wasn’t spent in accordance with the bond covenants.

Victorville used $1.8 million in 2005 bonds pledged toward improvements at SCLA to instead buy land for a city-owned library without asking permission from the bond’s insurer, Radian.

The city also loaned $20 million in 2007 SCLAA bond proceeds to the water district to help build the wastewater treatment plant, the report states — again without asking Radian for permission as required in the debt agreement.

That issue was one of several “significant deficiencies” Mayer Hoffman noted regarding the city’s internal controls, which are the methods used by staff to ensure that financial statements accurately reflect Victorville’s financial picture.

One issue repeatedly raised by Mayer Hoffman McCann is that staff has not properly documented and sought Council approval for its numerous interfund loans.

The city had nearly $90 million in outstanding interfund loans as of last June. But only $30 million in loans had been formally approved by the City Council, according to the audit report.

For example, the report states staff did not properly document $20 million loaned between the city’s development impact fee funds, representing the Road DIF account as having more than $20 million cash when essentially all of that money was spent through the Public Buildings DIF to construct City Hall and Green Tree Clubhouse.

And when SCLAA ended the last fiscal year with an $11 million cash overdraft, the audit report states Victorville brought the cash balance to zero by borrowing money “for a term greater than one year” from its Solid Waste, Rail Authority and Storm Drain and Street Lighting funds. The city’s Redevelopment Authority also loaned the airport more than $11 million to keep the fund afloat.

SCLAA’s debt service for the current fiscal year is $21.6 million. Revenue from property tax increment is expected to be “near the amount of debt service payments,” without a clear plan for how any shortages will be covered.

Meanwhile, the city has construction projects now underway that will cost an estimated $40 million.

The City Council is going to review the audit during the meeting starting 7 p.m. Tuesday in Victorville City Hall, 14343 Civic Drive in Victorville.

Brooke Edwards may be reached at (760) 955-5358 or at

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