City finances earn poor grade
Joe Nelson, Staff Writer
Posted: 03/19/2011 03:44:25 PM PDT

VICTORVILLE – Ongoing losses, net asset deficiencies in major funds and a lack of liquidity has put this city on the brink of insolvency, an auditor has determined.

Auditing firm Mayer Hoffman McCann said in its comprehensive audit released last week that “substantial doubt exists about the city’s ability to continue as a going concern.” A going concern refers to a business that operates without the threat of liquidation for at least 12 months.

For months, the Securities and Exchange Commission has been investigating the city’s bond sales. The probe remains ongoing. And for the last two years, the Grand Jury has been investigating the city’s finances.

The city’s general fund is experiencing a lack of cash liquidity and will have to borrow from other funds. As of Jan. 31, the general fund deficit was at $4.5 million. In 2010, it was in the hole $3.1 million, according to a report prepared by the auditor for the City Council.

The Southern California Logistics Airport Authority (SCLAA) showed a $101.3 million deficit in 2010 compared to a $52.5 million deficit in 2009, and the required SCLAA debt service payments for the fiscal year ended June 30 are $21.6 million.

The Victorville Municipal Utilities Enterprise Fund incurred a $2.9 million loss in 2010, but the water district’s net assets increased by $1.3 million. However, the district spent $40.4 million constructing capital assets in 2010, and borrowed $21.4 million from other funds.

Deputy City Manager Doug Robertson believes the auditor jumped the gun in painting such an apocalyptic scenario for the city given the city is expected to show both increased revenue and cash reserves by the end of the fiscal year in June.

In the last fiscal year, the city trimmed its general fund by $4 million after trimming it by $10 million in the year prior, Robertson said.

Three years ago, the city rolled out a plan to be conservative in its use of reserves in order to maintain the highest level of service possible for its citizens, Robertson said.

He said the city expects to show about $2.2 million, possibly $3 million, in reserves in the next three months as sales tax revenue has shown a marginal increase.

In addition, the city has cut its workforce hours by 10 percent, has not increased employee benefits in five years and has eliminated employee 401A retirement plans.

“We’ve cut a myriad of things in order to eventually get to a balanced budget while we judicially use the reserves on hand,” Robertson said. “And we still have at least two years of cuts to go.”

He said the city will continue making some hard decisions as to what other services can be cut to help close its gaping budget hole.

Mayer Hoffman McCann recommended the city obtain approval from its bond insurers before shuffling them from one agency to another, citing at least two examples of misuse.

In one instance the redevelopment agency, in February 2006, used $1.8 million in bond proceeds to buy property near City Hall to build a new library without first getting approval from bond insurer Radian. In July 2009, SCLAA loaned the Victorville Water District $20 million from its housing bonds without approval from bond insurer Ambac.

Another setback noted in the audit was the blocking of the city’s foreign investor visa program called EB-5. The city is hoping to corral tens of millions of dollars from foreign investors for infrastructure projects at SCLA.

But United States Customs and Immigration Services (USCIS) terminated the city’s EB-5 program in October after determining its regional center did not comply with federal requirements for capital improvement projects.

In 2010, the city received $4.5 million from nine investors for a wastewater treatment plant at SCLA, but USCIS determined the treatment plant was not producing the required amount of jobs. One investor who gave $500,000 in September requested a refund, which was granted last month.

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