Upland city officials, including the city manager, finance manager and members of the city council disenfranchised the city treasurer to prevent him from vectoring public scrutiny of the city’s burgeoning pension crisis, action which included the alteration of public documents and forgery, the San Bernardino County Grand Jury determined in an investigation it conducted.
The grand jury’s conclusion was provided in a report belatedly released on Monday.
When Upland’s city officials prevented Larry Kinley from performing his duties as treasurer, the grand jury concluded, they were in violation of the city’s policies, disregarded or were out of compliance with state law and the California Government Code, and in some instances quite likely crossed the line into outright criminal conduct.
According to the report, “The 2019-2020 San Bernardino County Civil Grand Jury discovered evidence that in 2019 the City of Upland purposely covered up, on no fewer than five treasury reports, a handwritten notation made by the elected city treasurer of $112,039,675.00 regarding the City of Upland’s unfunded pension liabilities. The city’s management personnel then forwarded the treasury report without the handwritten note to the city council as unaltered. The evidence established that, eventually, the cover-up of the unfunded pension liabilities notation was discovered, but that the City of Upland failed to take any disciplinary action. Instead, they decided to permanently remove the elected city treasurer’s signature from the treasury report. The evidence further established that masking of the hand-written notation was then supported by the City of Upland’s motivation to prevent the citizens of Upland from asking questions about the status of the city’s unfunded pension liabilities. The civil grand jury also discovered evidence that when the city treasurer submitted an appointment for [the] deputy treasurer’s position to the City of Upland, city management personnel denied the request without statutory authority. Evidence established that the city council was not made aware of the appointment. California Government Code Title 4, Chapter 3, Section 41006, states that ‘The city treasurer may appoint deputies.’ Evidence established that the City of Upland City Council determines what compensation is provided for a deputy treasurer. The civil grand jury found evidence that members of the City of Upland Finance Committee were confused about their responsibilities. Evidence established that finance committee members differed as to who did and who did not have voting rights. Evidence also established that finance committee members did not have an accurate assessment of pension costs related to the City of Upland.”
While noting that “The civil grand jury found that most actions mentioned in this report may not violate the law,” the report states, “The San Bernardino County Civil Grand Jury is aware that there potentially may be criminal activity associated with these actions that are not within the jurisdiction of the civil grand jury. The civil grand jury does, however, view these practices as deceptive. These actions also demonstrate a lack of proper government practices and transparency to the citizens of Upland.”
There were indications, according to the grand jury report, “that the elected treasurer of the City of Upland is not being allowed to perform many of his duties by the City of Upland.” Without referring to Kinley by name, the grand jury report said that shortly after being sworn into office, Kinley was informed by the city’s management personnel that one of several responsibilities he had included signing the monthly treasury report as outlined in California Government Code Title 4, Chapter 3, Section 41004, and that his other duties and authority as treasurer were outlined in California Government Code Sections 41001- 41007.
Under Section 41002 the city treasurer is required to “receive and safely keep all money coming into his hands as treasurer.”
Section 41003 requires that the treasurer must “comply with all laws governing the deposit and securing of public funds and the handling of trust funds in his possession.”
Under California Government Code Section 41004, the treasurer is restricted from paying out a municipality’s money to any entity other than those for warrants “signed by legally designated persons.”
Government Code Section 41005 mandates that “Regularly, at least once each month, the city treasurer shall submit to the city clerk a written report and accounting of all receipts, disbursements and fund balances” and that “He shall file a copy with the legislative body.”
Government Code Section 41006 specifies that a treasurer is to “perform such duties relative to the collection of city taxes and license fees.”
California Government Code Section 41007 states that “The city treasurer may appoint deputies for whose acts he and his bondsmen are responsible” and that “The deputies shall hold office at the pleasure of the city treasurer and receive such compensation as is provided by the legislative body.”
“Evidence revealed that with the exception of signing the monthly treasury report, the city treasurer rarely, if ever, performed these duties,” the report states. “The evidence revealed that the role and scope of the newly elected city treasurer’s duties were significantly reduced from the role played by former city treasurers, and that the treasurer’s activities were limited to oversight of the city’s investments, and reviewing and signing the monthly treasury report. The evidence showed that taking action to limit the city treasurer’s scope of authority from the outset of his tenure was motivated by the city management’s desire to suppress the city treasurer’s pre-election and post-election oral and written communications concerning the city’s unfunded pension liabilities, because it would result in the public asking too many questions of management personnel and elected city officials. The evidence revealed that management personnel were of the opinion that the unfunded pension liabilities were noted in the city’s consolidated annual financial report, and that the calculation of the unfunded pension liabilities did not constitute a real number and therefore, should not be noted on the treasury report, nor anywhere else, because it would result in the public asking too many questions of management employees and management personnel.”
Further, the grand jury report states, “The evidence established that the city treasurer was responsible for reviewing and signing the treasury report. The evidence revealed that the treasury reports were prepared by city employees and forwarded to the city treasurer for review and approval. This is consistent with statutory authority and long-standing practice of management personnel and the city council. Once the city treasurer signed the treasury report, it was forwarded to the city manager’s office and then placed on the city council’s consent agenda. The evidence revealed that the city treasurer sought to inform the citizens of Upland on numerous occasions by making a handwritten notation on the monthly treasury report that the city’s unfunded pension liabilities exceeded $112 million. The evidence established that as far back as January 2019, management personnel began covering up the city treasurer’s handwritten notation on the treasury report concerning the unfunded pension liabilities. The altered treasury reports were then filed with the city clerk on no fewer than five occasions between January 2019 and June 2019, and were included in the council’s monthly consent agenda. The evidence revealed that both versions of the treasury reports were in the city’s files. However, only the copies that covered up the city treasurer’s notation of the unfunded pension liabilities were sent to the city council. The evidence established that making a notation on the treasury report regarding unfunded pension liabilities is within the elected city treasurer’s authority. Additionally, there was near unanimous agreement from witnesses interviewed that the city’s unfunded pension liabilities posed both a serious threat and a financial liability to the citizens of the city. The evidence established that management personnel did not inform either their superiors or city council that a staff member covered up the city treasurer’s handwritten notation concerning the unfunded pension liabilities prior to submission to the city council.”
According to the grand jury, the city council at that point elected to back city staff in it’s action to disenfranchise Kinley.
“The finance committee met in October 2019, and voted that the unfunded pension liabilities should not be included on the treasury report,” according to the grand jury. “The evidence showed that once the city treasurer learned that the handwritten unfunded pension liabilities note on the treasury report was not going to be included on the monthly treasury reports, he refused to sign the treasury report, and has never signed another treasury report. The evidence showed that if the treasurer did not sign the October 2019 Treasury Report without the handwritten note concerning the city’s unfunded pension liabilities, then his signature block would be removed from the treasurer’s report altogether. In place of the city treasurer’s signature, both management personnel and senior management personnel would sign the report, effectively making the treasury report no longer the city treasurer’s report. This is contrary to the city’s statement of investment policy. In November of 2019, members of the management personnel did, in fact, remove the city treasurer’s signature block entirely from the treasury report, and replaced it with their own signatures. The evidence revealed that members of the city’s management personnel unilaterally took this action without informing members of city council of their decision(s) regarding another elected city official. Evidence also determined that city officials mismanaged this matter, in that there were alternate solutions to the problem of noting the city’s unfunded pension liabilities on the treasury report, other than covering up the notation, but they were not pursued. For example, a simple memo attached to the treasury report concerning the city’s unfunded pension liabilities would have sufficed to address the matter. This mismanagement was due in part to confusion among city officials about the responsibilities and duties of an elected city treasurer, and determined actions to prevent the citizens of Upland from seeing the city treasurer’s messaging regarding the unfunded pension liabilities.”
City officials also preempted Kinley in his effort to utilize his authority to augment city staff with a deputy city treasurer to ensure that he would be able to engage in his capacity to exercise oversight of the city’s financial situation.
“Evidence also showed that the city treasurer appointed a deputy city treasurer, in keeping with the city treasurer’s statutory authority,” according to the grand jury. The city treasurer’s appointment was denied by the city’s management personnel. California Government Code Title 4, Chapter 3, Section 41006 states that ‘The city treasurer may appoint deputies.’ The evidence revealed that management personnel acted unilaterally in denying the appointment. The evidence revealed that elected city council and management personnel did not have a complete understanding and/or were confused about the role and responsibilities of the city treasurer… [and] that not all finance committee members were familiar with the city’s statement of investment policy.”
The city has no formal orientation process in place for newly elected officials at the City of Upland, according to the grand jury, and “As a consequence, the evidence revealed that management personnel took steps to limit the roles and responsibilities of the city treasurer in an effort to suppress his messaging on the city’s unfunded pension liabilities from public inquiry.”
City officials’ suppression of Kinley’s function as city treasurer can not be attributed solely to ignorance, the grand jury said, as a good measure of the violation of policy and the law was done deliberately by the council and senior staff.
“Even before the city treasurer was sworn into office in December 2016, the evidence revealed that management personnel, motivated by a desire to suppress the city treasurer’s messaging concerning the city’s unfunded pension liabilities, limited the input of the city treasurer by dissolving the finance committee,” according to the grand jury. “Officially, the finance committee was dissolved on March 13, 2017 at a city council meeting. The evidence revealed that the dissolution of the finance committee by the city council was based on the recommendation of management personnel. The minutes of this meeting reflected no discussion on this topic from the city council members. Historically, the city treasurer was always an active member of the finance committee, and gave input on a broad range of financial matters as outlined in California Government Code Title 4, Chapter 3, Sections 41001 – 41007, California Government Code Title 5, Division 2 53646, and the city’s statement of investment policy. The evidence revealed that the only committee the city treasurer was a member of was the city’s investment committee. The evidence disclosed that the city treasurer was not invited to other meetings involving discussion of the city’s finances. The evidence further revealed that by taking these actions, the city’s management personnel sought to limit the roles and responsibilities of the city treasurer in an effort to suppress his messaging on the city’s unfunded pension liabilities from public inquiry.”
The city council and senior city staff eventually reestablished the finance committee, but in doing so structured in in such a way that it abridged Kinley’s purview as city treasurer in a way that was out of keeping with state law.
“Ironically, by Resolution 6504 being passed, approved, and adopted by city council on August 12, 2019, the finance committee was reinstated,” according to the grand jury report. “In reinstating the finance committee, the city council gave wide parameters to members of the finance committee by stating that, ‘The committee shall be responsible for reviewing matters pertaining to the finances of the city.’ However, even though the city treasurer was renamed as a member of the finance committee, the language of the resolution specifically limited the duties of the city treasurer to the ‘review of quarterly investment reports’ per Resolution 6504. The finance committee is composed of two city council members appointed by the mayor, the city treasurer, and the finance officer. The evidence revealed that the voting responsibility of the city treasurer as a member of the finance committee ranged from full voting authority, limited voting authority and no voting authority. As a result, the views of the city treasurer are nullified and easily ignored. The evidence supported that minutes of the finance committee meetings are recorded. Evidence also supported that the minutes are not detailed and appear to not change substantially from meeting to meeting. The evidence established that City of Upland elected officials did not understand the calculation nor the financial impact of the pension liabilities facing the city. For example, evidence determined that a finance committee member thought that the City of Upland expends approximately 2 million dollars annually on pension costs. Evidence reveals that the City of Upland’s 2019 projection of pension costs exceeded 11 million dollars in Fiscal Year 2019-20 and is projected to reach 15 million dollars annually in Fiscal Year 2027-28. In the end, evidence supported a strong motive for management personnel and elected officials at the city to take steps to prevent this information being brought forward in the treasury report for public scrutiny.”
According to the grand jury, “The City of Upland considers actions of publicly addressing the unfunded pension liability as inviting negative criticisms and questions from the citizens of Upland, and not being part of the solution. The duties of the elected city treasurer have been reduced or limited to simply overseeing the investment funds, rather than overseeing all funds received and paid out by the city, as specified by California Government Code Title 4, Chapter 3, Sections 41001 – 41005 and the city’s statement of investment policy. The City of Upland does not have a clear understanding of the amount of annual pension cost and seriousness of the unfunded pension liabilities threatening the City of Upland.”
The grand jury recommended that “The Upland City Council investigate and make public, at an open public city council meeting and on the Upland city webpage, how city staff covered up the notation of unfunded pension liability made by the city treasurer on the monthly treasury report [and] make public, at an open public city council meeting and on the Upland city webpage, what disciplinary action was taken addressing the alteration of the treasury report after it was signed by the city treasurer.”
The grand jury further recommended that the “Upland City Council make public, at an open public city council meeting and on the Upland city webpage, the actions taken to assure that this type of incident, the altering of a signed report will not recur” and that “Any changes made to the city treasury report, after the document is signed by the city treasurer and submitted to the city clerk, must be documented in writing with the city treasurer, the city manager, and the mayor, to be implemented immediately.”
The grand jury called upon the city to reinstate the practice of having the city treasurer sign the treasury report, which was formerly known as the treasurer’s report, and provide him with a forum at one city council meeting per month to present the treasury report and the submitted financial status including, but not limited to, those responsibilities as outlined in California Government Code Title 4, Chapter 3, Section 41004 and California Government Code Title 5, Division 2 53646. The city should also clearly outline the role of the city treasurer and establish a structured orientation process defining his duties, responsibilities, authority, and his expected interactions as a member of the City of Upland’s management team, consistent with what is the specified role of a city treasurer under California regulations relating to the structure of general law cities.
The grand jury said “In the best interests of the citizens of Upland, management personnel, both elected and appointed [should] reinstate all fiduciary duties to the elected city treasurer, as outlined in California Government Code Title 4, Chapter 3, Sections 41001-41005” and “establish guidelines and practices which support the appointment of a deputy city treasurer by the city treasurer, should the city treasurer so desire, for the proper fulfillment of the city treasurer’s financial duties and responsibilities.” In addition, the grand jury directed that the “city establish guidelines/practices and training for management personnel at the City of Upland and elected city council members of the amount of and a full understanding of the unfunded pension liabilities facing the city.”
The City of Upland should also, the grand jury said, “publish a comprehensive quarterly report on the city website that lists current pension costs, plus a ten-year pension cost projection. This report, in addition to the city’s comprehensive annual financial report, should include the most current unfunded pension liability information, including the city’s comprehensive plan addressing the escalation of the unfunded pension liability.”
The grand jury report, which became publicly available on Monday, November 2, one day before the Upland Municipal Election coinciding with the Presidential General Election, came too late to preserve Kinley in his role as city treasurer. This summer, dismayed and discouraged by the degree of disrespect he had been accorded by the city council and city staff, Kinley resigned, effective August 10, 2020.
In the aftermath of his resignation announcement and indication that he would not seek reelection, three candidates to succeed him as treasurer emerged: Stephen Dunn, Upland’s former city manager and one-time finance director; Darwin Cruz, a credit analyst with Poppy Bank who previously worked as a commercial loan processor and loan administrator, and Greg Bradley, who owns an Upland-based specialty vehicle repair and restoration business. Ultimately, Bradley, with 9,683 or 42.31 percent of the 22,886 votes cast in the race, prevailed.
In a prepared statement released on Monday, Upland City Manager Rosemary Hoerning said, “The City of Upland strives for financial transparency and has taken steps in recent years to report and address its unfunded pension liability, which is the actuarially-determined liability associated with future pension costs. In just the last two months, the city council held a public workshop to highlight and review approaches to addressing the unfunded pension liability, and the finance committee hosted a public presentation by the city’s California Public Employee Retirement System actuary. The city also regularly identifies the unfunded pension liability in its award-winning comprehensive annual financial report and makes all required annual unfunded pension liability payments. The city also complied with all of the grand jury’s requests for interviews, information, and documents on the subject, and is pleased to see its cooperation acknowledged in the grand jury’s report. Despite the challenges posed by the unfunded pension liability and the negative economic impacts of the COVID pandemic, the city’s finances look reasonably strong due to the direction of the city council and the proactive, yet conservative steps taken by city management. This includes prudent management of the city’s investments, which are disclosed in a public treasury report on a monthly basis instead of the quarterly basis suggested by state law. As reported to [the] city council on October 26, 2020 with unaudited numbers, the city’s unassigned fund balance in the general fund is 38.7% of the city’s operating budget.”
Any controversy over the unfunded pension liability in Upland and city management’s and the city council’s move to prevent Kinley from subjecting the city to his unduly alarmist warnings about it were an outgrowth of Kinley’s obsessive focus on the city’s pension debt, Hoerning asserted, and it was Kinley who unjustifiably changed the treasurer’s report from its proper format than the other way around, she said. References to the city’s unfunded pension liability had no place in the monthly treasurer’s report, she insisted.
“The former city treasurer unfortunately insisted on altering the treasury report by inserting the amount of the city’s unfunded pension liability, which is irrelevant to the status of the city’s investment portfolio,” Hoerning said, explaining that she had “explained this publicly during the city council’s November 10, 2019 meeting, and even the grand jury’s report acknowledges it is not a best practice.” Neither she nor the rest of senior staff and the city had muzzled Kinley, Hoerning said.
“The city treasurer was informed he could submit a written or oral report on the city’s unfunded pension liability at any scheduled city council meeting, but he refused to ever do so and ultimately resigned before the end of his term,” Hoerning said. “The city will review the grand jury’s particular findings and recommendations in coming days and looks forward to providing a detailed response in due time.”
-Mark Gutglueck