With a new finance director in place and a full year after their city’s voters approved Measure V, a one cent per dollar sales tax override to redress municipal economic challenges, the Chino City Council was blindsided this week with the revelation that the city’s general fund is $6.3 million in the red.
The gloomy news was unleashed by Kim Sao, who last month replaced Robert Burns as the director of finance in the 94,498-population city.
In the staff report and documentation relating to an item on the agenda for the Tuesday April 1 meeting titled “Fiscal Year 2024-25 Midyear Budget Review” and “Midyear Budget Adjustments for Fiscal Year 2024-25” was a memo from Sao to City Manager Linda Reich which contained what in retrospect may have been a forewarning, although it was leavened with other data that did not seem to presage any type of fiscal crisis.
The action this week came slightly less than two-and-a-half months after the city council approved the mid-term budget on January 21.
Staff went over the budget with a fine-tooth comb thereafter, with an analysis of the deviations from the projected spending that were turned up.
According to Sao, it was learned that there was to be a “decrease [to] the general fund revenues estimate by $3,420,211 and all other funds by $12,839,480 for a total decrease of $16,259,691.”
Further into the memo, however, Sao made references to what appeared to be countervailing circumstances or issues that downplayed the seriousness of the more than $16.2 million decrease in funds flowing into the city.
Without engaging at that point in an in-depth explanation of how the city had sidestepped a significant portion of its pension financing obligation, Sao alluded to a “decrease [of] $3,280,949 to the current general fund appropriation and other funds due to the elimination of allocated pension costs.”
Further on, Sao noted, “Revenue adjustments across all funds reflect a net decrease of $16,259,691, driven largely by a $15.8 million reduction in development impact fees caused by delays in multi-unit development projects that generate user fees for construction, permits, and inspections.”
To fiscal laymen, at least, Sao’s reference to “delays” seemed to imply that the anticipated $15.8 million in development fees will come available after the development projects resume.
Thereafter, following reference to other budgetary issues, Sao stated, “Included in the total, the general fund’s estimated revenue is reduced by $3,420,211, limiting the availability of resources typically allocated to cover one-time costs, such as capital projects and other nonrecurring expenditures.”
To be sure, the unavailability of nearly $3.5 million in the city’s operating budget going into the last three months of Fiscal Year 2024-25 came across as a serious consideration. At the same time, Sao noted that “corrections were identified that required revisions to the financial statements, leading to a restatement of the general fund balance as of June 30, 2024.
“As a result of this review, we recommend removing the appropriation for pension cost allocation, in the amount of $3,280,949,” Sao’s memo continued. “This reduction in costs results in a savings to the general fund that will now be available for other uses.”
Sao thereafter summarized the FY 2024-25 general fund by defining the ongoing fiscal year’s “revised general fund operating revenues and ongoing transfers in total” at “$135,119,658,” with total operating expenditures and ongoing transfers out totaling $124,028,793, she wrote, “resulting in an estimated net operating surplus of $11,090,865.”
Thus, it was startling when at the meeting on Tuesday, April 1, a series of nagging expenditures and unanticipated costs were totaled up, revealing the city is $6.3 million short in its general operating budget.
After she was introduced to the community by City Manager Linda Reich, the newcomer Sao from her staff position on the far end of the dais said, “Since the mid-term budget was adopted, staff worked together to review the funds and found additional changes. We made additional changes to revenue estimates.”
According to Sao, an accumulation of unforeseen expenses, including an increased $620,000 obligation to the Chino Valley Fire District, a $150,00 contractual adjustment to the Inland Valley Humane Society, a $34,000 adjustment to what the city paid for to conduct the Measure V sales tax measure election, $7,500 for special projects staffing costs and $250,000 paid to the Inland Empire Utilities Agency in additional costs for sewer treatment services were found by staff looking at the city’s books.
In addition, Sao said, between July 1, 2024 and March 6, the council approved $3 million in expenses that were not delineated in the mid-term budget analysis, which extended to $2 million to construct softball fields at Ayala Park, another $705,400 for pavement rehabilitation, and $620,440 for a landscape maintenance on the 60 Freeway.
City Manager Reich said one of the upcoming expenses is another $1.5 million payment to Caltrans, one pertaining to contract renewals involved with the Pine Avenue connector project.
Sao said, “Because this year we have an unusually high amount of expenditures, the general fund needs additional cash to help balance the budget Therefore, staff recommends that we transfer $2.5 million from the employee services fund and $4.5 million from the equipment management fund for a total of $7 million, which will be transferred out of these funds into the general fund.”
Mayor Eunice Ulloa reacted by saying, “This has been a shock, to say the least. We’re going to have to roll up our sleeves and tighten our belt and figure out [what to do]. We may have to delay some CIP projects that are in the pipeline that haven’t started yet, reanalyze our fiscal position on some expenditures we had anticipated and figure where we are going to go from here on.”
In compliance with Sao’s recommendation, the council voted 4-to-0, with Councilman Christopher Flores absent, to make the $7 million transfer to the general fund.
-Mark Gutglueck