As if the city’s financial projections of the future weren’t bad
enough, Hollister officials have learned the General Fund reserve
contains $1.3 million less than previously thought.
Officials realized the discrepancy last week when an auditor
– who is wrapping up an annual examination of city finances –
revealed the news, according to City Manager Dale Shaddox.
The General Fund reserve, reported to be $9.3 million as of July
1, actually had only $8 million at the time, according to a City
Council staff report.
As if the city’s financial projections of the future weren’t bad enough, Hollister officials have learned the General Fund reserve contains $1.3 million less than previously thought.
Officials realized the discrepancy last week when an auditor – who is wrapping up an annual examination of city finances – revealed the news, according to City Manager Dale Shaddox.
The General Fund reserve, reported to be $9.3 million as of July 1, actually had only $8 million at the time, according to a City Council staff report.
Council members had used that figure in determining how much it could afford to spend from the reserve this fiscal year – they then budgeted a $730,000 deficit.
The stinging revelation came while officials had been revising a “five-year trend analysis” – a projection of future spending and revenues. Polished estimates were compiled and finished late last week for consideration, as the Council considers laying off 36 employees from Hollister’s 175-person workforce.
Shaddox had requested a revision to the document – initially presented at a Jan. 12 meeting – after employee groups questioned his initial trend analysis and its gloomy outlook. Less devastating projections, they had hoped, would mean fewer layoffs.
Now the forecast is even worse.
“Now that we have an even lower starting point in our General Fund reserve,” Shaddox said, “it makes it that much more problematic.”
The Council’s policy is to avoid dropping below $4.5 million in its savings account. Councilman Robert Scattini called the most recent discovery “poor management of money.”
“It sure throws the wrench in the wheel,” Scattini said of the $1.3 million anomaly. “The wheel was coming off anyhow. But I tell you what, this has expedited it.”
Regarding the upcoming decision on layoffs, he said, “I would surmise it would definitely have an effect on Wednesday.”
Shaddox was not expecting a discrepancy in the General Fund reserve, he said. Though officials, he acknowledged, haven’t fathomed a precise amount since he started as city manager in May. At that time, he was told by finance officials there was $12 million to 15 million remaining, he said.
Subsequently, in a series of staff meetings while planning the budget, he said, that perceived amount continually spiraled. Officials reached the conclusion there was $9.3 million shortly before the Council’s July approval of this year’s budget.
“It was a surprise,” he said of the $1.3 million difference, “especially at a time when we are trying to get as accurate a picture as we can on our future finances.”
Finance Director Barbara Mulholland said the drop-off in the reserve occurred because of several “old funds” – money still owed to other parties – the city had to recently close.
She explained, for instance, Hollister didn’t receive as much compensation as expected from the federal government for recovery efforts after the Loma Prieta earthquake. And the funds must be paid off by the General Fund reserve, she said.
“You hold (the funds) for some extended period of time to make sure you aren’t going to get reimbursed,” she said.
Meanwhile, president of a local employees’ union, city engineer Luis Aguilar, acknowledged the worsening of an already painful problem. Though he said, “I think we need to investigate that (estimate) further.”
The disclosure adds to a series of financial miscues exposed under Shaddox’s eight months of leadership. Since 1999, the General Fund reserve has dipped from its high of $15 million, and Council members claim they were unaware of that drop-off while approving projects.
During that same span, San Benito Foods refused payments to Hollister for use of the city’s sewage plant – the tomato cannery has disposed waste there during its summer peak season. Shaddox exposed the $1.4 million debt in July.
More recently, several outstanding loans to local businesses from the city’s Redevelopment Agency were disclosed.
And those problems only add to millions in expenses that must be cut, Shaddox says. The updated projections released Friday include several scenarios – some more optimistic than others.
For comparative purposes, separate reports were included based on how much money the state government will take away next fiscal year. One is a $750,000 shift to California; the other assumes it will be $1.5 million lost.
There are also two reports that include no layoffs, and another that includes laying off 18 people this year and 18 in 2005-06.
Regardless, the most financially optimistic outlook predicts erasure of the General Fund reserve by 2008 and a debt thereafter. The worst-case scenario – laying off nobody and a $1.5 million state takeaway – would result in a $17.7 million debt by 2009, according to the report.
Shaddox does not advocate laying off half the employees this year because, he said, “The city would have to go through all that agony all over again next year.”
