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Joyce Clark Unfiltered

For "the rest of the story"

Aug 13

26

Mushrooms, Part 3

Posted by Joyce Clark on August 26, 2013
Posted in City Council Actions • City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , , , , , , , | 1 Comment

RESULTS

My previous blogs reviewed the cast of characters, the items under investigation, the city hall atmosphere, and the how, why and what was done. Now it‘s time to look at the results that the external audit produced. The following recommendations are relatively easy to implement and some have already occurred. Frankly, that’s the easy part. These recommendations will enforce and safeguard sound, fiscal policy positions for the city.

  • The City of Glendale should implement an anti-fraud program that would include the following:
  • Conduct a fraud risk assessment to identify areas that are vulnerable to fraud, waste and abuse and/or employee misconduct;
  • The City should implement a code of conduct and provide training for that code;
  • Create an ethics hotline where callers could be allowed to provide information anonymously. The calls should be investigated (by whom? At the very least, a third party, neutral, should be used. Perhaps it’s time to create an Employee Ombudsman) thoroughly and immediately with reports provided at least quarterly to the City;
  • Implementation of the ethics/antifraud program should be communicated to all levels of employees.
  • Retention policy for emails/server information should be reconsidered. Sixty days for email backup is not adequate for litigation and investigative purposes. The minimum should be one year.
  • Decisions on significant programs, such as the ERP, should be supported by sound financial analysis and supporting documentation discussing both the short-term impact, and potential long-term impact of the program. It should also document City Management’s consideration and reasoning for recommending or implementing such a program.
  • Have Risk Management and Workers’ Compensation trust fund boards meet more frequently than once a year. (Already implemented before I left as Chairperson)
  • City should evaluate its current policies and guidance as to required authorization for transfers and revise if necessary. These policies should be assessed by City attorneys for consistence with applicable statutes, regulations and ordinances. (The City Attorney Office’s oversight has been nothing short of abysmal)
  • Revise charter/ordinances to require the notification and/or involvement of the City Attorney over all significant transactions.
  • To the extent that budget appropriations transfers are a practical necessity during the year, update or revise the policies to clearly set out what is and is not permitted, as well as what transfers and when those transfers must go for City Council approval.
  • To the extent that the City desires to pay certain administrative costs and salaries related to the appropriate trust fund purposes [as with other cities] -ordinance or amendment to governing documents should be considered and approved by City Council to authorize these expenditures. (Had been proposed to Council but not yet implemented)
  • Premium levels charged to City departments are subject to the recommendations and the discretion of the City Management. Premiums should be based on sound long-term evaluations rather than by short-term cash needs.
  • Significant changes in trust fund premiums (e.g. >20%) paid by City departments should be authorized to the City Council in advance.
  • City Auditor should report directly to the City Council rather than the City Manager. This recommendation has already been made implemented.
  • The City’s external auditor should be engaged to perform at least an annual audit of internal controls.

REPERCUSSIONS

This is not an easy topic nor are there any easy fixes. Today’s City Hall environment is positively toxic. Hopefully the new City Manager will make it her priority to reverse this situation. Obviously politics is not confined to politicians. It’s pervasive throughout this city organization and can be found in every other city. It’s not an aberration confined only to Glendale. When Beasley came on board as City Manager, if nothing else, his control of the organization was absolute and during his tenure political intrigue simmered under the surface but never erupted into outright warfare.

When he left all hell broke loose. Two staffers, Assistant City Manager Horatio Skeete and City Attorney Craig Tindall, were within shouting distance of grabbing ultimate power, that of Interim City Manager. Both probably felt that an outstanding performance could land them the job permanently. Each had their supporters and detractors but vied for the job in dramatically different ways. Craig Tindall’s supporters, were rumored to include among others, Jim Colson, Economic Development Director; Julie Frisoni, Communications and Marketing Director; Fire Chief Mark Burdick and City Auditor Candace Macleod. It is assumed that they knew or at the very least had suspicions of or had heard rumors about the ramifications of the ERP before its eventual disclosure. If they knew and said nothing until disclosure became useful then they are complicit in the cover up. They finally released information about the Trust Fund transfers and the Employee Benefit Program in an effort to smear Skeete. There was no mention of the City Attorney Office’s failure to provide oversight over the ERP. We’ve all heard the phrase that ignorance is no excuse in the eyes of the law.

This information was released despite the fact that these decisions were Beasley’s, not Skeete’s. After all, Pam Kavanaugh as Assistant City Manager began the implementation and then retired. When Skeete assumed that role, he was tasked with continuing the implementation. I once asked Skeete why he didn’t play the same game and he told me that was not how he wanted to get the job. There were no monkeys on Skeete’s desk. Council chose Skeete as Interim City Manager and rejected the tactics employed by the Tindall faction.

If council had been informed of the facts when the ERP was first implemented different direction would have been given to the City Manager. To say we were not informed by city management is an understatement. Many of the allegations came to light after Beasley had retired. If the Workmens Compensation and Risk Management Trust Fund Boards had been told the truth reforms could have been instituted.

Now there is a new regime in city management with a new City Manager and soon, presumably a new City Attorney. Heads are rolling with Bolton, Goke, Schurhammer and Skeete placed on administrative leave. It is a strong signal that poor decision making based on a lack of integrity will not be tolerated. The first appointments by City Manager Brenda Fischer are Frisoni as Acting Assistant City Manager and Macleod as Interim Finance Director both of whom appeared to have been actively embroiled in the Interim City Manager warfare. What about Jamsheed Mehta, Stuart Kent, Jon Froke and Erik Strunk who kept their noses clean, hunkered down and did their jobs? What kind of signal has been sent through the organization? House cleaning of a selected few while others suffer no retribution for their actions or lack of disclosure until it became useful does not bode well.

AND THERE’S MORE

The call for an external audit was Norma Alvarez’ baby aided and abetted by a newspaper, the Glendale Star, that appears to have become the mouthpiece for her agenda. She obviously hoped for two outcomes from the audit: finding a pot of gold that somehow had been overlooked; and placing blame directly on former councilmembers. Neither outcome was achieved but it has made her vindictiveness apparent for all to see. She had publicly stated that after the external audit became public she would resign. To date that has not happened but it should. Her contributions to Glendale governance are non-existent. Now she says she will not run again in 2014 but reneging on her promise to resign now signals that she may change her mind as it gets closer to the time to declare reelection intent.

AND THERE’S MORE STILL…MUCH, MUCH MORE

Then there is the question of former mayor Scruggs. Was she involved? That is your decision to make. She has many supporters to this day who will reject the notion of any involvement. I am not a supporter having worked with her for 16 years. Many inside and outside of City Hall were quite aware of her ambitions and her modus operandi. We were never personal friends and for many years were often diametrically opposed on policy issues. Various staffers would often remark privately that there was nothing that went on in Glendale that she did not know about and either approved or disapproved.  In retrospect it appears that this assertion by those staffers seems to be quite accurate.

Below you will see 2 emails that require some explanation.  A Glendale resident, a very intelligent gentleman, now deceased, who had been CEO of several well known national corporations, became concerned about the bonds being issued by Glendale for construction of the arena and surrounding infrastructure. He made a series of Freedom of Information queries. During the course of his inquiries he often updated his progress via email. These are but two of many. The first email forwarded to me relates to the former mayor’s treatment of this gentleman after he spoke publicly about his concerns. The second email on which I was copied, confirms her extensive knowledge of arena finances and her need to know everything. The names of individuals and the topic raised at the time are not pertinent to the illustrations being used to offer some insight into her behavior.

First email********************

From: XXXXX

To: XXXXXX

Sent: Monday, April 17, 2006 6:05 PM

Subject: Re: FOI items for Friday

I included the entire exchange because this XXXX gentleman (XXXXX) is asking Glendale some critical questions about the Arena deal. They aren’t answering. He went to Council, waited until the end and stepped up with his questions. Elaine took him aside and berated him for saying these things on Glendale TV. She “doesn’t want the sort of thing out there for the citizens who don’t understand to see”. Scroll down to the last message he sent me. Elaine listened in on a conference call this man had with the financial people of Glendale. She is hiding something…he is close to it….

Second email******************

From: XXXXXX

To: XXXXXXXXX

Cc: XXXXXXXXXXXXXXXX

Sent: Monday, April 17, 2006 6:37 AM

Subject: Re: FOI items for Friday

Hi! I called Mr. Schuey (sp.?) at nine am on Friday, as planned, for an hour. I said that I expected to talk primarily to Steve Szymanski because he is closest to the data I desire. He said Steve’s boss would be taking his place instead. I asked who was on the line with him. He said that Steve’s boss, Art Lynch, Mr. Perkins (sp.) and Mayor Scruggs were also there!!!! I wasn’t surprised. I couldn’t tell who was doing the talking, but at least the Mayor kept silent (an amazing act of constraint). With such a large cast of characters, I didn’t expect much. They did clarify some things. 

For example, they said that 4 bond issues were for infrastructure only ($30Million), so not with the Taxable, Tax exempt and a small issue associated with the Arena. All together, the total bond amount is $180Million (Arena plus infrastructure). “They” said that I should only be concerned with the Arena bonds, even though in the budgets all six were together. They said that two of the smaller bonds had been dedicated to other purposes via ordinances passed some time ago. In summary they seemed to be defensive on this small issue. I said that I would concentrate on the two Arena bonds and one small one ($150Million), which is my main interest.

 

They went on about their AAA rating and that Mr. Perkins was their expert, etc, etc. and that they had sculptured the Bond allocation to make it easier to keep the early years payments lower so that their payments would not be too tough at first.

 

This was said because I had previously told Art that the distribution used caused a lot of excess Interest. They don’t like criticism.

So, not much accomplished.

Regards, XXXXXXX

These emails are illustrative of the belief by some people that the former mayor was involved in the slightest minutia of Glendale operations and especially when the issue was a “hot topic.”  What did she know about the Early Retirement Program (ERP) and when did she know it? According the findings of the external audit report the ERP was initiated in March of 2009. At the end of the same month (March, 2009) at the first FY 2010 council budget workshop it is now evident that she had knowledge, not readily available or shared with the councilmembers, of the program’s costs as can be seen from the questions and statements she made relative to the issue. Her actions raise more questions that remain unanswered. Many readers of this blog have knowledge of or examples that attest to her intense and perhaps sometimes, inappropriate, involvement in city affairs. If anyone cares to share please send an email to clarkjv@aol.com. Your information will be handled discreetly.

There you have it – the players, the City Hall climate, the actions taken and the repercussions. It’s not a pretty picture. If you are as angry and disgusted as I, you have every right to feel that way. It’s a bitter chapter in the history of Glendale that occurred on the watch of former City Manager Ed Beasley (retired 2012)/Interim City Manager Horatio Skeete (on administrative leave, 2014) and former Mayor Elaine Scruggs (retired 2013). The mushrooms were former Vice Mayor Steve Frate (retired 2013) and Councilmembers Clark (me, retired 2013), Martinez, Lieberman, Knaack and Goulette (former Ocotillo CM prior to 2010)/ Alvarez (current Ocotillo CM from 2010 to present).

The reforms and controls that will be adopted will help to restore confidence in a financial system run amok. Could it happen again, if not in Glendale, somewhere else? Yes because we are all fallible and can make disastrous decisions. You cannot legislate good character, morality or integrity.

©Joyce Clark, 2013

FAIR USE NOTICE
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to:http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

Aug 13

24

Fix it

Posted by Joyce Clark on August 24, 2013
Posted in City Council Actions • City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , , , , | 5 Comments

In the August 24, 2013 edition of the Arizona Republic there is a story entitled Glendale ratings lowered by Russ Wiles and Caitlin McGlade. They report that Moody’s Investors Service downgraded Glendale’s credit ratings from A2 to A3. Even with the downgrade, Glendale’s credit ratings remain in the superior “investment grade” category. It is an omen of Glendale’s future if this council does not act boldly.

Moody’s says, “The downgrade of the GOULT (General Obligation Unlimited Tax) rating primarily reflects unusually weak management practices denoted by ongoing internal and state-controlled investigations of certain financial actions dating back to 2009. The report also cited the “outsized” risk exposure to the Coyotes under a new arena deal that requires the city to pay an annual $15 million management fee to the team’s owners.” Moody’s concerns relate to Glendale’s large debt burden and an overburdened General Fund. It went on to say, “Additionally, the outlook reflects our expectation that Glendale will remain challenged to balance its budget over the medium term due to a high level of fixed costs.” What does it mean and what effect does it have on Glendale?

It means that Glendale’s financial debacle on instituting the Employee Retirement Program (ERP) at a cost of over $6M taken primarily from its Trust Funds, the continuing high fixed costs to the General Fund and its commitment to pay Coyotes ownership $15M a year have been recognized and are of concern to credit rating agencies. The downgrade means that when Glendale has to issue bonds the interest rates will be higher, considerably higher. A simple analogy is that when you wish to buy a house you are pre-qualified. If you have a good credit score your interest rate is low. If you have a poor credit score your interest rate is much higher. Your monthly mortgage payment incorporates that interest rate causing your payment to be within a comfortable or decidedly uncomfortable range. It affects the size of and the quality of the house you can afford to buy.

Glendale ‘s Capital Improvement Program (CIP) will not see new parks, libraries or pools for quite some time because its bond issuances are impacted by the downgraded credit rating. But there are other needs. Bonds are issued to maintain and upgrade Glendale’s basic infrastructure. Moody’s kept the A2 bond rating intact for Glendale’s water and sewer bonds primarily because those services are funded by the users of those services and are not typically impacted by its General Fund. Although Glendale receives Highway User Revenue Funds (HURF) and other shared revenue funds they typically are supplemented by bond issuances for such projects as major road construction. One example is the construction of the Northern Avenue Parkway. Although the state and other cities are sharing in the costs of construction Glendale’s costs are substantial and it issues bonds to cover those costs. There will be impacts, immediate impacts to the issuance of bonds for Glendale’s aging and new but critical infrastructure.

What does Glendale need to do to reverse the downgrading of its bonds? How does Glendale fix it?

SOLUTION ONE: One issue cited by Moody’s is being dealt with now and is the implementation of the recommendations offered in the external audit report. Their adoption will strengthen Glendale’s financial policies, restore integrity to the system and send a signal not only to the bond market but to its citizens that it is serious about reform.

SOLUTION TWO: Another issue cited by Moody’s is the $15M payment to the Coyotes ownership. I can see it now. Members of the Coyotes nation saying here she goes again…blaming the Coyotes. I fully understand the desire to protect from and deflect away any unfavorable information associated with the deal or ownership. Yet it remains the “elephant in the room” that must be acknowledged. It is a decision that Moody’s has used as one of the factors in downgrading Glendale’s bond rating. That’s a fact. There is no immediate fix. Glendale is bound by a 5 year contract and expenses of $75M in management fees over the next five years. It will have to reassess its position after a year’s worth of hockey games to see if the “enhanced revenues” did indeed produce the $9M a year so desperately needed. If the goal is accomplished it provides Glendale some much needed breathing room. If the goal is not achieved Glendale will have to compensate for the revenue loss by making even further adjustments to its General Fund.

SOLUTION THREE: The last major issue is Glendale’s overburdened General Fund — not the Enterprise Funds of Water, Sewer and Sanitation. These funds derive their revenues from rate payers, you and me, when we pay our monthly water, sewer and sanitation bills. The General Fund’s expenses continue to outstrip the revenues it receives in the form of sales tax collection and state shared revenue. Options are limited: sell city assets (a short term fix); further employee reductions; create more efficiency; make draconian cuts; or a combination of all of these options. This is a painful and touchy subject for all. 60% of General Fund expenses are attributable to public safety. Glendale is at the point where it has gangrene in its leg. Do not amputate the leg and watch Glendale die as the gangrene rapidly spreads through the body or amputate the leg; stop the gangrene and Glendale will live long into the future. This is no time for political posturing. This council, each and every one of them, must adopt the will and the internal grit to do whatever is necessary, including cuts, to guarantee Glendale a healthy future. Can they? I hope so. There is no way around it. Their only mandate is to fix it.

©Joyce Clark, 2013

FAIR USE NOTICE
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to:http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

Aug 13

23

Mushrooms, Part 2

Posted by Joyce Clark on August 23, 2013
Posted in City Council Actions • City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , | 3 Comments

In my previous blog I outlined the cast of characters, what actions were to be investigated and the city hall atmosphere when these actions were taken. In this article we’ll look at what was done and how it was done. Before that, there is the why. The “why” is based upon assumption. Some of the actions were taken as early as 2008. The city was on the precipice of a great National Recession.  City revenues were declining. The city was facing a budget shortfall of over $14M. Rather than provide direction to city council to begin to make the necessary cuts, including employee terminations, management staff tried to avoid the cuts with other strategies. They were protecting their turf and the jobs of many employees. They thought they were not only staving off inevitable employee cuts but that their strategy would buy the necessary time needed to weather the recession. Their options were limited and they chose actions that produced disastrous consequences when discovered five years later, in 2013.

What did they do? When did they do it? How did they do it? They set their sights on an Early Retirement Program (ERP). They touted that it would result in cost savings in excess of $5M.

What they failed to take into account was how much this program would cost to implement – a price tag of $6.1M. The program was far more popular than they anticipated and 55 employees, many of them middle to upper management representing upper pay ranges and serious money, took advantage of it.  Costs started to balloon. $1.34M in retirement incentive costs; $1.36 in vacation and sick day payouts; but worst of all, the Arizona State Retirement System slapped on a penalty of $2.75M. How could they have not seen it coming? Scottsdale tried the same ERP in 2009 and incurred millions of dollars in penalties. The State Retirement Laws had changed in 2004. Why was no one in then City Attorney Craig Tindall’s office aware of the changes in the law? Why did no one in the city attorney’s office review current law on the use of ERPs when Alma Carmicle first proposed the idea in the fall of 2008? Ignorance is not a legitimate answer, especially at the time of ERP’s publicly advertised implementation in 2009. The city attorney’s office should have been all over it.

Unfortunately, the report does not answer those questions. It merely paints a picture of what was done. Even when staff realized that there were penalties associated with using ERP, the assumptions staff provided to and used with the State Retirement System representatives were woefully under reported. Now staff, in desperation, had to find the money to cover the ERP expenses and the state assessed penalties.

They turned to the Workmens Compensation Trust Fund (WCTF) and the Risk Management Trust Fund (RMTF) as sources to fund the ERP. Then to compound their actions they used a “premium holiday” concept which involved withholding the city’s portion of payment to the Employee Benefits Trust Fund (EBTF) eradicating its stability as well.  They withheld $83 thousand per month for a total of $1M/year in both 2008-09 and 2011-12 from the EBTF. The trust funds, especially the WCTF, began to experience shortages. Over a period of two years (2010-2012) $2.6M was transferred from RMTF to the WCTF. All the while they publicly assured city council and the general public that cost savings from the Employee Retirement Program was being generated.

That brings us to Art Lynch’s retirement as Assistant City Manager in October of 2009 and the use of his consulting firm, SRJ Consulting. Mr. Lynch was part of Mr. Beasley’s “inner circle” of trusted advisers. One could assume that Mr. Beasley wanted to make sure his friend was financially comfortable before he, Beasley, retired. So began a series of highly questionable actions performed by Mr. Beasley. Employees, in order to be eligible for the ERP, had to meet a deadline of March, 2009. Mr. Lynch did not retire until October, 2009. By placing Mr. Lynch in the ERP it added another $121,000 to the State penalty. Mr. Beasley approved Mr. Lynch’s participation in the ERP and in fact, granted Mr. Lynch an extension to accomplish that objective. Mr. Beasley also approved an additional $25,000 in deferred compensation to Mr. Lynch. The day after Mr. Lynch’s retirement, he returned to duty as SRJ Consulting, with a contract that never went out to public bid. As a consultant, over several years, SRJ Consulting received nearly a million dollars. These maneuvers cost the city an additional half million dollars. This information is available on pages 23-24 of the external audit report.

It was generally assumed that Ms. Alma Carmicle was also a member of Mr. Beasley’s “inner circle” and a trusted adviser to him. Some people might view Ms. Carmicle’s job arrangement as an example of “power corrupts and absolute power corrupts absolutely.” In the summer of 2010 Ms. Carmicle moved permanently to Mississippi and Mr. Beasley approved her job retention via telecommuting. This accommodation lasted until her retirement in February of 2012. The rationale for allowing her to stay on as a full time employee through the use of telecommunication was that Mr. Beasley felt that she was needed to negotiate the public safety Memoranda of Understanding (generally recognized as union contracts). Mr. Beasley certainly led me to believe that he was heading up the MOU negotiations. From October of 2011 until her retirement in February of 2012 Ms. Carmicle participated in 26 MOU meetings/telephone calls lasting a total of 13 hours and 55 minutes. During those four months Ms. Carmicle managed to give the City of Glendale almost 14 hours of her time, talent and expertise. Yet she was paid as a full time employee. All of her other duties as Human Resource Director had been absorbed by Mr. Brown, the Assistant Director. During this time Ms. Carmicle received her full salary and car and phone allowances estimated to be about $140,000. This information is available on page 25 of the external audit report. Was it blatant cronyism in the cases of Lynch and Carmicle? You decide.

These were the major issues of the external audit: city nonpayment to the Employees Benefit Trust Fund as “premium holidays” so that those funds could be used else where as needed; transfers from and between the Risk Management Trust Fund and the Workmens Compensation Trust Fund to cover the costs incurred in the Employee Retirement Program; and the unusual job arrangements for Mr. Lynch and Ms. Carmicle.

Ms. Goke and Mr. Bolton are the latest to fall. They have been placed on leave by the new City Manager Brenda Fischer and Candace Macleod, the City Auditor, has been appointed as Interim Executive Finance Director. The bodies are starting to pile up…Skeete, Schurhammer, Goke and Bolton. I am sad on one hand because these are people I admired and respected professionally. I knew and liked some of them personally. I sought their advice and counsel on city matters for years. Did they hide other information from me when I went to them on city issues? They destroyed any semblance of trust and abdicated their fiduciary responsibilities to the city. I am outraged that they could sit before us at budget workshops and hide the truth. Yet they are just the fall guys. They did not make the final decision to implement the ERP program – City Manager Beasley did, presumably after consulting with his “inner circle” of trusted advisers. The four on leave (and others) were directed to make the program work and later told what they could and could not say about the results of the program. They could have but chose not to, blow the whistle. In that atmosphere at that time they may have felt they had no choice. Does that make them less responsible and accountable for their participation? No, of course not. Yet they are not the lead actors in this sordid drama. Some of those who refused to be interviewed were the decision makers and should be held accountable. Will there be criminal or civil action against the major players? I am not an attorney and could not begin to guess. Remember, I am but a lowly mushroom.

Next up…results, repercussions and much more.

©Joyce Clark, 2013

FAIR USE NOTICE
This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to:http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use’, you must obtain permission from the copyright owner.

Aug 13

22

Mushrooms, Part 1

Posted by Joyce Clark on August 22, 2013
Posted in City Council Actions • City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , , , | No Comments yet, please leave one

On August 21, 2013 at 1:18 PM I received the following email: “Since you were interviewed as part of the process, I wanted to let you know that the City-Council-directed-external-audit of the city’s finances is complete and is being released to the public and media today. The documents will be posted on the city’s home page and are available for you at this link: http://www.glendaleaz.com/documents/SpecialProject-SummaryofFindingsandConclusions.pdf    Julie Frisoni”

This short and not-so-sweet email went to people interviewed for the external audit (or declined the request for an interview) but are no longer working for the city. It would have included me, former Mayor Elaine Scruggs, former City Manager Ed Beasley, former Assistant City Manager Pam Kavanaugh, former Finance Director Ed Lynch, former Human Resources Director Alma Carmicle and former Risk Manager Jim Loeb. I assume another email went to currently employed city personnel who were interviewed.

I had not checked my email all day but I did so late in the evening. I immediately went to the link provided in the email (you can do so as well), downloaded and printed out the 250 plus page external audit produced at a cost of half a million dollars. Then I spent the next couple of hours reading and analyzing it.

Finally, finally, finally, the city has released the results of the external audit. This is an issue for discussion that is long overdue. To do it justice there will be this article to be followed by two more. This first section will flesh out the scope of the audit, the players and the atmosphere surrounding the actions that occurred. It’s time to set the record straight.

The firm hired to perform the external audit was Haralson, Miller, Pitt, Feldman & McAnally, PLC (HMPFM). They, in turn, subcontracted Fidelity Forensics Group, LLC., the Law Offices of A. Bates Butler and Evidence Solutions, Inc.

Their mandate was to investigate actions related to the Early Retirement Program (ERP); transfers between and out of the Risk Management Trust Fund (RMTF) and the Workmens Compensation Trust Fund (WCTF); look at any other cash transfers into the city’s General Fund; and evaluation of city management’s disclosure of these actions to the city council. They would also be charged with identifying any civil or criminal liability related to these actions. As they worked their way through these issues council approved enlarging their scope of investigation to include lack of city contributions to the trust funds; the city’s actions under the Federal Early Retirement Reimbursement Program (FERRP); Art Lynch’s employment arrangements after he retired as well as city action associated with his retirement; and Alma Carmicle’s work arrangement after she moved to Mississippi. In other words did anyone deliberately misdirect city funds or use them improperly, was improper direction given and did the city council know?

We know who was hired to do the work and what they were hired to investigate. To do their work they secured 19 workstations and/or computers and/or other devices such as tablets and phones. They reviewed nearly 75,000 documents but perhaps, most importantly, they performed 37 interviews. 27 people were interviewed (some more than once) as follows:

*    Norma Alvarez        *   Don Bolton             *   Jim Brown               *    Cathy Mcintyre        *   Ann Buchmeier       *   Nick DiPiazza             *   Julie Frisoni             *    Diane Goke           *   Horatio Skeete          *   Julianna Lloyd        *   Christina Parry       *   Craig Sullivan              *   Candace MacLeod   *   John Stern               *   Darcie McCracken       *   Raquel Montero        *   Joyce  Clark          *   Robert Steele           *   Elizabeth Smith        *   Andy Jennings         *   Elaine Scruggs         *   Shelly Kitts               *   Lupe Sierra         *   Craig Tindall                    *    Jill Shaw                *   Jim Summers        *   Michael Morrison              *   Sherry Schurhammer

More telling are those who were asked for interviews but declined them:

             *   Ed Beasley                  *   Art Lynch              

              *   Jim Loeb                     *   Pam Kavanaugh

             *   Alma Carmicle 

Now we have our cast of characters. What was the environment under former City Manager Ed Beasley’s tenure? It can be characterized in two words — very controlling. I used to joke and say that councilmembers were mushrooms. There’s an old country saying that mushrooms are grown in the dark and fed horse manure. It turns out to be more colorfully accurate than anyone imagined. Page 19 of the external audit says, “From the onset of the ERP, City Management and staff failed to keep the City Council appropriately informed, at times misled them and/or provided incorrect information. Under the previous administration, city staff was hindered and/or prohibited from providing valuable information to the City Council. Until recently City staff was hesitant to make independent decisions or communicate directly with the City Council due to a mandate by City Management that all Council communications be run through the City Manager’s office. The few times City staff was allowed to present to the City Council, they were required to do a dry run for City Management and only present that which was approved at that rehearsal. These acts could be most readily observed in official communications by City Management and staff with the City Council.” Finally here is formal vindication of my actions as Chairperson of the Trust Funds and as your councilmember despite the smear tactics used by my opponent in my recent reelection campaign.

In my conversations with various staff, there was confirmation that not only did every council communication have to flow through the city manager’s office but that staff was required to report any verbal communication had with councilmembers. They also, I kid you not, had various staff members act in the roles of individual councilmembers and then rehearse the proposed presentation to be made to council. It was a formidable and intimidating atmosphere in which Beasley expected results. Policy direction was his forte. Immersing himself in detail to achieve the objective was not. Question: Who exactly constituted “City Management” at that time? Or did Beasley instead rely upon his “inner circle” of trusted advisers?”

What occurred disturbs me – no, it’s worse than that. It makes me sick to my stomach. Management staff, almost universally belong to the International City/County Managers Association (ICMA). ICMA’s Code of Ethics can be seen at this link: http://icma.org/en/icma/ethics/code_of_ethics.

Tenet 3 of the Code is as follows, “Be dedicated to the highest ideals of honor and integrity in all public and personal relationships in order that the member may merit the respect and confidence of the elected officials, of other officials and employees, and of the public.” Staff members involved betrayed the trust we placed in them and treated us as mushrooms.

Next up — what did the investigation reveal?

©Joyce Clark, 2013

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Jul 13

25

So you want to be a councilmember…final part

Posted by Joyce Clark on July 25, 2013
Posted in City Council Actions • City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , , , | 1 Comment

AWARD WINNER FRUGAL SPENDERS…#6 MARTINEZ AND #7 KNAACK

Martinez photo

Manny Martinez

Knaack

Yvonne Knaack

Councilmember Martinez spent $7,117.47 in 6 months of expenditures and Vice Mayor Knaack spent $3,672.29. Both exhibited restraint in their spending with the exception of a few items. It would be appropriate to get an explanation from Councilmember Chavira on his expenditures that in 6 months that are 7 ½ times the amount of Vice Mayor Knaack.

It should be noted that Councilmember Martinez spent $4,126.97 (53% of his 6 months of expenditures) for its intended purpose — that of infrastructure improvements within his district. He, like other councilmembers, has cell phone charges of $411.13 and land line charges of $1,328.00. Otherwise his budget is clean and all of his expenditures are reflected in his infrastructure expenditures, phone charges and the state National League of Cities convention.

Vice Mayor Knaack has no phone charges and is to be highly commended for that practice. She did donate $609.62 to the Glendale Arizona Historical Society. I wonder if she was aware of the thousands of dollars this organization received from other councilmembers. She, too, attended the state National League of Cities convention, very frugally.

money 11Both of these councilmembers have repeatedly called for all councilmembers to reign in their spending and to return portions of their budgets back to the city’s General Fund. They are the only 2 councilmembers to consistently practice what they have preached. They get it. They understand that with Glendale’s financial constraints every penny and every dollar and how it is spent becomes important. Kudos to both.

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Jul 13

24

So you want to be a councilmember…Part 4

Posted by Joyce Clark on July 24, 2013
Posted in City Council Actions • City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , , | 1 Comment

MIDDLE OF THE ROADERS…#4 WEIERS AND #5 SHERWOOD

Weiers

Jerry Weiers

Sherwood

Gary Sherwood

There is no earth shaking surprise in either of these gentlemen’s budgetary expenditures. Certainly they have not adopted the philosophy or practice of giving your taxpayer dollars away as Chavira, Alvarez and Hugh have done. Mayor Weiers 6 months of expenditures comes in at $14,041.33 and Councilmember Sherwood is not far behind with expenditures of $11,516.37.

It’s common knowledge that they don’t like each other very much as each vies for the title of ultimate power broker in Glendale. They are discussed in unison because they share commonalities when it comes to spending. Both like to travel with each racking up substantial travel expenses and each spent about the same amount for the use of phones whether land line or cell.

money 3Mayor Weiers spent $4,729.15 (33% of his 6 months of expenditures) on travel for 3 trips. In March he and Councilmembers Sherwood and Chavira, staffed by Intergovernmental Director, Brent Stoddard, went to Washington, D.C. for the National League of Cities (NLC) Congressional City Conference. In April Weiers and Stoddard went to Washington, D.C. for the Greater Phoenix Economic Council (GPEC) Executive Mission. In May Weiers was back in D.C. with Stoddard. If Stoddard’s expenses to staff Weiers and others in D.C. are added those trips become pricier at $8,541.00.

money 5Sherwood spent $3,927.22 (34% of his 6 months of expenditures) on travel as well. If a quarter of Stoddard’s expenses (Stoddard staffed 3 elected officials on the March trip to D.C.) are added, Sherwood’s tab for travel cost the city $5,069.45 in direct and indirect costs. Stoddard typically pays for meals, especially dinners if the elected officials have not been invited by another party. He will pay cab fare and miscellaneous expenses on behalf of the elected officials.

Weiers’ phone bill comes in at $1,259.52 and Sherwood spent $449.10 for his cell and another $789.85 for his land line totaling $1,238.95. Their phone expenditures in 6 months are virtually the same. Is it appropriate to cover their phone expenses? That is a judgment call and something you must decide.The balance of their budgetary expenditures is ordinary and appropriate.

These trips were probably meaningful and were dedicated to lobbying for the city’s interests on issues such as the F-35 to be based at Luke and the casino issue. Everything in D.C. is pricey but we expect moderation. Their lodging and airfare are reasonable for a trip to D.C. but Stoddard’s expenditure of $1,284.52 for meals (dinners for 4) is on the high side.

In an era of frugality and tightened budgetary expenses in Glendale it is more important than ever before that our elected officials spend their travel dollars wisely. A reminder that these trips are funded with taxpayer dollars may encourage them to be more mindful.

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Jul 13

23

So you want to be a councilmember…Part 3

Posted by Joyce Clark on July 23, 2013
Posted in City Council Actions • City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , , , | No Comments yet, please leave one

NEXT UP AS BIG SPENDERS ARE #2 ALVAREZ AND #3 HUGH

Norma Alvarez

Norma Alvarez

Hugh photo

Ian Hugh

Councilmember Alvarez is number 2 on the list having spent $26,151.34 and Councilmember Hugh comes in at third at $19,771.12. Both share Chavira’s philosophy of giving away your taxpayer dollars.

 

money 2Here is the list of Alvarez’ donations made in the past 6 months totaling  $16,791.40 (60% of her total 6 month expenditures):

 

  • Glendale Arizona Historical Society……………$3,000.00
  • Community Action Program Holiday Event….$3,000.00
  • Football uniforms for Independence HS…….…$3,391.40
  • Hope for Hunger…………………………………$    500.00
  • Scholarships………………………………………..$   900.00

 

  • Jivemind performance at a Glen. ES*.……………$3,000.00
  • Arizona Melon Festival, LLC*…………………….$3,000.00

*Last two items are for-profit corporations.

Like Chavira, Alvarez donated to the Arizona Melon Festival, LLC money 9(AMF). AMF received a total of $11,000 from 2 councilmembers, Chavira and Alvarez.  Jeff Rose, SW Director of Jivemind, is also a managing member of AMF. Alvarez also donated to Jivemind despite the fact that the Jivemind lease of city property requires the company to offer at least 4 free public events yearly. Ummmm… Also of note Jivemind is renting 6,559 square feet of city property (formerly the Bead Museum) for approximately $2.69/SF. In checking the going rate for lease of downtown Glendale commercial property the lowest cost per square foot that is currently listed is $6.00/SF. Ummmm…

money 8Here is the list of Hugh’s donations made in the past 6 months totaling $9,984.98 (50% of his total 6 month expenditures):

 

  • Glendale Arizona Historical Society……………..$4,669.98
  • Jerseys for youth project………………….……….$1,040.00
  • Hope for Hunger…………………………………..$3,000.00
  • Packages from Home…………………….….….…$1,000.00
  • The Salvation Army………………………..…….$   275.00

Other expenditures of note in Hugh’s budget are 1. Yep, you guessed it. Hugh’s cell phone, just like Chavira’s, is covered at $75 a month and 2. On May 13, 2013 Hugh hosted an event at Shane’s Ribmoney 1 Shack for $1,750.45. That’s a lot of ribs! Was it for his constituents? No further information is provided to clarify this noteworthy expense. It’s ironic that a councilmember whose focus and roots are in downtown Glendale chose a restaurant away from downtown and in Westgate.

All of the non-profits listed above are worthy and deservedly so. They offer much needed services in our community. Some of these groups also receive dollars from Glendale’s From the Heart Program or CBDG funding. From the Heart is a program in which residents have the option to pay an additional dollar on their water/sewer/sanitation bill every month. That dollar goes to From the Heart which often also receives grant match funding from other organizations. The funds are distributed to non-profits on an annual basis. In addition, as Alvarez well knows as a former director of Glendale’s Community Action Program, that the city is a pass-through federal funds (called Community Development Block Grant [CDBG] funds). CDBG funds are distributed annually to non-profits that assist the low to moderate income population in Glendale. These are successful, long-term city mechanisms to distribute funding to the economically disadvantaged and disabled within our community.

Is it appropriate for councilmembers to divert funding from their “communications” and “infrastructure” budgets to non-profits? They are taxpayer dollars and the only judge of these monetary awards is the councilmember. There are dangers in cronyism and abuse. What if there are constituents that are philosophically opposed? These councilmember actions make it perfectly clear that they are not focused on district resident outreach and providing their constituents timely information or in making awards that can physically improve the blight in some of their district neighborhoods.

Yet when these budgets were initially created that was the distinct purpose and intent for the use of these funds in councilmember budgets. The need to fund communication to constituents was an identified primary need as was the ability to “fix” minor neighborhood infrastructure issues that arose and were not budgeted for in the city budget. None of the former councilmembers ever voiced the intent to give the money away to their favorite charities. Yet Alvarez made monetary awards totaling 60% of her entire 6 month expenditures (January 1 to June 30, 2013) and Hugh made awards totaling 50%. It’s time to take a look at councilmember budgets and examine what are to be considered as appropriate expenditures.

money 5These very three councilmembers, Chavira ($27,000), Alvarez ($26,000) and Hugh ($19,000) are big spenders who have no problem in giving your taxpayer dollars to their favorite organizations. Their inability to reign in their individual council budgets demonstrates a philosophy loathe to reign in the city’s budget and to reduce spending. The city must reduce its spending by $23 million by FY 2017 when the increased sales tax sunsets. Yet these councilmembers continue to rack up new expenses that were unbudgeted such as $100,000+ for the Beacon bid process the results of which were ignored; or the $500,000 for an audit which will do no more than place blame on some city middle managers long gone from the organization. If they cannot practice frugality with their own council budgets why should we expect them to cut city expenses, something so desperately needed, that continue to outpace its revenues?

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Jul 13

19

So you want to be a councilmember…Part 1

Posted by Joyce Clark on July 19, 2013
Posted in City of Glendale • Glendale elected officials • Glendale finances  | Tagged With: , , , , | 6 Comments

THE TEASER

This, for those of you not in the media business, is called a “teaser.” Over the coming weeks each councilmember’s budgetary spending will be explored for the past 6 months, from January 15, 2013 when 4 new members took office, to June 30, 2013, the end of Fiscal Year 2013.

greed 1Here is the roster of spending from the highest to the lowest for the last 6 months of Fiscal Year 13:

  • Councilmember Chavira, Yucca district…….$27,748.18
  • Councilmember Alvarez, Ocotillo district ….$26,151.34
  • Councilmember Hugh, Cactus district………$19,711.12
  • Mayor Weiers…………………………………………….$14,041.33
  • Councilmember Sherwood, Sahuaro district..$11,516,89
  • Councilmember Martinez, Cholla district……$  7,717.47
  • Vice Mayor Knaack, Barrel district……………$  3,672.29

Why did Councilmember Chavira spend 7 ½ times the money spent by Vice Mayor Knaack? These are your taxpayer dollars. Is your district representative practicing fiscal restraint at a time when the city has fiscal problems?

Check back over the coming weeks as each councilmember’s budget is reviewed. The answers are revealing.

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Jul 13

1

Analysis of the Renaissance Sports and Entertainment bid…Part 3

Posted by Joyce Clark on July 1, 2013
Posted in City of Glendale • Glendale finances • Jobing.com arena  | Tagged With: , , , , , | 7 Comments

words 6bargaining 3I want to commend attorneys for both Glendale and RSE. When I received the original June 26th draft of the Agreement consisting of 93 pages it took me quite a few hours to review it line by line. I ended with 18 pages of notes and they have been quite handy and well worth my time. I had quite a few issues with the original document. In reviewing the latest version dated June 28th I am quite pleased to see that many – not all – but many of my issues have been addressed. One that made me laugh out loud was the provision that Glendale would receive 100% of the Naming Rights for a future theater/stage space to be constructed within the bowl. Further along in the original document it specified that Glendale must pay for its construction or the Arena Manager would receive the proceeds of Naming Rights and apply them as reimbursement for construction costs. That provision, thankfully, has been changed and it is no longer Glendale’s responsibility to fund its construction but it still has the right to receive 100% of the Naming Rights. It appears that cooperation and communication by both sides has gone a long way to resolve many of the issues.

contractHowever, there remain several major, outstanding issues. One of those issues is that of the Noncompetition/Non-Relocation Agreement. The original June 26th agreement refers often and specifically to the dual concepts of non-competition and non-relocation although the document was never provided publicly. So there was no companion document to review. This, in conjunction with the absence of any exhibits accompanying the release of the original version, is troubling but that is for another time. In the new version of the agreement reference is now made solely to a Non-Relocation Agreement. The concept of non-competition has been removed in its entirety. Is this positive or negative? There is no way of knowing since there is nothing with which to compare the current Non-Relocation Agreement.

threaten 1Another major shift from previous deals is the concept of mediation vs. arbitration. In previous deals arbitration was the “Dispute Remedy.” In all versions of the RSE Agreement mediation is the dispute resolution mechanism. There is a difference between the two procedures. In mediation a neutral third party acts as a facilitator but is not a decision maker. Neither party is required to complete the process nor is it legally binding. The mediation resolution can be appealed through the legal system. In arbitration the neutral party acts as judge and jury. The decision is generally binding and cannot be appealed, except under very special circumstances. Mediation can be more expensive because it allows for legal appeal as opposed to arbitration which is legally binding. So the question becomes why RSE’s insistence on mediation for it seems to be upon their insistence and not that of the city.

enter 3We now know that RSE used a figure of 23 non-hockey events with attendance of 15,000 per event. Those numbers are a component of their calculations in determining the revenues from the parking surcharge and ticket/supplemental surcharges. It appears to be over inflated but it is their number, not mine, not the city’s. That goal should be acknowledged within the Agreement by incorporating accompanying performance penalties and incentives. If RSE meets less than its self-proclaimed goal of 23 non-hockey events there should be a monetary penalty. It is a concept only used in the Agreement in conjunction with hockey games. If less than 41 games are played in the arena, there is a $150,000 penalty per game paid to the city. However, if RSE overachieves or underachieves in booking non-hockey events, it should be rewarded/penalized for doing so but there is no mention of such a concept within the Agreement. Fairness dictates that non-performance be penalized and success rewarded.

man moneyAnother interesting concept within the Agreement is language that exempts the Arena Manager from governmentally imposed lease taxes on the property. If, for some reason, the Arena Manager does have to pay them, that amount will be deducted from the City’s total annual revenue to be received. Hmmmm. Should there be lease property taxes imposed that have to be paid the city is required to pay them.

It also appears that instead of allowing the city’s contribution to the Capital Improvement Fund to accumulate year over year, the Capital Improvement Fund is set to “0” every year and the funds within it revert to the Renewal and Replacement Fund that is spent solely at the Arena Manager’s discretion.

The last major change to the document is the city addition of its own opt-out provision. The city views this action as entirely appropriate. Their assumption may be based on the notion that the city has more “skin in the game” than does RSE. $15M for each of 5 years equals $75M. It has been widely reported that RSE’s equity (or “skin”) is $45M. The proposal is that after 5 years, each side should have the option of deciding whether to continue, especially if one side or the other has accumulated over $50M in debt. That option, if it remains in the Agreement, would signal that RSE’s “enhanced revenue streams” did not perform as advertised. The city’s financial shortfall in this deal is of its own making. The current council will either be comfortable in its assumption that it can weather the effects of the shortfall or it will not. Continued insistence by the city on this provision destroys RSE’s ability to secure loans because it nullifies the very element they MUST have, which is a guaranteed $15M from the city.

agenda 1In my notes I have probably identified another two dozen minor issues that require further negotiation. Listing all would turn this blog into a book. I will not inflict that agony on you. It appears that with some further negotiation and communication this Agreement could work but it does not resolve Glendale’s fundamental issue of covering a monetary shortfall of $3M annually.

Many have asked me to reveal my position on this issue. That I will not do. I have provided you with financial information on the “enhanced revenue streams” as well as information on Glendale’s precarious financial position and Agreement points that need further resolution. Many of you reading this blog have expertise in business budgets and corporate negotiating. My role is to offer municipal expertise and to provide context to balance that.  It is up to you to decide if this is a good deal for Glendale.  This is exactly polling 1what every current councilmember is wrestling with. As leaders of this city they have the prime responsibility of insuring the continued financial health of the city. My feeling is that some are now struggling with recent decisions and recent votes and beginning to realize the effects of those decisions.

confusion 3Will this Agreement help or hinder Glendale’s continued financial health? Of course there is the overwhelming element of politics. Some councilmembers’ positions will be taken as a result of ego; others simply wouldn’t say ‘yes’ even if God invited them into the Pearly Gates; still others have only a partial grasp of the entirety of the deal. But it is not my call. I am no longer a sitting councilmember. Whatever their collective decision I will accept it and abide by it, as everyone should reasonably do.

Fasten your seat belts — if past history is any indication we are in for a bumpy ride. I hope that I am wrong but there may very well be challenges to this Agreement.

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Jun 13

30

Analysis of Renaissance Sports and Entertainment bid…Part 2

Posted by Joyce Clark on June 30, 2013
Posted in City of Glendale • Glendale finances • Jobing.com arena  | Tagged With: , , , | 2 Comments

In my last blog $3,109,580 was identified as the shortage Glendale faces with acceptance of the Renaissance Sports and Entertainment (RSE) bid. This requires looking at the city’s overall financial health. A useful measurement is to look at the city’s General Fund “Ending Balance” (it may be called Contingency Fund or Rainy Day Fund). It will be helpful to refer to slides presented at the city council workshop of June 29, 2013. Here is the link:

http://www.glendaleaz.com/Clerk/agendasandminutes/documents/062813CoyotesandArenaMgt.pdf .

coins 1Some historical context is in order. In the early to mid 2000s Glendale’s economy, along with the rest of the nation’s, was robust. The arena had been built, Westgate was taking shape and growing, developers were buying land in the surrounding area and submitting development plans faster than they could be processed. When the national recession first took shape the city had General Fund revenues of $131,807,000 and maintained an Ending Balance of $49,338,000 (well over the city policy of 10%). All “expert” advice, at that time, projected a deep recession of 3-5 years and a slow recovery. Council had the choice of starting to make major budget cuts (including lay-offs) or using its Contingency Fund. It chose to use its Contingency Fund to avoid lay-offs and to weather the recession. Was it the correct decision? Obviously not, but “Hindsight is 20-20.” We now know that budgetary cuts should have been made then, just as municipalities all over the valley did, for cuts are cumulative and can help to alleviate the need for drastic cuts in the future. There were some budgetary cuts made at the time and employee furloughs were instituted but those strategies were not strong or deep enough and came too late to create the desired outcome. Those following the Coyotes saga no doubt recall former Mayor Scruggs complaining bitterly and saying that we were told that Glendale was different and no cuts were necessary. What was done was done but it set up the current fiscal crisis the city now faces. By the end of the decade with the national economy still in recession the previous council had learned a painful lesson and was committed to making budget cuts and began a plan to do so.

We come to the present. The city’s total General Fund revenues for Fiscal Year (FY) 14 are $161,500,000 and projected to increase by a mere $800,000 over the next 5 years (FY 18) to $162,300,000. In the intervening years there are General Fund revenue increases of nearly $18M but they are temporary increases based upon the raised sales tax due to sunset in 5 years. After the 5th year, FY 2018, the sales tax increase sunsets and the General Fund revenue will revert to the level of FY 14. The temporary sales tax increase was designed to do one thing only. That was to provide the city some breathing room while it continued to make budget cuts of $5M a year for 5 years totaling $25M over 5 years AND rebuild its Ending Balance to a minimum of 10% of its General Fund revenues. It WAS a sound plan and a plan that allowed for a hockey lease. It is not the plan of the newly elected council for there are only scheduled cuts of $4.8M in FY15 and $9.5M in FY18 for a total of $14.3M. That is $10M shy of the amount that is needed to replenish the General Fund and will present problems when the sales tax increase disappears—unless this council decides to continue the sales tax increase ad infinitum. I suspect that is exactly what will occur despite its sunset promise included to gain citizen voter support to ratify the increase.

Now add a couple of facts.  First, the Fire Department had a structural deficit of $3.5M this Fiscal Year, FY 14. It was fixed by budget amendments passed by council 6 weeks ago and on June 28th. It solved the problem—for this year only. Next year the Fire Department will face the same structural deficit of $3.5M with no direction given by this council as to where and how this money is to be found. Our contractsecond fact is at the June 25th voting meeting of Council a restructured contract with Southwest Ambulance was approved. (FYI: SW’s Martin Nowakowski, its Public Affairs Director, is a friend of Norma Alvarez and Sammy Chavira and supported both in their election bids) The old contract called for 2 ambulances that were in operation 5 days a week for 9 hours a day. The new contract calls for 3 ambulances in operation 7 days a week for 24 hours a day. It results in an increase of future expense to the city, in this contract of $1M. It is possible that SW may pick up $400,000 of the million dollars but there is still an increased contract cost of $600,000 that is a new city obligation. And it may interest you to know that city personnel assisting on these ambulances are paid overtime pay by Glendale. What a sweet deal. Council was briefed and was made fully aware of the increased cost to the city. Neither example of fact has corresponding cuts in other areas. In particular, the Southwest Ambulance vote passed without a single councilmember question regarding it. These two fiscal examples demonstrate that council still refuses to recognize the serious financial condition of the city.

The city’s Ending Balance for this Fiscal Year, FY 14, is $8M and equals only 5% of the General Fund revenues — not a good position in which the city finds itself. The good news, however, is that it does grow in the next 5 years and by FY 18 is $20.3M (or 12% of General Fund Revenues).

Why is the Ending Balance or Contingency so important? First, it is a measurement that bond raters look to in order to determine a city’s creditworthiness. It’s like an individual’s FICO score. The higher it is the lower the interest rate. It serves a second purpose in that it can be drawn upon in an emergency or when unexpected expenses occur. For instance, the $120,000 paid for a search of a new City Manager and the $500,000 for the audit as well as the Beacon consultancy contract were paid from Contingency as these were new, unbudgeted expenses. Contingency can be used to cover increases in the price of gas for city vehicles and it can be used to cover unplanned increases in medical premium costs. Right now, with only $8M in reserve, the city is living on the edge.

How does acceptance of the RSE bid affect the city’s Ending Balance (Contingency Fund)? Instead of $8M in reserve this year, it drops to $5.7M or 4% of the city’s revenues. By FY 18 instead of a healthy Contingency of $20M it is only $8.6M (in other words, in 5 years, it is exactly the same as today).

How does acceptance of the RSE bid affect the city’s budget? Its revenues do not change but its expenses have increased by $9M as the city goes from paying a $6M a year management fee to a $15M a year management fee. We must factor in the “enhanced revenue streams” and in doing so the city projects a $2.3M shortage for this budget year (FY 14). I have shown a figure of $3.1M which I believe to be more realistic. However, whichever figure is used, there is a shortage that has to be covered.

If the RSE bid is accepted there are only three ways that the shortage can be covered. Some explanation is required to better understand Option #3 offered below. The city established an escrow account by borrowing money from other funds, i.e., Sanitation, Vehicle Replacement, etc. It has $20M in it – not quite the full $25M owed to the NHL for the second year of arena management. If the RSE bid is accepted the NHL has publicly stated that they will accept payment of that $25M in installments of $5M a year for 5 years. The options are:

  1. question 3The city can make further budget cuts in FY 14 by reducing service levels to residents, cutting more employees or trying to find further efficiencies
  2. It can pay the shortage from the  Contingency Fund by drawing down the balance to $2 or $3M instead of the current $5.7
  3. It can use the $20M reserved in its escrow account, earmarked for the second NHL payment of $25M, and bring down the reserved escrow amount by paying the NHL $5M this year and covering only this year’s shortfall of $2-3M

Imagine yourselves as a current councilmember for just a moment—not a Coyotes fan or a Ken Jones aficionado—but as someone charged with sound financial decisions for the city. Would you accept or reject RSE’s bid? If you chose to accept RSE’s bid which of the 3 options would you choose? Would you reexamine this council’s current financial plan to make strategic cuts and perhaps save Westgate and its future or would you make a leap of faith and decide that an anchor tenant is not necessary? It’s in your hands. In my next installment I will review items within the RSE contract that remain problematical for the city and could be resolved with further negotiation.

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