The Morning Report
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Tuesday, July 18, 2006 | Accounting problems again threaten to strain the city of San Diego’s budget, as a regional planning agency has withheld a $2.5 million monthly payment for road construction and repairs after the city failed to report how those funds have been used over the past two years.
The San Diego Association of Governments, which administers the half-cent TransNet sales tax, froze the city’s portion of the countywide transit funds because audits detailing how the city spent that money in the 2004 and 2005 fiscal years has not been completed.
The city’s inability to comply with SANDAG’s bookkeeping standards demonstrates another symptom of an ongoing dilemma at City Hall: the failure to produce accurate and timely information about its finances. And the fallout from the snafu highlights the tense relationship that has emerged between the Mayor’s Office and the City Auditor’s Office.
The city has not released audited financial statements since 2002 over ongoing concerns with the veracity of its past financial reporting. Without certified audits, the major credit rating agencies have suspended or downgraded the city’s credit rating, barring the city from the public bond markets where it would normally borrow for much-needed infrastructure projects such as roads, sewers and fire stations.
The city missed the May 31 deadline SANDAG set for the audits and the city has already missed out on the $2.5 million in TransNet money it was slated to collect in July. City officials say they expect the audits to be completed by Aug. 5, but officials for SANDAG and the auditor it hired, Caporicci & Larson, said they were uncertain.
Fred Sainz, spokesman for Mayor Jerry Sanders, said the city’s past disclosure problems should be separated from this “embarrassing” instance, which he called “bureaucratic buffoonery.” Sainz said the delay stemmed from a staff member’s leave of absence from the City Auditor’s Office, not a deficiency in the city’s recordkeeping.
“This is all due to the ball being dropped in the auditor’s office,” Sainz said. He continued: “We’re back on track after a bump in the road. The release of the audits is imminent.”
Officials in the Auditor’s Office dismissed Sainz’s criticisms. The auditor has at times publicly bristled at his office’s placement in the city hierarchy under the mayor’s financial management team. City Auditor John Torell argues that he should be independent of the Mayor’s Office in order to more objectively inspect the integrity of the city’s financial dealings.
Torell acknowledged that his office had not met the deadline, but said it was a heavy workload for a shorthanded staff that caused the delays, not carelessness.
“We don’t have the processes in place, we don’t have people in place to do the job needs to be done,” said Torell, who said that the citywide hiring freeze discouraged him from hiring new staff members.
Assistant Auditor Larry Tomanek and Rod Greek, the office’s proprietary manager, said they agreed with Torell, but added that miscommunication with SANDAG contributed to the delay. Tomanek blamed the hold up on the massive reassessment of the city’s financial information that has come about with the increased scrutiny of city finances – a process that has led to more than $1 billion in changes to the city’s assets and liabilities
Greek said SANDAG’s request for all of the financial information pertaining to State Route 56’s construction also held up the audit.
Officials with the mayor and the auditor did agree that the audits would be completed by Aug. 5. However, other officials involved weren’t so sure.
“The last estimate we got was the May 31 estimate, so we’re hoping we’re down to last bits of information,” said Craig Scott, the TransNet project manager for SANDAG.
“I am not going to commit on any date. It depends on quality of information they provide us to the questions we ask,” said Stephen Larson, a managing partner at auditing firm Caporicci & Larson.
All 26 other governments receiving TransNet funding complied with the audit program’s May 31 deadline, Scott said. The city, the Metropolitan Transit System and CalTrans asked SANDAG to push the deadline back two months from March 31, but only the city failed to meet the new cut-off date.
San Diego County voters approved a half-cent sales tax increase known as TransNet in 1987 for freeway, road and transit projects. In 2004, voters extended the tax through 2048. The city of San Diego had collected $344.5 million in TransNet funds through September 2005.
The city’s share of the funds will be frozen indefinitely until the audits are completed.
Scott said the SANDAG board voted last year to require the jurisdictions that receive TransNet funding to have their usage of the sales tax money vetted by an outside auditor to ensure that the funds were used in accordance with the law voters approved.
The $2.5 million withheld from the city affects a handful of projects around the city:
- About $1.3 million was slated to be spent on improvements to Carmel Valley Road in the northwestern suburbs.
- Nearly $1.2 million was set aside to purchase land near the border community of Otay Mesa for the extension of Interstate 905.
- Improvements projects to University Avenue in uptown and Skyline Drive in southeastern San Diego were expected to garner $15,000 each.
Payments for July have not yet been distributed to any of the local governments because SANDAG is still collecting annual proposals for the current fiscal year, which began this month. The city will be able to collect back payments if their 2004 and 2005 audits are approved.