A year ago, San Diego city auditors found that staff spent millions more on rental equipment for city departments than what councilmembers approved. But the auditors couldn’t find who OK’d the additional spending.
Over the last month, councilmembers have demanded answers from city staff after an audit found that a contract with Herc Rentals increased by more than $6 million without approval from the City Council.
“I had asked on the dais on Oct. 6 where the $6 million had come from that was taken from the general fund and increased unlawfully to the Herc rental contract,” Councilmember Marni von Wilpert said during an Oct. 20 City Council meeting. “I’m still waiting for an answer.”
The city has a contract with Herc Rentals to rent trucks, forklifts and other equipment and services. This equipment is used by city workers across several departments responsible for park maintenance, public safety and more.
For fiscal year 2020, councilmembers approved spending up to $14.3 million on rentals. The contract now allows spending up to $65.5 million.
City law requires the City Council to review and approve certain changes to city contracts. The Council is required to approve new contracts over $3 million and all adjustments to contracts over $200,000.
The city auditor found that didn’t happen in 2023. That year, staff adjusted the Herc Rentals contract in October by $4 million and then again in December by $2.7 million. Other adjustments made to the contract were approved by the Council.
The city auditor’s team said departments didn’t know whether their contracts needed Council approval.
In a statement, Ombretta Di Dio, spokesperson for purchasing and contracting, said the contract was adjusted “to pay outstanding invoices and allow departments access to rental equipment and vehicles to address operational needs, with the intent of obtaining retroactive approval.”
She said rental equipment and vehicles supported critical operations to the city. When some city vehicles were out for repair or missing parts, they used Herc rentals to help in emergency situations like the 2024 floods.
The city auditor gave Voice of San Diego the list of every transaction with Herc Rentals from 2019 to 2024. The transactions are from dozens of departments like public utilities, homelessness strategies and solutions, and transportation.
Di Dio said departments have “flexibility within their approved budget to manage non-personnel costs… When overages occur in one area, they are typically offset by savings in another—ensuring that operations continue without disruption.”
According to the 2024 audit, “when contract alterations are brought to Council late, it puts pressure on Council’s approval responsibility. As a result, Council’s ability to provide meaningful oversight may be reduced if there is not time to consider other vendors without disrupting critical services.”
In other words, when contracts are brought late to the City Council it limits their role and authority to make sound decisions on the contracts. Think of it like making charges to a shared credit card. Each department is charging to the credit card, unaware of how much other departments are spending on it too. Then, Council has to deal with the bill.
Say a department spent more than $50,000 on rental vehicles. They have a better chance of getting that approved by Council if they bring it late, because, well, they have already spent it and now they owe Herc.
So, Council might feel pressure to approve the action to adjust the contract so they can ensure Herc gets paid. But they don’t know if the departments have that money budgeted, they just know they owe Herc.
Councilmembers either vote no – and risk interrupting services – or vote yes and continue to meet the demands for rental equipment across departments.
The Herc contract is an example of these pressures. The Council recently approved an additional eighth amendment to increase the amount in July. The Council voted to increase the contract with the condition that they want to see a specific audit on it.
“I think one of the things I struggle with sometimes is who will bear the consequences if these contracts aren’t approved,” said Councilmember Sean Elo-Rivera during the Council meeting on Oct. 6.
“I think this is what puts us in a particularly difficult position as councilmembers… it is typically rank and file everyday employees who are doing the work.”
It’s unclear why the city is spending so much with Herc. A spokesperson with the city said the transportation department received a mid-year adjustment in FY25 to account for increased needs so that other departments’ needs were not reduced.
The city auditor is planning to do an individual audit on the Herc contract and any other vehicle contracts.
“We will begin the audit in the near future,” said City Auditor Andy Hanau.
Claudia Abarca, director of purchasing and contracting, said they implemented eight recommendations of the 13 made by the city auditor in the last year. One of these recommendations includes updating the Council approval threshold and clarifying alterations for goods and services contracts.
Still, councilmembers are frustrated and looking for answers.
“Do you realize we had a budget fight this past year for over $4.5 million in which the mayor vetoed it and we overrode the veto?” said Councilmember Von Wilpert during the Council Meeting on Oct. 6.
“Somebody had to use a city computer and make that adjustment unlawfully. It’s against the municipal code to do that, so who did that?”
Councilmember Raul Campillo also chimed in to ask if the city disciplined the employees who made the illegal adjustments. Abarca said they did.
“I’m really hopeful that’s what happened here, because this wasn’t a few dollars over,” said Councilmember Campillo. “This was several million dollars over.”
Abarca said that city departments were behind on payments and in a deficit of what they owed Herc. She said her staff was directed to make the unauthorized adjustments when they ran it up the chain of command.
“I don’t know that it went to the mayor himself, I know I did bring this up to the DCOO (deputy chief operating officer) and we’ve been working on this contract for quite some time,” said Abarca. “We’ve done several refinements on how we are monitoring and actually managing the spend for each department to ensure we don’t get to this place again.”
Abarca added they have not altered any contracts above $200,000 without it coming forward to the City Council since 2023.
It’s still unclear who is directly responsible for the contract changes, and where each department pulled money from their budget to pay Herc.
Seems to me to be an illogical system. Why not simply allow an open-ended contract which departments can utilize within their approved budgets? If Council feels these rentals would better be covered by a pool of vehicles maintained by the City, they can recommend that the vehicles be purchased and approve those costs instead.
This is exactly why the sales tax increase failed. It shouldn’t take an audit to find out why so much additional money was expended. Clearly city employees do not keep accurate or complete record/accounts.
“For fiscal year 2020, councilmembers approved spending up to $14.3 million on rentals. The contract now allows spending up to $65.5 million.” A greater than 5-fold increase in 5 years. That is a great deal of taxpayer money unaccounted for.
Kind of like a ballroom without permits.
So do I have this right: The original contract was about $14M. The council approved adjustments were about $35M, and non-council approved adjustments were about $16M, resulting in a new total of about $72M. This information is delivered over several paragraphs, making it difficult to follow.
I suspect that the internal system of the city does not have sufficient controls to avoid unauthorized increases in the adjustments by people without approval authority. Why isn’t the mayor in front of council answering questions about insufficient internal controls?
People working for the government are incompetent? NO WAY!
Time to privatize more services. More competence and price competition. Fewer staff salaries and pension expense.
How is San Diego always in a deficit? One of the largest cities, constantly raising taxes and fees for everything and inventing new ways to tax the people. The roads are all tore up. The constantly repair the roads that are in good condition and never touch the bad roads. There is plenty of money being collected. It is just mismanaged and unaccounted for and likely a good bit of corruption. The only solution they have is how can we tax people more. Every single level of government is totally screwed up. Obviously these politicians don’t do anything for the people. We don’t need them. Tell one good thing they have done for us. Now we have trash inspectors walking around looking in our trash bins! Are you kidding me? How much does that cost?
Ash St for one.
It’s by design. The more people that work directly for the city and receive those bloated pensions, the more voters you have to keep those city salaries higher. Same with UCSD employees, second largest employer in San Diego behind the military – and they all vote the same direction. Now include our huge welfare population, thats a LOT of San Diegans that in one way or another survive off a gov paycheck.
Another reason San Diego needs a City Manager. An IBA alone doesn’t’ cut it.
Finally, City Councilpersons doing their job! Thank you Marnie Von Wilbert, Henry Foster, and Raul Campillo!
Next: Development Services Dept.?
I wish I could say I was surprised. San Diego and California cities in general are so notorious for wasting and mismanaging money that I don’t think this surprises anyone.
Most cities have a city manager. San Diego it’s a “strong mayor” system. That term is used lightly in this case. In cases like this, it’s weak management by the CFO and mayor. The council should be holding them accountable. If you give children rules and they are not held accountable for breaking the rules, guess what you are saying? Rules don’t matter…
2025!! Single M0m Reveals How She Earns 88k/Yr W0rking 10 Hrs/Week From H0me TheP0ssibility with this is endless
Tab On My Profile
Isn’t anyone tired of the mismanagement of what is ostensibly known as AMERICA’S FINEST CITY? How is it that one company, Herc, has such a lock on San Diego‘s rental needs? How is it? Doesn’t this sound familiar to anyone? What about developers in San Diego having their way? Is it possible? No, of course not or maybe it just is… as many have suggested in the past… GREASED PALMS !!!
In corporate settings, you put an empty suit into the position of authority, you get a failed corporation. Isn’t that what we’re talking about here? Do we not have an empty suit running the show? So who could blame the City Council poor judgment and laissez-faire attitude when it comes to taxpayer funds.
Geez, this is management 101 stuff working with IT. What are they using for a procurement and approval system? Spreadsheets? I worked for a large tech company and each department manager could have a spending and approval limit. It was amazing how fast we could control spending just by reducing or turning off those limits within the software. If a purchase exceeded your limit OR would cause you to exceed your budget, then it was routed to the next level or someone else for approval/denial.
Someone was always accountable for each purchase/purchase order. This is the problem with professional politicians in management jobs. They usually do not have finance or purchasing experience. Union is pushing back on transparency just make things even worse. It would be fascinating to see a productivity study of the city. Maybe they would surprise us, but I doubt it.
Geez, this is management 101 stuff. What are they using for a procurement system? Spreadsheets? Most companies have a purchasing system that requires various approvals, that way you know who is accountable.
San Diego should try zero base budgeting at some point. It is a lot of work, but I think it would be really revealing. Most public institutions use prior spending as their baseline for next year’s budget. Zero base budgeting can really ferret out the “needs” vs the “wants.” It forces the hard discussions with the people that want to spend other people’s money.
REGARDING: “S.D. Council vows not to cut arts” B1 LOCAL (11.12) I understand that there
will be no cuts to the arts in this year’s budget. Councilmembers have said, and I paraphrase, “Arts
spending exposes low-income residents to life changing experiences.” Then these same councilmembers
vote to charge those same low-income residents parking fees in Balboa Park to be exposed to the arts. That
makes sense.
Daniel Smiechowski Bay Ho