South Pasadena City Hall, pictured here on Friday, July 26, 2024. The city is facing financial difficulties after an analysis earlier this year projected a $3.7 million deficit. (Photo by Sarah Reingewirtz, Los Angeles Daily News/SCNG)
The meeting was only a third over, but the sense of frustration in the room was palpable.
“There’s a sense of frustration throughout the room, not just from people here, but from everyone,” said South Pasadena City Councilwoman Janet Brown, who serves as the council’s liaison to the city’s finance committee.
Mayor Brown’s comments at this week’s Finance Committee meeting come as tensions continue to rise over the proposed fiscal year 2024-2025 budget, which the South Pasadena City Council is scheduled to adopt next Wednesday, July 31st.
Despite efforts to finalize the financial documents, their adoption has already been delayed by about a month after city officials raised concerns about inconsistencies on June 27.
The Finance Committee meeting is aimed at resolving these issues, but recent events suggest the budget may be further delayed, increasing uncertainty about the city’s financial outlook after narrowly avoiding a $3.7 million deficit.
“Given the impasse that occurred between the Finance Committee and the Director of Finance during two committee meetings on July 16 and July 23, it is unclear whether the Director of Finance will be able to bridge the gap,” Mayor Evelyn Znaimer said in an email on Thursday, July 25.
Znaimer noted that the finance department has not reconciled the city’s monthly bank statements since February 2024 and expressed concern about “the true figures of revenue and expenditure.”
“If the council is not satisfied with the financial director’s explanation and the finance committee does not recommend adoption, we may have to postpone the July 31 meeting until the next regular council meeting,” she said.
South Pasadena Finance Director John Downs announced his retirement in April but has been temporarily recalled to finalize the 2024-25 budget, city officials said.
Reached by phone on Thursday, July 25, Downs declined to be interviewed at the time, citing a busy schedule. However, at a Finance Committee meeting on Tuesday, July 23, Downs defended his approach and said staff plans to present an updated budget to City Council next week.
“Those contents will be presented to both of you at that time,” he told commissioners. “Everybody here has been given a copy of the punch list, so everybody has a list of what’s on the punch list. Those contents will be incorporated into the document.”
But commissioners expressed concern that they might not get a copy of the budget report before next week’s meeting.
“I had assumed that the work sessions from last week and this week would be included in a revised document. John was working under different assumptions. I’m glad to finally see it released,” Finance Committee Chairman Peter Giulioni Jr. said.
according to FY24-25 Budget ProposalThe general fund balance is estimated at $22 million as of July 1, 2024. For FY 24-25, the city expects revenues of $41.2 million and expenses of $39.9 million.
South Pasadena has had a tumultuous year, starting with budget missteps that have left the city projected to have a $3.7 million deficit.
At a joint meeting of the City Council and Finance Committee on Feb. 21, a third-party consultant, NHA Advisors LLC, It projects that the city’s expenditures will exceed its general account revenues over the next five years.the deficit ranges from $1.8 million in the current fiscal year to $3.9 million in FY28-29.
In response to the dire predictions, Brown recommended the creation of a special committee to “address the immediate financial and operational situation.”
She said the city’s financial problems began in June 2023 when the City Council approved a fiscal year 2023-2024 budget that included a $2 million deficit.
The budget was approved on the condition that the finance committee work with staff to understand the negative fund balance and provide a five-year forecast, she said. The City Council received the forecast along with the interim budget report on Feb. 21.
“The interim budget report that accompanied that report did not project the $2 million deficit that was originally approved and that was the basis for the five-year projections, but from what I understand, that may be wrong,” Brown said. “But the actual deficit for this year is $3.7 million. We’ve been hit with a financial nuclear bomb.”
She also criticized staff for “resisting working with the Finance Committee over the past several months, despite direction from City Council last June.”
In response to Brown’s alarming assessment, a special committee was formed, made up of Znaimer, Brown, Giulioni and Sheila Rossi, vice chair of the finance committee.
But the committee was on the verge of being dissolved following a complaint from former Finance Commissioner Ed Elsner, who claimed the committee’s discussions and composition were not listed on the agenda for the Feb. 21 meeting, thus violating the Brown Act.
At the March 20 meeting, Rep. John Primus argued that the committee “has a very strong political agenda.” Rep. Michael A. Cacciotti called the committee a “duplicative organization” and a “waste of time, a waste of resources.”
The City Council then voted 3-2 against reauthorizing the commission, with Primus, Cacciotti and Councilman Jack Donovan voting against reauthorization and Znaimer and Brown voting in favor.
But with public concern growing over projected budget deficits, the city council reinstated the committee on May 1. The council decided to reinstate the committee after July 1, when the fiscal year 2024-2025 budget is adopted.
However, that plan also failed.
The city council had hoped to adopt the FY24-25 budget before the end of the current fiscal year on June 30. But at its June 27 meeting, the council voted to follow the recommendation of the finance committee to postpone adopting the budget, citing discrepancies in figures in the financial reports.
Instead, the commission approved a budget continuance resolution, allowing the city to use the money for ongoing projects for 60 days or until the budget is adopted, whichever comes first.
According to the staff report, the use of recurring appropriations can lead to administrative inefficiencies, limited fiscal control, and uncertainty in long-term planning. However, the advantages of this approach are that it avoids a government shutdown, preserves the status quo, and provides more time for budget negotiations.
According to the staff reportThe proposed FY 24-25 budget is balanced and projected to be in the black. Additionally, the discovery of unspent funds reduced a previously projected deficit of $3.7 million.
But there are some problems with the proposed budget, Rossi said in a recent interview.
“We haven’t received the third quarter financial statements yet so I don’t have much faith in the numbers that have been put into the budget,” she said. “We have been given a summary of the third quarter but we have seen that the February bank reconciliation has not yet been completed.”
Rossi also expressed concern that the proposed budget’s revenue projections were overstated by between $700,000 and $900,000, based on projections from two third-party consultants hired by the city.
Meanwhile, the city has hired financial consultants from LSL to help with back-office accounting tasks and reconciliation of bank statements, the mayor said.
“If the LSL reveals the real figures, we may be able to adopt the budget by August 21, subject to the conditions imposed by the council,” she said. “But the other four councillors will also have to give their opinion on the situation, but we don’t know where they stand. It all depends on how the meeting goes on July 31.”
The city has also seen a string of staff turnover, including the resignation of former City Manager Armine Chaparian on June 24. She received a lump-sum severance package of $307,500, $1,727.10 in unused managerial leave, and a cash payment for all properly accrued, unused vacation time.
On Friday, July 26, the City Council approved a resolution appointing Donald Penman as interim administrator. Penman previously served as city administrator for the cities of Arcadia, San Fernando and Baldwin Park.
He will start work on Monday 29 July.
Rossi said “it won’t be a problem” if the City Council doesn’t pass a budget next week.
But one thing was expected: it was going to be a long night.
“The best we can do is create a punch list and let everyone know that they need to bring pajamas and cots for the night of the 31st, and that it’s going to be an unusually long night if we’re going to ask the City Council to either veto or approve each item that we’re currently discussing,” Giulioni said.