The City of Guadalupe must end its financial “shell game” and should seriously consider disincorporation, the Santa Barbara County Grand Jury said in a report released Friday.
The unusual recommendation is included in the report titled “Guadalupe Shell Game Must End,” and comes after then-mayor Frances Romero last year requested the panel look into the city’s operations.
“This is the fourth Grand Jury report since 2002 on Guadalupe’s financial dysfunction, and this Jury believes it is time to say ‘enough.’ There is no bridge to solvency in the estimation of the Jury. The Jury concludes that the City Council of Guadalupe should take the necessary steps to disincorporate,” the panel said in its report.
Ongoing budget deficits led to a series of financial problems “from which there is no recovery,” the panel said.
“The Jury understands an initial reaction would be for the Guadalupe City Council to reject this action feeling that Guadalupe would lose its identity,” the report noted. “This would not be the case nor would the community of Guadalupe vanish. All one would have to do is look at other unincorporated communities throughout the state.
“The Jury challenges the Guadalupe City Council to realistically consider the disincorporation recommendation when responding to this report.”
The Guadalupe City Council will discuss its response during a regular meeting set to begin at 6 p.m. Tuesday in City Hall, 916 Obispo St.
The council has 90 days to file its written response and staff recommended appointing two members to served on a committee to create a draft response.
In all, the grand jury noted 13 findings and cited several examples of misfeasance during the investigation including mishandled and misfiled IRS W-2 forms in addition to inappropriate accounting practices for the solid waste fund, inappropriate interfund transfers, improper use of state gas tax funds and failures to meet the minimum spending obligations for street repairs under Measures A and D, countywide state sales tax hikes to pay for road repair and transportation project.
In the eight years since the mishandled W-2 forms, Guadalupe’s tax liability to the IRS due to the snafu has grown to more than $486,000, with penalties and interest, the report said.
In the past 12 years, the city “inappropriately transferred” $7.6 million from restricted funds to the General Fund, without written loan and repayment agreements, the grand jury said.
“Due to the fact that restricted funds have been used in this manner, these funds are now in fiscal difficulty, and in some cases rate increases have been implemented to pay for negative balances in said funds,” the report said.
City Council members blamed inadequate training, the report said. While the members didn’t receive training, the grand jury also noted that none asked for training.
“Member after member of the Council confirmed that they didn’t really understand the financial reports they routinely received, that they relied on the staff’s reassurance that everything was being handled properly,” the report said. “Year after year, the Council voted to accept budgets presented by staff without much questioning. Many council members appeared uncomfortable with the whole subject of financials and budgets.”
Likewise, the report noted “inexperienced and unqualified staff,” noting a prior finance director who didn’t know how to balance books, a prior city administrator with no government experience and a past human relations worker without any background in personnel matters.
In November, Guadalupe’s voters approved three tax measures aimed at generating new revenue to help the city’s coffers.
But the grand jury said the revenue boost isn’t enough due to the small city’s big financial obligations.
“The increased revenue from the three tax measures allows the city to limp along with day-to-day operations. It is not enough to provide funding for essential changes to city operations such as building up a reserve fund for emergencies, repairing or maintaining aging infrastructure, needed capital improvements, restoring salary or benefits to employees who have agreed to furloughs and salary cuts, or adding staff,” the report noted.
While Guadalupe has long banked on a major development, dubbed DJ Farms, as providing financial salvation, the housing and commercial buildings won’t be completed until 2026, at the earliest, and projected property tax revenues will still be insufficient to cover the city’s financial needs, the report said.
“The City of Guadalupe’s reliance on the vagaries of the residential and/or commercial real estate market to eliminate ongoing General Fund deficits is ill advised,” the report says. “Hope is not a strategy. The Jury must conclude that a Silver Lining is an illusion.”
Grand jurors said Guadalupe “simply does not generate enough General Fund revenue from the sources most cities rely on — property, sales and bed taxes — to provide basic services to its citizens.
“Guadalupe remains a city run by the same well-intentioned, but ultimately untrained and uninquisitive elected officials, who in past years have relied on unqualified and undertrained staff. For over 12 years the City has floated budget deficits by way of inappropriate interfund transfers from special and enterprise funds to the General Fund. The Jury recognizes the many financial changes made by the City of Guadalupe over the past year. However, budget deficits continue to this day, leading to a series of financial problems from which there is no recovery.”
— Noozhawk North County editor Janene Scully can be reached at jscully@noozhawk.com. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.