Late and misleading

The Butte County Grand Jury report was released June 28 and the examined subject that stands out the most—besides child-support services, foster care, state prisoner realignment and toxic underground water plumes—is the criticism directed toward the city of Chico’s budget management, and the slow and seemingly misleading responses to the jury’s inquiries.

The bad budget news, including a projected $4.8 million general-fund deficit, was brought to light recently by Chris Constantin, who was hired in mid-April to replace departing Finance Director Jennifer Hennessy.

The report says the city’s revenue was dealt a blow by last November’s defeat of Measure J, the cell-phone tax, which took away $1 million in expected revenue. There was also the state’s elimination of the city’s Redevelopment Agency (RDA), which for years brought in millions of state dollars through land-improvement projects that increased property taxes.

“Chico had a substantial RDA and commensurate RDA staff,” the report says. “The Grand Jury analysis found that the City of Chico did not address revenue reductions in a timely manner.”

The report also mentions the city’s obligation to its employees’ retirement system, or CalPERS.

“According to CalPERS’ annual Actuarial Valuation, on June 30, 2011, Chico had an unfunded pension liability of over $69 million, an increase of $5.3 million from the prior year. There is also an unfunded liability for employee medical coverage of $10.1 million.”

According to the report, the jury met with city management in September and December of last year. City Manager Brian Nakamura had been hired in August, and Hennessy was still the city’s financial director. The economic picture presented to the jury was, according to the report, “favorable” each time.

The jury sent a follow-up questionnaire on March 8 and once again received a rosy response. But on April 3, the report says, the city management brought to light the general-fund deficit. A Grand Jury source confirmed that Hennessy did indeed bring that bad news to Nakamura. Two weeks later, she was headed to the city of Temecula to take on a similar job.

Hennessy said at the time that half her reason for leaving was the opening of a good job opportunity and the other half was to get out of Chico. She had been the frequent recipient of criticism from local fiscal conservatives over the past few years, including Councilman Mark Sorensen.

In emailed comments about the report, Sorensen wrote: “I agree with the Grand Jury that information supplied by the former Finance Director was ‘incomplete and misleading.’ The information supplied later by Mr. Nakamura and Mr. Constantin was far more complete, accurate and truthful.”

In his comments, Sorensen says he wrote a 22-page letter to the Grand Jury in November 2011 asking it to look into the city’s finances.

Nakamura said the city receives its revenues on a quarterly basis and thus has to predict where it is going to be financially when reports are given to the City Council.

“Jennifer made a presentation back in February before Chris got here, saying, ‘Here’s where we are,’” Nakamura recalled in a recent interview. “One of the issues that I didn’t see was the cash position of the city—not that anybody knew where we were going to be.”

He said he did tell the council back in January during a goal-setting session that he saw on the horizon a $4.5 million structural deficit.

“We did try to put together at least enough information to say we might have a concern here,” he said, “but at that point in time there seemed to be a favorable budget position.”

Nakamura credits Constantin with clearing up any misunderstandings or misinterpretations of budget realities.

“He had a different perspective on the finances,” Nakamura said. “We started to see that maybe there were some issues that we needed to address in the long term. …

“I know it sounds like maybe there were some differences of opinion … but I think as far back as January we started to recognize, ‘Oh-oh, we might have a problem here.’”