The bleeding continues

This year’s Butte County Grand Jury Report rips the city of Chico and how it got into its financial situation even worse than last year’s report, casting most of the blame on now-departed senior management for a $15 million deficit.

Specific names are not mentioned in the report, but it’s not difficult to fill in the blanks, given the timing of certain events, which coincide with the retirement of Dave Burkland as city manager and the hiring of Brian Nakamura to the post.

Nakamura had reportedly uncovered the shifty financial wrangling that hid the true picture of the city’s budget deficit. This was accompanied by the reduction of city staff from 450 to 375. Nakamura, who tendered his resignation last month, was labeled a hatchet man at the time and criticized for hiring former colleague Mark Orme as assistant city manager, a position formerly held by John Rucker. He also brought on Chris Constantin as finance director. Rucker abruptly resigned without explanation in January 2013 and Jennifer Hennessy left her post as finance director for a job in Temecula.

“The grand jury understands why the present city manager chose to replace his top-level staff within his first year on the job,” reads the report, which clearly is referring to Nakamura. “In order for a city manager to do his/her job effectively, he needs a staff he can trust completely. Grand jurors were informed that the new city manager did not receive support from sitting management, received false or incomplete information, was excluded from meetings, and was misrepresented or falsely quoted to subordinate staff.”

This year’s report also goes into much greater detail than last year’s as to how the city got to where it is financially. It says that in 2007, city funds were running deficits of $6 million because expenses were greater than revenues. At that time, Greg Jones had been city manager for about a year and retired that September and was replaced by Assistant City Manager Burkland.

“While there were efforts to curtail the drain on the general fund, the grand jury has found no evidence that this plan made a significant difference,” the report reads.

Then, the report says, the city’s budget was racked by the recession, which drained the city’s fee collection, including sales and property taxes. In 2010 and 2011 the city failed to make adjustments to offset losses and the deficit continued to grow. During this time the state dissolved the redevelopment agency program, which had provided a state source of city funding for decades.

At the same time, the report says, “Creative accounting,” which consisted of “borrowing from and shifting money between enterprise funds continued to prop up accounts, and all the deficits continued to grow.”

Salaries, which account for the largest city expenditure, also were not duly considered, the report concludes. “While general fund revenues were declining, the average citywide salary was on the rise. Chico city budgets show that from 2006 through 2012, most upper management positions received substantial increases in salary.

“Grand jurors were informed that certain employees in the city were singled out for position reclassifications, which amounted to an increase in salary. However, duties did not change significantly. This was done internally and approved by the city manager and appears to be questionable.”

The report lauds Nakamura, who initiated an audit “and the true nature of the financial problem was presented to the council.” For their part, council members are largely let off the hook, because they were not presented with accurate information. At the same time, the grand jurors suggest that the council should have demanded more from city staff.

The report concludes: “The combination of an economic recession and poor—or no—management actions cost Chico dearly. The impact will be felt for at least the next 10 years. Had the City Council and management team made timely and prudent decisions, they might have averted the huge debt now looming over the city.”

Mayor Scott Gruendl said he thinks Burkland saw the writing on the wall and “was smart enough to actually retire … opening the door we needed to shift city administration. In the end, had he not, council could have removed him.”

Last July the Press-Enterprise newspaper in Hennessy’s new community of Temecula wrote a story about her and the Butte County Grand Jury report that first shined a light on Chico’s financial woes. In that story Burkland came to Hennessy’s defense and said, “She did a great job helping [Chico] through the toughest times.”

For her part, Hennessy told that paper, “I worked very closely with city management, and provided my professional recommendations to the city manager on an ongoing basis. Some of these recommendations were implemented, and some were not, at the discretion of the city manager.”

Burkland, who could not be reached for comment on this story, said her statement was accurate.