City manager cautions Benicia has ‘a long way to go’

Benicia has made progress in getting its financial house in order, Katherine Yuen, principal of city’s auditor Maze and Associates said Tuesday night, prompting Mayor Elizabeth Patterson to say, “We expect another grand year.”

Yuen presented the city’s Comprehensive Annual Financial Report (CAFR), a state-mandated document that provides more information on the city’s previous fiscal year than a simple audit.

She also reviewed her company’s memorandum on internal controls, commentary to the city that isn’t required by the state.

Yuen said staff employees and the Council took steps to correct three of four previously identified deficiencies in the city’s financial practices. A fourth matter is being addressed, she said.

Of the three, one was failure to keep net revenues of the water system at a level at least equal to 120 percent of the amounts payable to cover debt service of the 2002 Water Revenue Refunding Bonds.

An increase in water rates, approved in December 2012 and collected beginning January 2013, has solved that concern, Yuen said. How monthly journal entries have been reviewed also has been changed to match the auditor’s recommendations.

In addition, the city’s Transit Enterprise Fund, which owed other city funds $715,081 after the city lost Metropolitan Transportation Commission funding when Benicia and Vallejo consolidated their bus operations, also has been closed. SolTrans, the merged bus operator, paid the $121,621 to cover past expenses, and the Council transferred the balance from the General Fund to conclude the remaining liability.

The only remaining deficiency is the Benicia Marina Enterprise Fund, which had deficit net assets of $196,692 by June 30, 2012, according to the auditor’s memorandum. Rental revenues from the marina covered only 53 percent of its operating expenses and 34 percent of its total expenses.

The auditor has recommended the city evaluate the Marina Fund, which, as an enterprise fund, not only should not be losing money but at best should produce revenue.

A city staff response included in the memorandum said the city is conducting a review of the Marina Fund, looking at the deficit, restricted-fund choices and numerous long-term operating, lease and debt-related obligations.

The marina also operates under permit by the San Francisco Bay Conservation and Development Commission, and its contracts and permit limit some of its operations, the response said.

Responding to Councilmember Christina Strawbridge’s question, interim Finance Director Brenda Olwin said cleaning up those areas may not help Benicia reach the highest credit rating it briefly achieved, but that it’s in the next-highest category.

Vice Mayor Tom Campbell said once it raised its water rates the city was reinstated to a better rating after another brief downgrade.

The city ended the fiscal year June 30, 2013, with a General Fund balance of $8.3 million, $1.3 million better than the previous year, Yuen noted. It has a net worth of $221 million, though $184 million of that is in investments and capital.

Most of the changes in the current CAFR that differ from previous documents were made because of government accounting format changes, Yuen said.

She praised Olwin, saying she “made great progress cleaning up restructured funds to make them clear and practical.”

An area Benicia and other government agencies must face in the future is addressing how to pay its employees’ retirement packages. While the city and the employees both pay into the fund, a portion remains unfunded, depending in part on investments.

“I think the public is confused” about the use of the word “unfunded,” Patterson said, “when in fact there’s a return.”

Olwin said that’s another area of study, and city employees would be providing information for a future Council discussion of the matter.

City Manager Brad Kilger credited Olwin and Finance Department employees for helping Yuen’s company with the audit.

He reminded the Council that Benicia is “a full-service city,” providing more to residents than most cities its size, which makes monitoring the city’s finances a particular challenge, especially since it means jugging more individual funds than most cities have.

And, he said, the work hasn’t concluded. “We have a long way to go.”