The California State Audit Bureau has released the long-awaited audit of the City of Richmond, focusing on how the City became tens of millions of dollars in the hole. The complete audit can be found at http://www.bsa.ca.gov/bsa/summaries/2004-117.html. The audit contains no real news, concluding that the City essentially spent more than it received in revenue.

The “audit” is not really an audit in the objective financial sense but instead is an editorialized and somewhat subjective account of the events that led to the financial crises that surfaced publicly in early 2004.

Interestingly, the persons responsible for the audit apparently did not talk to City Council members (or at least, they didn’t talk to me) and they got some critical facts and details about events wrong. On the whole, however, the report paints and accurate picture of a failed financial management process. What the report does not do is take the next step and designate responsibility for the mess. Whether the failure was due to incompetence, negligence or even criminal acts was not addressed. Responsible individuals were not listed by name or title. Most, if not all, of the recommendations in the audit were previously detailed in Interim City Manager Phil Batchelor’s list of 170 reforms, and many of them have already taken place or have been approved by the City Council and are in process.

I will be writing more about the details of this in the next several days.

RICHMOND
Audit blames former city manager for mess
Deliberate errors, unjustifiable raises, claims state report
- Cecilia M. Vega, Chronicle Staff Writer
Wednesday, December 8, 2004

State auditors released a scathing report on Richmond's finances Tuesday, accusing city officials of dragging the cash-strapped city into debt by crafting budgets deliberately filled with errors, doling out union pay hikes that the city could not afford and having the City Council approve it all.

The release of the 57-page audit came on the heels of an announcement that Richmond had hired the city manager of the affluent Contra Costa County town of Orinda -- who also has an economics degree from Yale University -- to help lift the city out of its financial crisis.

"There really needs to be a complete overhaul," said Assemblywoman Loni Hancock, D-Berkeley, who requested the audit after it was revealed in March that the city had a $35 million budget shortfall.

Richmond's finance department, according to the audit, prepared and presented budget reports to the City Council for the 2002-03 and 2003-04 fiscal years that were "fraught with errors and lacked some important information."

In those reports, the finance department misrepresented the amount of money it held in its general fund reserves, the audit said, and city officials intentionally underbudgeted some expenses to balance its budget last year.

City officials say a Contra Costa grand jury has inquired about the city's financial mess, but it is unclear whether the inquiry could lead to criminal or civil actions. State officials also could investigate the city.

"This is clearly a management issue," said Hancock. While the audit did not mention names, she did, and she said those most responsible for the mismanagement were former City Manager Isiah Turner and former Finance Director Anna Vega.

"An elected City Council can't make good decisions and ask the tough questions if it's given incomplete and incorrect information, and that is what's happened here for years," Hancock said.

Turner and Vega resigned last year. Vega now works as the city manager of Greenfield in Monterey County, while Turner is retired. Neither returned calls seeking comment Tuesday.

The report by the Bureau of State Audits also said Richmond officials had agreed to increase salaries and retirement benefits for city employees without ensuring that there was enough money in the bank to pay for them.

Between 2000 and 2003, the city increased salaries from 16 to 27 percent for most employees and raised retirement benefits so much that in some cases payments to the retirement system exceeded 30 percent of the city employees' salaries, according to the report.

The expensive contracts the city negotiated with unions representing police and firefighters and other city workers "jeopardized its financial stability" and led to the layoffs of hundreds of people, the closure of libraries and community centers and cuts in fire and police protection, the audit said.

Councilman Tom Butt said he was not surprised by the audit's findings. He felt duped, however, by the misinformation he was given by city officials when he, along with his colleagues, approved the union contracts.

"I think we have to accept the ultimate responsibility for it," he said Tuesday. "But nobody on the City Council has a degree in accounting or has an MBA. ... We have to depend on staff to do these kinds of things."

City officials are looking to Bill Lindsay, who takes on his new role as Richmond city manager on Feb. 14, to deliver the city back to fiscal solvency.

"I saw great potential in the city and what they're trying to accomplish, " Lindsay said. "A manager can go there and make a positive difference in their operations."

Lindsay, 48, has worked as the city manager of Orinda since 1995. Before that, he was the finance director and assistant to the city manager in Hercules and the administrative services director in San Ramon.

He has a bachelor's degree from Yale and a master's degree in business administration from UC Berkeley, credentials that made him a particularly likable candidate in Richmond.

"He's superb with numbers," said Interim City Manager Phil Batchelor, who recruited Lindsay. "He will be invaluable in helping keep (the finances) moving forward."

The audit lists more than a dozen recommendations on what Richmond needs to do to tackle its financial hurdles, although many have already been completed.

Richmond must report back to the state its success in implementing the audit's recommendations in 60 days and then again in six months and a year.

The recommendations include doing a better job of analyzing salary and benefit increases to determine the effects such increases will have on the city's budget and stop raising salaries based what other Bay Area cities pay their employees.

The audit praised the city's efforts in the past year to strengthen its finances, including passing a half-cent sales tax in November and Batchelor's creation of a 170-item list pointing out the fiscal issues requiring immediate repair.

Last week, the city also renegotiated contracts with its six bargaining units so that the unions pay a portion of the pension costs.

Still, it remains to be seen whether the efforts will pay off.

"It is too soon to tell," the audit said, "whether the actions the city has already taken and plans to take in the future will be sufficient to restore its financial health."

For a summary and full text of the audit, go to www.bsa.ca.gov/bsa.E-mail Cecilia M. Vega at cvega@sfchronicle.com.