Encinitas city officials dispute reserves claim in newspaper report

ENCINITAS — Following a watchdog report on government reserve fund overflows, appearing in the U-T in late April, officials with the City of Encinitas claimed a chart depicting the percentage the city had in their general fund reserves for the Fiscal Year 2010/11 was misleading. 

The chart, based on the U-T’s interpretation of local government agencies’ financial statements, showed that the City of Encinitas had 4 percent of its expenses in reserve.

Matt Clark, a U-T Watchdog reporter who co-authored the report, said that the numbers used in the chart were based on the city’s audited financial statements, which follow GASB (Government Accounting Standards Board) standards. In reviewing the city’s fund balance, Clark said he used a Standard & Poor’s methodology that focuses on “the least-constrained funds.” That is, funds that hadn’t been restricted for use. The figure used in the chart ($1,850,582) signifies the amount of unassigned funds for the city, of which the result of having 4 percent reserves to a general fund expense of $47,397,326 is accurate.

But, according to the City of Encinitas Interim Finance Director Paul Bussey, the total amount in the general fund reserves from the FY2010/11 budget report is $16.9 million, resulting in a 36 percent expense in reserves for that particular time at the end of the 2011 fiscal year.

“When you do a comprehensive annual finance report, which you’re required to do each year…one of the things they request is what your fund balance is,” Bussey said.

He added that there are five categories you can put fund balances in. The $1.8 million figure as reported in the U-T article was an amount in just one category, he explained. The money was unrestricted, he said, but that doesn’t mean that’s our total fund balance.

In March 2009, the GASB issued Statement 54, which established the five categories designed to depict how specific amounts in funds are spent. The categories are also meant to improve on how fund balances are reported. Statement 54 became required for agency use for the Fiscal Year ending June 30, 2011.

Encinitas operates under a designated three-tier system for distributing the General Fund Reserves; the tiers include a contingency reserve, a budget-stabilization reserve and a future projects reserve.

The future projects reserve, which is also referred to as the unappropriated fund balance, is not technically a true reserve, Bussey said. “It’s the end-of-the-year fund balance and it’s carried over into the next year and it’s used as part of the following year’s budget and there’s usually some left over.

“It is there for future projects if the Council has a project that comes up…It’s also there if, for some reason, they add a person to the budget because they want to do a new program or something; it comes out of that, so it’s not necessarily a project. So it’s used for a number of purposes and it changes throughout the year; it’s not set as a percentage, it goes up and down throughout the year.”

Bussey said the budget stabilization fund has basically come into effect in the last five or eight years, and became more emphasized once the recession hit. There was concern that agencies would have to go into their contingency reserves, which are thought of more as a disaster-type of reserve.

In determining what amount is ideal to keep in reserves, it varies from city to city, Bussey explained. There is no number set to determine what is best. “It’s the risk level that a particular agency feels they want to take, and in addition, it’s how much money are they comfortable setting aside…but it’s not unusual to say it’s somewhere between 15 and 25 percent.”

As of Feb.15, 2012, the total of Encinitas’ contingency reserve and budget-stabilization reserve equaled 24 percent, or $11.8 million; the futures project reserve remains a variable figure but for the Feb. 15 date, was calculated to be $4,338,198. While the amounts for the FY 2010/11, which included the contingency reserve, budget-stabilization reserve and a future project reserve amounted to $16.9 million.

“As the expenditures and revenues change, those contingency and the budget stabilization reserve dollar numbers change,” said Bussey.

City Council will next discuss budgetary matters in June.

 

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  1. What a Crock says:

    Does Mr. Bussey seriously expect us to beleive that other agencies in the study don’t have the same, or similar funds that THEY are not including in THEIR statements?

    This is an apples to apples comparison, and as usual, Jerome Stocks has ordered City staff to misrepresent and comingle funds that are kept in the water and sewer districts and the CALRTIS Golf Course bonds–which may never be repaid, considering the poor performance of the golf course.

  2. Count it Twice says:

    Jerome Stocks is telling his staff to count the same funds allocated for different purposes as cash reserves. Everyone knows that this is a fraud. Encinitas is broke!

  3. Patrick O'Connor says:

    From the gross differentials in reporting numbers in contingency accounts my take is that the 4% number is the correct percentage. Any 36% contingency in a normal operating yearly budget is suspect. Accuracy can be verified by an AUDIT. May I recommend Charlie Mc Dermott who has the financial moxie to verify easily the correct balances.

  4. Lying eyes says:

    Why would we believe knowledgeable city staff members when a U-T writer has admitted using a “shorthand” method of finding info.

    Clearly Jerome Stocks is an evil genius who is to be blamed for all things! And WHY in the world would we believe the budget, which is on the city website, or the annual independent city budget audit???

    We have faith in our suspicion of Mayor Stocks, and the city in general; and believe any news story which says bad things about Encinitas government.To heck with the facts, they’re inconvenient and don’t fit our predetermined opinion!!!

  5. Shirtforbrains says:

    Why would we believe knowledgeable city staff members when a U-T writer has admitted using a “shorthand” method of finding info.

    Clearly Jerome Stocks is an evil genius who is to be blamed for all things! And WHY in the world would we believe the budget, which is on the city website, or the annual independent city budget audit???

    We have faith in our suspicion of Mayor Stocks, and the city in general; and believe any news story which says bad things about Encinitas government.To heck with the facts, they’re inconvenient and don’t fit our predetermined opinion!!!

  6. Lynn Marr says:

    Frankly, I trust the Watchdog’s accounting methods, which comply with S&P methodology. To include any and all funds categorized under any type of reserve, would NOT seem prudent, to me. I don’t have an accounting background, but I feel it’s appropriate and more reliable, to analyze all the cities using the same type of comparison; that is, the S&P methodology.

    This “story” appears to be an article distributed by “Encinitas officials,” probably Jerome Stocks. The way Encinitas delineates its so-called “reserves” is confusing to the average citizen, including after reading an IDENTICAL piece, a “justification” in yesterday’s Coast News, “Reserves figure disputed,” which article also stated, “Following a watchdog report on government reserve fund overflows appearing in the U-T in late April, officials with the City of Encinirtas claimed a chart depicting the percentage the city had in their general fund reserves for the Fiscal Year 2010/11 was misleading.”

    Of course the “officials with the City of Encinitas” who are disputing the figures include and were directed to contact the media by Jerome Stocks. I DO NOT SEE that the Watchdog wrote a “correction,” as Stocks claims in his comment, below, but rather an explanation. It seems correct to use S&P methodology, comparing “the least-constrained funds” (more liquid) If FUNDS ARE DEDICATED TO A PARTICULAR USE, OR EARMARKED FOR A PARTICULAR PROJECT, then in many people’s eyes, they are not ACTUALLY RESERVES.

    What seems misleading to us, or at the very least, confusing, is the way the City of Encinitas seems to “massage the data” in a futile attempt to demonstrate that we are not scrambling to get enough funds to complete capital improvement projects such as the improvements at Moonlight Beach, and the completion of the Hall Property Sports Complex Park.

    While operating expenses, including unfunded pension liabilities are increasing, monies are decreasing for capital improvements, here in Encinitas. For Jerome Stocks to claim “and in reality none of that money is `restricted’ in any way,” is patently false. Perhaps you feel unrestricted by the constraints of using S&P methodology as a common basis of comparison, Mr. Stocks, but your rationalizations and attempts to confuse the facts of our comparative financial health to the contrary, I find your using your influence to cloud the issue and to challenge the Watchdog’s findings to be disingenuous and politically self-serving, when you are running for re-election this year. Many citizens will NOT be voting for you, Mr. Stocks, because of what we see to be your bullying tactics.

    • Lynn Marr says:

      My reference to Jerome’s Stocks’ “comment below” was referring to his comment on the UT Blog on May 5 at 7:00 pm, which, in turn, references an article published at 8:22 p.m., May 4, 2012: Watchdog – “Escondido, Encinitas have reserves.”

  7. otherhoneybadger says:

    Jerome Stocks’ claim that we are financially strong in Encinitas is dangerous. The result is that Encinitas staff tell citizens that high density housing MUST go through since the city is broke, yet knowing there is no money, they still insist on pay raises since Jerome gave them before.

    The 2nd to the best thing that could happen is for City staff to go on strike! The best thing is if we could get rid of them all.

  8. Count it Twince says:

    Jerome Stocks is the KING of ‘misleading.’ He is a master of using the same term in different ways to be interpretted to his benefit each time he changes the meaning. The City is broke, and the City staff are a bunch of leaches lined up to sap our blood. What about outsoursing the entire City staff since they end up hiring consultants to do their jobs anyway?

  9. Lynn Marr says:

    At the 5/16/12 Encinitas City Council Meeting, the budget was on the agenda for
    a special joint meeting with the SDWD. Current mayor, Jerome Stocks, went out
    of his way to insist that the information I provided, and that the Watchdog
    reporter from the U-T had previously reported, was false, and in error. Stocks
    continues to insist that our reserves are much higher than they actually are,
    using S&P Methodology, and using information for the Fiscal Year 2010-2011, from
    the City’s own balance sheet, before provided to the U-T.

    http://media.utsandiego.com/news/documents/2012/05/07/encinitas.pdf

    Stocks continued to claim, and directed the City Manager to respond to my
    subsequent oral communication remarks (detailed response to oral communication
    public speakers is contrary to previous City policy), that we have NO committed
    or restricted reserves this fiscal year, and that the U-T reporter made a $10
    million error! Rather than 4% liquid reserves, Stocks insists, in the U-T Blog, that the City had 40% reserves in Fiscal Year 2010-11. This is a discrepancy by a factor 1000% Unbelievable!

    Simply put, when committed and restricted funds are not listed on a balance
    sheet, then S&P methodology is not being followed, which to me, is a more
    conservative and more understandable method of accounting. Without using a
    common basis for comparison, the Watchdog, or anyone else, wouldn’t be able to
    reliably quantify and compare the liquid reserves of the various cities. Or one
    could, but doing so would then be like comparing apples to oranges, and would
    have no statistical significance.

    Past budget presentations have been given by the Finance Director. The City
    Manager, in taking on this duty, should include an accounting in terms of S&P
    methodology, with categories listed, under Fund balances, of Nonspendable,
    Restricted, Committed and Unassigned, as was done for 6/30/11, according to the
    City of Encinitas Balance Sheet – Governmental Funds. Conservative methodology
    presentation is vital for meaningful public accountability and best practices
    used for reporting the budget and actual liquid reserves.

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