Don't Drink the Tea. Think With the WE.
Aug
2012
15

REPORT: Chartering of CA Cities Results in Bankrupcty, Scandal, Imbalanced Budgets

In California, “charter cities” have been put in place to dismantle prevailing wage laws, ban Project Labor Agreements and privatize other community benefits. By gaining a charter for their city, government officials are able to ignore parts of state law at will instead of dealing with an elected mayor with accountability.

But a just-released Los Angeles County Civil Grand Jury report has found that many charter cities lack strategic planning and have spotty financial controls:

The county has 25 charter cities, including Arcadia, Temple City, Whittier, Pasadena, Irwindale, Alhambra and Industry.

Three of the four California cities that have taken steps toward bankruptcy recently - San Bernardino, Compton and Stockton - have charters.

And scandals in the charter cities of Temple City, Bell and Vernon led to criminal convictions of city officials.

In light of the investigations, the Grand Jury conducted a year-long analysis of the county’s charter cities.

Of the 22 small-to-medium-size cities analyzed in the Grand Jury report, only five had balanced budgets in the 2009-10 fiscal year. Others had dangerously low asset-to-debt ratios. Still others had few checks to make sure their city had sound loads of debt relative to income.

Charter cities enjoy the ability to take large investment risks regardless of whether or not it is in the best interest of residents. With few checks and balances in place, many California charter cities have been running on dangerous asset-to-debt ratios, according to the Whittier Daily News:

Of area cities covered in the Civil Grand Jury Report, only Industry had an asset-to-debt ratio low enough to worry the Grand Jury. The city in 2010 had $1.34 billion in assets and about $755 million in debt, according to the report. Its 1.72 asset-to-liability ratio was dangerously low, according to the Grand Jury. Cities should not have ratios lower than two, the report stated.

One charter city with its finances in order is Arcadia. WDN spoke to Arcadia Councilman Bob Harbricht, who has a unique perspective as he has been a politician in both a general law city and a charter city:

Arcadia Councilman Bob Harbricht was councilman in Duarte in the 1970s before he moved to Arcadia. Duarte was governed by General Law, and Arcadia has a charter.

Harbricht said he saw almost no difference between how the two communities operate.

“I can’t recall any cases where I felt constrained in Duarte because we were a General Law city and where I felt more free in Arcadia,” he said.

The key to running a good city is to refrain from taking drastic action in good times or in bad, he said.

“If you have programs that are ongoing and then you have a big drop in city income, you don’t tear everything apart and then put it all back together again when times are good,” Harbricht said. “Arcadia is a smooth-running city. We just don’t rock the boat much.”

Therein lies the problem. Charter cities frequently overreach, banning important worker and community protections such as the prevailing wage, in order to extract and hoard funds. This obviously hurts their communities because lower-wage workers generate less tax revenue and less spending within the community. Charter city leaders often do this to curry favor from business interests who want to pay workers as little as possible. Often times charter cities have unfair bidding standards and lack of accountability.

Although the Grand Jury’s report did not find obvious red flags in area cities, it did find a lack of measurable goals that residents could use to hold a city accountable.

Arcadia, Industry, and Temple City had no measures of performance, the Grand Jury found.

And while other cities claimed to have goals, they were unable to produce documents that outlined the goals or showed whether the city was reaching them. Without goals, the public cannot measure if a city is performing as promised, the report found.

The Grand Jury also said that many charter cities didn’t have competitive bidding for contracted services. Others had no requirements that the city use a different accountant for its audit than it used for other accounting services.
The study also dinged communities for failing to establish an audit committee to periodically check up on city finances.

Alhambra, Arcadia, Industry, Irwindale, Temple City and Whittier did not have audit committees, according to the report. And nearly every city used the same outside auditor again and again, which could lead to complacency or collusion, according to government experts.

Read the complete WDN story here.

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