What You Need to Know About the Audit and Our Budget
In our recent community survey, 93% of respondents told us that you want to understand the city's finances better. Here's the headline: the city finished last year with a $1.6 million surplus, the independent audit came back clean, and the council is taking concrete steps to tighten up the one process gap that was found. Tuesday's meeting covered a lot of ground. Here are the details:
The 2024-2025 Annual Audit Results
In our email on February 20, we shared the draft audit results: a $1.6 million surplus, a $29 million fund balance, a clean opinion, no material weaknesses, and one process finding to fix, a budget reconciliation gap where approved spending wasn't followed by the formal step of updating the budget.
The final audit came back to council last night. The bottom line hasn't changed. What's new is the depth of information the city provided and the concrete steps being taken.
The city's finance director gave a thorough, 27-page presentation walking through every department and fund where the budget exceeded appropriations. For each one, she explained what accounted for the overage, things like additional legal costs for the housing element, a staff promotion that shifted salary between departments, and climate tech projects.
She laid out the corrective steps now underway: monthly budget-to-actual variance reports reviewed by Finance, the city manager, and department heads; strengthened approval controls as expenditures approach budget limits; staff training on budget compliance and purchase order procedures; policy updates requiring appropriation before additional spending; and implementation of OpenGov, a transparency platform. Councilmember Cox added one more: whenever the council approves a new expenditure, the appropriation needed to fund it should be included in that same staff report — so the budget update happens at the moment of approval (3:08:52), not later.
Councilmember Sobieski drew an important distinction clearly during the meeting (1:45:17): "every one of these expenses … was authorized according to our purchasing process." This was not unauthorized spending. It was a failure to complete the paperwork that updates the budget to match what was already approved.
Council made it clear that the city needs to do a better job explaining its finances (1:57:30). They're complex, and our community poll showed many residents aren't comfortable with their understanding of them.
There was again a long discussion about whether an investigation of our city finances is needed. For context: when the former finance director was terminated last year for conduct unrelated to his job (2:24:44), the city took immediate steps: hiring Kroll, a premier forensic investigation firm, and working with the California Governor's Office of Emergency Services Cyber Task Force to review the damaged laptop he returned and look for any evidence of fraud, misuse, or hacking. None was found (2:48:24).
Despite this, one councilmember continued to intimate nefarious activity (2:17:22) and conflated the budget reconciliation issue with unauthorized spending (2:58:02). Councilmember Cox directly disputed this (2:44:19), noting that every dollar was authorized, and what was missing was the administrative step of updating the budget afterward.
Councilmembers Sobieski and Blaustein both spoke (2:35:50, 2:49:45) to the real cost of this recurring debate: every hour spent relitigating whether our finances hide some undiscovered problem is an hour not spent on the 10-year financial model, the infrastructure investments, or the budget planning our community actually needs. The council voted 5-0 to accept the audit and direct staff to follow through on all corrective actions.
Current Year Budget Appropriation: Investing in our City Assets
The city is projecting a shortfall of about $612,000 this fiscal year that requires a budget appropriation. The biggest driver, roughly $425,000, is the Spencer Fire Station project (3:13:15), specifically the records storage cleanup needed to reactivate the building. The city manager recruitment, an interim sustainability manager, and some unforeseen repairs make up most of the rest.
This is not a structural deficit. Our normal operating revenues cover our normal operating expenses. What's happening is that as we invest in our infrastructure, we're spending some of the money we've accumulated from years of budget surpluses. The city has had surpluses every year going back over a decade, building up an unassigned fund balance well above the 25% reserve policy. Spending some of that on one-time investments like reopening the fire station is a good use of those funds (3:45:35).
The council voted 4-0, with Councilmember Hoffman abstaining, to authorize the $612,378 appropriation from the unassigned fund balance, remove the $500,000 MLK fund transfer to the general fund, and direct staff to return on April 21st with a report showing how the city will close the remaining projected shortfall to zero (04:05:47).
What’s Next
Looking ahead, the 10-year financial model the city is developing will be an important tool for understanding the bigger picture: our long-term infrastructure investment needs, the impact of improving our business environment on tax revenues, and how periodic costs like these fit into a sustainable financial plan. I'd like to see this prioritized.
Thanks for reading. These are complex topics and last night's meeting ran long, but I came away feeling that the issues are being taken seriously and addressed with the right steps. If you want to dig deeper, all the staff reports, presentations, and attachments are available on the meeting agenda.
