South Pasadena faces budget delays amid mounting tensions and financial concerns

The meeting was only one-third of the way through, but the exasperation in the air was palpable.

“There’s a level of frustration that’s happening throughout the room, and I don’t mean just up here, I think it’s everybody,” said South Pasadena Councilmember Janet Braun, who serves as the City Council’s liaison to the city’s Finance Commission.

Braun’s comments at this week’s Finance Commission meeting came as tensions continue to mount over the proposed fiscal year ’24-’25 budget, which the South Pasadena City Council is set to adopt next Wednesday, July 31.

Despite efforts to finalize the financial document, its adoption has already been delayed by about a month after city officials expressed concerns about discrepancies on June 27.

While the Finance Commission meetings are meant to solve these issues, recent events suggest the budget may face further delays, adding to uncertainties about the city’s financial outlook after it narrowly avoided a $3.7 million deficit.

“Based on an impasse between the Finance Commission and the Finance Director during its two commission meetings on July 16th and July 23rd, I am not sure if the Finance Director can close the gap,” Mayor Evelyn Zneimer said in an email on Thursday, July 25.

Zneimer expressed concerns about the “true numbers of the revenues and expenditures,” noting that the Finance Department has not reconciled the city’s monthly bank statements since February 2024.

“If the Council is not satisfied with the explanation from the Finance Director and the Finance Commission does not recommend adoption, then we might have to postpone the July 31st meeting to the next regular council meeting,” she said.

South Pasadena Finance Director John Downs announced his retirement in April but was brought back on a temporary basis to finalize the FY 24-25 budget, city officials said.

When reached by the phone on Thursday, July 25, Downs, citing a busy schedule, declined the interview at the time. However, during the Tuesday, July 23, Finance Commission meeting, Downs defended his approach. He also said the staff will present an updated budget document to the City Council next week.

“That will be presented to both of you at the time,” he told the commissioners. “Everyone here has received a copy of the punch list, so everybody has a list of the punch list, those things will be incorporated into the document.”

But the commissioners expressed concerns that they won’t have a copy of the budget report before next week’s meeting.

“My assumption was that these working sessions last week and this week would be included in a revised document. John was working under a different set of assumptions. I’m glad it finally came out,” Finance Commission Chair Peter Giulioni Jr. said.

According to the proposed FY 24-25 budget, as of July 1, 2024, the general fund balance is estimated to be $22 million. For FY 24-25, the city expects to receive $41.2 million in revenue and spend $39.9 million.

South Pasadena has faced a tumultuous year, beginning with budgetary missteps that included a projected $3.7 million deficit.

During a joint City Council and Finance Commission meeting on Feb. 21, a third-party consultant, NHA Advisors, LLC, estimated that the city’s expenses would outpace its general fund revenues over the next five years, with deficits ranging from $1.8 million this fiscal year to $3.9 million in FY 28-29.

In response to this dire forecast, Braun recommended forming an ad hoc committee “to address the immediate financial and operational situation.”

According to her, the city’s financial problems began even earlier with the City Council’s adoption of the FY 23-24 budget in June 2023, which included a $2 million deficit.

That budget was approved on the condition that the Finance Commission would work with staff to understand the negative fund balances and provide a five-year projection, she said. The City Council received this projection on Feb. 21, along with a mid-year budget report.

“Accompanying that report was the mid-year budget report, which projects not the $2 million deficit originally approved and on which the five-year projections were built, but maybe that is incorrect, I’ve learned,” Braun said. “But an actual deficit for the current year of $3.7 million. We have been delivered a financial nuclear bomb.”

She also criticized what she described as “the staff’s resistance to work with the Finance Commission over the past several months, despite the direction from the City Council last June.”

Following Braun’s alarming assessment, the ad hoc committee was formed. It consisted of Zneimer, Braun, Giulioni, and Finance Commission Vice Chair Sheila Rossi.

However, this committee was nearly dissolved after complaints from former Finance Commissioner Ed Elsner, who argued that the committee violated Brown Act because its discussion and formation were not listed on the Feb. 21 meeting agenda.

During a meeting on March 20, Councilmember Jon Primuth argued that the committee “had a very strong political agenda.” Councimember Michael A. Cacciotti described the committee as “a duplicative body” and “a waste of time, a waste of our resources”.

The City Council subsequently voted 3-2 against reauthorizing the committee, with Primuth, Cacciotti and Councilmember Jack Donovan voting against reauthorizing, Zneimer and Braun voting in favor.

But public concern over the deficit projections grew, prompting the City Council to reinstate the committee on May 1. The panel decided that the committee would be resurrected after July 1, by which time the FY 24-25 would’ve been adopted.

Nevertheless, that plan also fell short.

While the City Council had hoped to adopt the FY 24-25 budget before the current fiscal year ends on June 30. However, during a June 27 meeting, the panel, citing discrepancies in the numbers in the financial report, voted to go with the Finance Commission’s recommendation to delay the budget adoption.

Instead, the panel approved a resolution of continuing appropriations, authorizing the city to use appropriations for ongoing projects for 60 days or until the adoption of the budget, whichever comes first.

Using continuing appropriations could lead to administrative inefficiencies, restricted financial management and uncertainty for long-term planning, according to a staff report. However, the pros of this method are that it could help avoid government shutdown, maintains the status quo and provides more time for budget negotiations.

According to a staff report, the proposed FY 24-25 budget is balanced and shows a projected surplus. In addition, the previously projected $3.7 million deficit was mitigated by the discovery of unused funds.

But there are several problems with the proposed budget, Rossi said in a recent interview.

“I don’t really have a lot of trust in the numbers that are in the budget, because we still haven’t received the third quarter financials,” she said. “They gave us the third quarter summary, but it turns out that they haven’t finished their bank reconciliations for February. “

Rossi also expressed concerns that the revenue projections in the proposed budget are overstated by $700,000 to $900,000 based on the projections from two third party consultants the city hired.

Meanwhile, the city has hired LSL finance consultants to help with back-office accounting and reconcile the bank statements, the mayor said.

“Hopefully LSL could clarify the true numbers so that by August 21, we might be able to adopt the budget subject to any conditions that the Council might impose,” she said. “But then I have the other four Councilmembers to weigh in on the situation and I don’t know where they stand. So everything will depend on how the meeting will go on July 31.”

The city has also been dealing with a string of staff departures, which culminated in the stepping down of former City Manager Arminé Chaparyan on June 24. She received a lump-sum severance benefit in the amount of $307,500, $1,727.10 of unused management leave and a cash payment for all properly accrued and unused vacation time.

On Friday, July 26, the City Council approved a resolution appointing Donald Penman to serve as interim manager. Penman previously served as city manager for the cites of Arcadia, San Fernando and Baldwin Park.

He will start on Monday, July 29.

Rossi said “nothing is at stake” if the City Council doesn’t passes the budget next week.

But one thing was expected: A long night.

“The best we can do is to create a punch list and that we all need to bring our pajamas and cots on the evening of the 31st, that it’s going to be an extraordinarily long evening, if we are going to ask the City Council to either reject or accept each line item that we’re discussing right now,” Giulioni said.

Originally Published: July 27, 2024 at 6:00 a.m.