A year ago, San Diego city auditors found that staff spent millions more on rental equipment for city departments than what councilmembers approved. But the auditors couldn’t find who OK’d the additional spending.
Over the last month, councilmembers have demanded answers from city staff after an audit found that a contract with Herc Rentals increased by more than $6 million without approval from the City Council.
“I had asked on the dais on Oct. 6 where the $6 million had come from that was taken from the general fund and increased unlawfully to the Herc rental contract,” Councilmember Marni von Wilpert said during an Oct. 20 City Council meeting. “I’m still waiting for an answer.”
The city has a contract with Herc Rentals to rent trucks, forklifts and other equipment and services. This equipment is used by city workers across several departments responsible for park maintenance, public safety and more.
For fiscal year 2020, councilmembers approved spending up to $14.3 million on rentals. The contract now allows spending up to $65.5 million.
City law requires the City Council to review and approve certain changes to city contracts. The Council is required to approve new contracts over $3 million and all adjustments to contracts over $200,000.
The city auditor found that didn’t happen in 2023. That year, staff adjusted the Herc Rentals contract in October by $4 million and then again in December by $2.7 million. Other adjustments made to the contract were approved by the Council.
The city auditor’s team said departments didn’t know whether their contracts needed Council approval.
In a statement, Ombretta Di Dio, spokesperson for purchasing and contracting, said the contract was adjusted “to pay outstanding invoices and allow departments access to rental equipment and vehicles to address operational needs, with the intent of obtaining retroactive approval.”
She said rental equipment and vehicles supported critical operations to the city. When some city vehicles were out for repair or missing parts, they used Herc rentals to help in emergency situations like the 2024 floods.
The city auditor gave Voice of San Diego the list of every transaction with Herc Rentals from 2019 to 2024. The transactions are from dozens of departments like public utilities, homelessness strategies and solutions, and transportation.
Di Dio said departments have “flexibility within their approved budget to manage non-personnel costs… When overages occur in one area, they are typically offset by savings in another—ensuring that operations continue without disruption.”
According to the 2024 audit, “when contract alterations are brought to Council late, it puts pressure on Council’s approval responsibility. As a result, Council’s ability to provide meaningful oversight may be reduced if there is not time to consider other vendors without disrupting critical services.”
In other words, when contracts are brought late to the City Council it limits their role and authority to make sound decisions on the contracts. Think of it like making charges to a shared credit card. Each department is charging to the credit card, unaware of how much other departments are spending on it too. Then, Council has to deal with the bill.
Say a department spent more than $50,000 on rental vehicles. They have a better chance of getting that approved by Council if they bring it late, because, well, they have already spent it and now they owe Herc.
So, Council might feel pressure to approve the action to adjust the contract so they can ensure Herc gets paid. But they don’t know if the departments have that money budgeted, they just know they owe Herc.
Councilmembers either vote no – and risk interrupting services – or vote yes and continue to meet the demands for rental equipment across departments.
The Herc contract is an example of these pressures. The Council recently approved an additional eighth amendment to increase the amount in July. The Council voted to increase the contract with the condition that they want to see a specific audit on it.
“I think one of the things I struggle with sometimes is who will bear the consequences if these contracts aren’t approved,” said Councilmember Sean Elo-Rivera during the Council meeting on Oct. 6.
“I think this is what puts us in a particularly difficult position as councilmembers… it is typically rank and file everyday employees who are doing the work.”
It’s unclear why the city is spending so much with Herc. A spokesperson with the city said the transportation department received a mid-year adjustment in FY25 to account for increased needs so that other departments’ needs were not reduced.
The city auditor is planning to do an individual audit on the Herc contract and any other vehicle contracts.
“We will begin the audit in the near future,” said City Auditor Andy Hanau.
Claudia Abarca, director of purchasing and contracting, said they implemented eight recommendations of the 13 made by the city auditor in the last year. One of these recommendations includes updating the Council approval threshold and clarifying alterations for goods and services contracts.
Still, councilmembers are frustrated and looking for answers.
“Do you realize we had a budget fight this past year for over $4.5 million in which the mayor vetoed it and we overrode the veto?” said Councilmember Von Wilpert during the Council Meeting on Oct. 6.
“Somebody had to use a city computer and make that adjustment unlawfully. It’s against the municipal code to do that, so who did that?”
Councilmember Raul Campillo also chimed in to ask if the city disciplined the employees who made the illegal adjustments. Abarca said they did.
“I’m really hopeful that’s what happened here, because this wasn’t a few dollars over,” said Councilmember Campillo. “This was several million dollars over.”
Abarca said that city departments were behind on payments and in a deficit of what they owed Herc. She said her staff was directed to make the unauthorized adjustments when they ran it up the chain of command.
“I don’t know that it went to the mayor himself, I know I did bring this up to the DCOO (deputy chief operating officer) and we’ve been working on this contract for quite some time,” said Abarca. “We’ve done several refinements on how we are monitoring and actually managing the spend for each department to ensure we don’t get to this place again.”
Abarca added they have not altered any contracts above $200,000 without it coming forward to the City Council since 2023.
It’s still unclear who is directly responsible for the contract changes, and where each department pulled money from their budget to pay Herc.
