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Corrective Action Plan & Assessment
The City of Hemet


Click to view Hemet's update to its Corrective Action Plan (PDF) from May 25, 2017


The city of Hemet (Hemet) provided its first update to its corrective action plan on May 25, 2017, more than three months after it was due. In its response, Hemet has revised the timelines of many of the proposed corrective action items, and it has not taken any action on other items. Accordingly, we will continue to maintain the high risk designation of the city and will reassess that status upon review of Hemet's next update, which is due in August 2017.



Expenditures continue to outpace revenue,
impeding Hemet’s ability to meet its financial obligations
Ongoing budget deficit
California State Auditor’s
Assessment Status:

Pending
Hemet provided an updated five-year plan that it expanded to include additional years through fiscal year 2024-25. The updated plan projects slightly higher revenues from the prior version of the five-year plan, mainly from higher property tax and motor vehicle tax revenue, and also higher expenses, primarily from increased pension costs. Further, the updated plan notes that Hemet expects its expenses to exceed its revenues until fiscal year 2023-24. Although Hemet projects that expenditures will exceed revenues by less than $1 million annually up until then, it should still take further action to eliminate its budget deficit sooner, as prolonging such a deficit makes it more vulnerable to economic downturns and unanticipated expenses. As Hemet notes, voters approved a 1 percent sales tax measure in November 2016. However, Hemet has not revised its five-year plan to incorporate these additional revenues and related expenses. Without such revisions, Hemet's five-year plan does not accurately reflect its budget deficit.
 
Rising pension costs
California State Auditor’s
Assessment Status:

Partially Addressed
In its initial corrective action plan from August 2016, Hemet stated that it would evaluate the cost-effectiveness of pre-paying its unfunded liability to CalPERS. In November 2016, the Hemet city council directed staff to move forward with CalPERS to change how the city would pay for the unfunded portion of its pension costs. Hemet plans to reduce the overall period for paying its unfunded liability from 30 years to 20 years. As a result, Hemet will incur larger payments during the next 20 years but projects that it will save $12.6 million over the original 30-year period because of reduced interest payments. If Hemet can adhere to this payment schedule over the next 20 years, it should save a substantial amount in future years.
 
Use of city-supported library by nonresidents
California State Auditor’s
Assessment Status:

No Action Taken
Hemet's update to its corrective action plan removes its previous reference to pursuing a regional partnership as an action item. Instead, the city states that it evaluated our recommendation of a library user fee. On page 15 of our audit report, we projected that if half of the nonresidents who used the Hemet library paid a $50 annual fee, the city could generate over $800,000 per year. However, Hemet's city council expressed some reservations about implementing a library user fee during an August 2016 city council meeting. City staff claimed that if Hemet implemented a fee, the city would lose out on $187,000 in grants it had applied for and $7.8 million in current services, comprised primarily of $7.5 million in e-books. However, Hemet did not provide support or explanations for these assertions.

Although Hemet informed us that it will not implement our recommendation to address the cost of nonresidents using its library services, it has not taken any other action to address this concern. As we note on page 13 of our audit report, Hemet spent about $1.8 million of its limited general fund money in fiscal year 2014-15 on a service for which nearly half of those who benefit are nonresidents.
 
Significant retiree medical costs and unfunded liability
California State Auditor’s
Assessment Status:

Partially Addressed
In October 2016, the Hemet city council voted to establish an other post-employment benefits (OPEB) trust and made an initial contribution of $750,000. The adopted policy of the city council is for the city to contribute $250,000 annually into the trust. The city expects to contribute $12 million in total over 45 years. Although the establishment and funding of the trust is a positive step, it is not clear that the actions will be sufficient to address Hemet's OPEB liability, currently valued at $87 million. We expect at its next update that Hemet will be able to describe its approach to address its entire unfunded liability.
 

Ineffective and inefficient organizational management
negatively affects Hemet’s provision of public services
Underfunded fire department
California State Auditor’s
Assessment Status:

Partially Addressed
Hemet has taken initial steps towards addressing its underfunded fire department. In December 2016, it issued a job bulletin for a battalion chief and recently filled this key position. Although the Hemet city council voted in September 2016 to not implement our recommendation for an emergency medical services first responder fee, voters subsequently approved a 1 percent sales tax in November 2016 that the city states will be dedicated towards police and fire services.

Hemet's update to its corrective action plan states that it completed a comprehensive fee analysis and created a comprehensive staffing plan for its fire department in September 2016, before the passage of its tax measure. Given the new funding available to the fire department, we would expect that Hemet would update its staffing plan and fee analysis.
 
Lack of coordinated approach to promote community engagement
California State Auditor’s
Assessment Status:

Pending
Hemet plans to develop a public involvement program pending city council approval of its fiscal year 2017-18 budget.
 
Inefficient structure of city government
California State Auditor’s
Assessment Status:

Pending
Despite its previous statements that it would plan to begin an organizational analysis in September 2016 and conduct a work study of staff implementation of the organizational analysis in May 2017, the city now states that initiation of these analyses are pending approval of its fiscal year 2017-18 budget. As such, Hemet has made no progress on addressing this area of risk. We recommended on page 26 of our report that Hemet conduct an organizational analysis to better align similar functions and leverage staff to address the inefficiencies we identified. We expect Hemet's next update to include specific dates for completion of its organizational analysis and steps it has taken to achieve that goal.
 
Turnover of key positions and lack of consistent leadership
California State Auditor’s
Assessment Status:

Pending
Despite its previous statements that it would complete a comprehensive organizational analysis and a succession plan by May 2017, Hemet now states that it will begin work on these critical planning efforts in fiscal year 2017-18 after an assistant city manager is hired. In a subsequent conversation, the city manager stated that he plans to complete recruitment for the assistant city manager in July 2017. As such, Hemet has not made any progress on addressing this area of risk. Since our audit, Hemet has continued to experience turnover and could have benefitted sooner from having a plan. We expect Hemet's next update to include specific dates for completion of its strategic plan and succession plan and steps it has taken to achieve that goal.
 
Inconsistencies in outsourcing maintenance activities
California State Auditor’s
Assessment Status:

No Action Taken
In September 2016, the Hemet city council rejected a proposal to outsource its maintenance activities. However, the analysis presented by staff to the city council differed significantly from the analysis we performed during the audit. During the audit, we spoke with the public works director who confirmed that if Hemet outsourced its parks maintenance, $465,295 of the department's annual costs of $1,003,000 would be retained by the city. However, the city's analysis concluded that $615,063 of the department's annual costs of $944,820 would be retained by the city, a difference of over 30 percent from our calculation. Because the analysis presented by staff to the city council showed that outsourcing would increase city costs, the city council chose not to outsource this function. However, we stand by our analysis that the city could reduce more of its costs if it outsourced parks maintenance, resulting in an annual savings for the city.


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