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California State Auditor Report Number : 2015-806

City of Hemet
Its Ongoing Budget Deficit and Organizational Inefficiency Threaten Its Financial Stability and Delivery of Public Services



Summary

City of Hemet, Riverside County
Risk Designation: High Risk

Our audit of the city of Hemet (Hemet) revealed that the city is addressing some key risks that have caused financial stress and affected the efficiency and effectiveness of its government, but significant work remains to ensure that the city is stable over the long term. Because of the considerable challenges still facing Hemet, we have placed it on our high risk list and will follow up with the city until its corrective action plan has been satisfactorily implemented and the deficiencies identified in this report have been adequately addressed.

Issue
Expenditures continue to outpace revenue, impeding Hemet’s ability to meet its financial obligations

Ongoing budget deficit

  • Projected a $5 million budget deficit for fiscal year 2015–16 and continues to experience dwindling reserves.
  • Developed an inaccurate and overly optimistic five-year plan to address its budget deficit.

Rising pension costs

  • Has maintained employer contributions but faces increasing costs because of its large unfunded liability.
  • Will incur additional payments if it fills vacant positions.

Use of city-supported library by nonresidents

  • Spent $1.8 million in fiscal year 2014–15 on library operations.
  • Serves patrons throughout the region, of which nearly half are not Hemet residents.

Significant retiree medical costs and unfunded liability

  • Had large retiree medical obligations, but has since shifted many participants to lower-cost health plans.
  • Continues to incur a large unfunded liability.
Ineffective and inefficient organizational management negatively affects Hemet’s provision of public services

Underfunded fire department

  • Faces critical needs for sufficient staffing and repairs to its infrastructure.
  • Handles high demand for services with minimal staffing, resulting in potentially unsafe conditions.
  • Incurs costs for emergency medical services but does not recover these costs through charges.

Lack of coordinated approach to promote community engagement

  • Does not have a citywide coordinated effort for community engagement.
  • Has not sufficiently communicated information on citywide concerns to members of the public.

Inefficient structure of city government

  • Has experienced disproportional reporting relationships within city operations
  • Has some functions that are related, but do not share reporting relationships or locations.

Turnover of key positions and lack of consistent leadership

  • Has experienced frequent turnover in its city manager and fire chief positions.
  • Is likely to have some city departments heavily affected by upcoming retirements.

Inconsistencies in outsourcing maintenance activities

  • Outsources some landscape maintenance, but maintains its parks, resulting in additional costs.
APPENDICES
Appendix A–Scope and Methodology
Appendix B—Other Issues Reviewed
Appendix C—The California State Auditor's High-Risk Local Government Agency Audit Program
AGENCY RESPONSE
City of Hemet
California State Auditor's Comments on the Response From the City of Hemet


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