Risks the City of Blythe Faces
In November 2019, the California State Auditor’s Office (State Auditor) informed the city of Blythe (Blythe) that it had been selected for review under the high‑risk local government agency audit program. This program authorizes the State Auditor to identify local government agencies that are at high risk for potential waste, fraud, abuse, or mismanagement or that face major challenges associated with their economy, efficiency, or effectiveness. We first identified that Blythe might be a high‑risk local government entity based on publicly available information. We then conducted an initial assessment of the city in December 2019 and identified concerns about its financial stability. We found Blythe had struggled to raise sufficient revenue and, in response, reduced its workforce by 35 positions—25 percent—and froze salary ranges for city workers during fiscal years 2008–09 and 2009–10. By fiscal year 2010–11, it had a general fund balance of negative $3.5 million. Through sustained budget cuts and some increased revenue, the city achieved a general fund surplus of $804,000 by fiscal year 2019–20. However, years of operating at a deficit, negative balances in funds that support city services, and pension liabilities raised concerns about the city’s ability to continue to provide services to residents. Table 1 summarizes our risk assessment of the last three years of Blythe’s financial indicators. After approval from the Joint Legislative Audit Committee (Audit Committee), we began our audit of the city in August 2020.
Table 1
Blythe’s Financial Risk Indicators Have Largely Remained the Same or Worsened Since Fiscal Year 2017–18
| Indicator Evaluation | |||
|---|---|---|---|
| Fiscal Year 2017–18 |
Fiscal Year 2018–19 |
Fiscal Year 2019–20 |
|
| Liquidity | High Risk | High Risk | High Risk |
| Debt Burden | High Risk | High Risk | Moderate Risk |
| General Fund Reserve | High Risk | High Risk | High Risk |
| Revenue Trends | Moderate Risk | Moderate Risk | High Risk |
| Pension Obligations | High Risk | High Risk | High Risk |
| Pension Funding | Moderate Risk | High Risk | High Risk |
| Pension Costs | Moderate Risk | High Risk | High Risk |
| Future Pension Costs | High Risk | High Risk | High Risk* |
| OPEB Obligations† | Moderate Risk | Moderate Risk | Moderate Risk |
| OPEB Funding† | High Risk | High Risk | High Risk |
Source: Blythe’s financial statements.
* Future pension costs in fiscal year 2019–20 are based on fiscal year 2018–19 data, which we obtained from CalPERS, but will not be updated until summer 2021.
† OPEB: Other post‑employment benefits.
Blythe is a small, geographically isolated city with limited options for raising revenue to pay for the services it provides. Located in Riverside County on the border between California and Arizona, it is relatively far from other California cities and has a population of about 20,000—30 percent of whom are inmates housed at two state prisons within the city limits. In May 2020, voters approved a 1 percent sales tax increase, which city officials have estimated will generate $1.1 million each year. In an additional effort to increase revenue, the city implemented a commercial cannabis tax in 2018 but, as of fiscal year 2019–20, the tax and related application fees had generated only $200,000, well below estimates of about $1 million annually. Blythe also has numerous abandoned buildings throughout the city, which decrease property values and potential tax revenue, and the city reports that squatters often occupy them, which has led to a costly increase in fires and other public safety risks and expenses.
Our audit found that Blythe also faces several significant risks related to its financial and operational management and that it could benefit from better long‑term planning. Although as of June 30, 2020, the city had an $804,000 surplus in its general fund, this amount is roughly half of the recommended level and would likely be insufficient to carry the city through another economic downturn. The city has also not made any payments on a $400,000 loan it secured in 2004 from the city’s former redevelopment agency to avert the fiscal collapse of its golf course operation. Based on the terms of the loan, the city is now obligated to pay at least $612,000 in interest, an amount that will increase each year until the city pays down the loan. In fact, while the city has identified numerous funding needs for the additional sales tax revenue, it has not developed a long‑term financial plan that outlines debt reduction strategies or that establishes priorities in the event that actual revenue falls short of projections.
The city also needs to invest in addressing its relatively high vacancy rate. The city’s residential vacancy rate of 20 percent—the number of empty housing units compared to the total number of housing units within the city—and several vacant commercial buildings not only reduce potential city tax revenue but create public safety risks because the vacant buildings are associated with increased crime and fires.This is an estimate based on data from the U.S. Census Bureau’s American Community Survey. Since 2017 violent crimes in the city have increased by nearly 50 percent—from 62 to 92 according to Federal Bureau of Investigation (FBI) statistics—more than double the increase in violent crimes in the county as reported by the Riverside County Sheriff. Further, arson increased from 23 incidents in 2015 to 40 in 2019. At the same time, the city has not had the resources to replace aging fire equipment in its volunteer fire department.
In addition to planning deficiencies, other inadequate city management and oversight practices have created operational risks for the city. For instance, the city has been slow to recover the cost of providing services. In particular, it waited more than a decade to update its service fees and thus subsidized most city service fees with general fund revenue for years before recently correcting this problem. Additionally, city management relies heavily on a long‑standing staff member who has been employed as the interim city manager for almost four years while also fulfilling her responsibilities as the city clerk and the city’s administrative services director. The city also lacks sufficient contract management protocols, which puts it at risk of fraud, waste, and improper payments. Given these problems, we believe the city needs to develop a strategic plan that prioritizes improvements to city management, including the hiring of a permanent city manager, and the strengthening of policies and procedures.
To help Blythe address the risk factors we identified, we have developed recommendations the city should implement, including the following:
Develop a five‑year strategic plan to ensure that the city is adequately prepared to address long‑term financial and operational challenges by taking steps such as building its reserve, paying down debt, and reducing public safety risks. The plan should define the city’s goals and should outline actions that align with these goals.
Develop a policy requiring staff to assess the need to update the city’s rates and fees at least once every five years to ensure that it is recovering the cost of providing services.
Identify initiatives—such as programs to demolish or rehabilitate vacant buildings—the city could implement to address the risks associated with its high vacancy rate and apply for available grants to support its effort. Immediately take steps to hire a permanent city manager to reduce the city’s reliance on one staff member to perform the duties of multiple positions.
Develop a system for tracking and monitoring contracts that establishes roles, responsibilities, and procedures for designated city representatives to reduce the city’s susceptibility to waste and fraud.
Agency’s Proposed Corrective Action
Although Blythe did not specifically address the report’s recommendations in its response to the audit, it stated that it will prepare a corrective action plan that addresses each recommendation.