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California State Auditor Logo COMMITMENT • INTEGRITY • LEADERSHIP

City of San Gabriel

Its Ongoing Deficit Is Inhibiting Its Financial Recovery

Report Number: 2020-805

Figure 1
San Gabriel’s Budgeted General Fund Expenditures for Fiscal Year 2019–20 by Category

Figure 1 is a donut chart that displays the various categories of budgeted expenditures for San Gabriel’s general fund for fiscal year 2019-20. The eight categories are identified as a percentage of total general fund budgeted expenditures. In order of magnitude, these categories include police for 36%, fire for 22%, public works for 13%, community development for 7%, citywide services and engagements for 6%, support services for 6%, legislative and administrative for 5%, and other for the remaining 5%. The source of the figure is San Gabriel’s adopted budget for fiscal year 2019-20.

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Figure 2
San Gabriel Has Depleted Its General Fund Reserves

Figure 2 is a bar chart displaying San Gabriel’s general fund reserves balance in millions of dollars for fiscal years 2014-15 through 2019-20. The chart shows that San Gabriel had an available general fund reserves balance of more than $10 million in fiscal year 2014-15. Beginning in fiscal year 2015-2016 San Gabriel’s general fund reserves balance steadily decreased through fiscal year 2017-18. The balance decreased to a deficit of about $4 million in fiscal year 2015-16;  more than $5 million in fiscal year 2016-17; and reached nearly $10 million in fiscal year 2017-18. However, in fiscal year 2018-19 the general fund reserves balance increased to a deficit of about $8.5 million and then to just over $8 million in fiscal year 2019-20. The source of the figure is an analysis of San Gabriel’s audited financial statements for fiscal years 2014-15 through 2019-20. The figure also includes a note describing that general fund reserves exclude cash that the city must hold as collateral for its public works loan and is thus unavailable for use.

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Figure 3
San Gabriel Restricted Its Access to Its General Fund Cash When It Collateralized Its Public Works Loan

Figure 3 is a timeline that describes the impact of events related to San Gabriel’s entrance into a loan in 2014 that severely restricted the city’s general fund cash. The timeline shows that in December 2014, the city entered into a loan and had to pledge $7.8 million of San Gabriel’s cash as collateral for at least 10 years, causing its available general fund reserve balance to plummet. For June 2015, the figure explains that the city had paid down a portion of the loan and the remaining loan balance was then $7.7 million. For June 2016, the figure explains that the terms of the loan combined with the city’s overspending caused the city’s available cash balance to fall to a deficit. For June 2017, the figure shows that the loan’s remaining balance was 7.2 million dollars. Between June 2017 and June 2020, the figure explains that the restricted cash and ongoing expenditure overruns led the city to borrow an average of $8.7 million annually from other funds to cover general fund expenditures and maintain the collateral requirements. For June 2020, the figure shows that the loan’s remaining balance was $6.4 million. For January 2025, the figure explains that in addition to the restrictions on its general fund cash, San Gabriel will also have to pay $5.4 million by the loan’s expected pay off date. However, once the loan is paid off the restrictions the city’s general fund cash will cease. The source of the figure is an analysis of San Gabriel’s audited financial statements for fiscal years 2014-15 through 2019-20.

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Figure 4
San Gabriel’s General Fund Borrowed Extensively From Other Funds Beginning in Fiscal Year 2015–16

Figure 4 is a stacked bar chart that displays the amounts in millions that San Gabriel’s general fund borrowed from other funds beginning in fiscal year 2015-16. Each fund is represented by a different color in the bar. The chart shows that the general fund did not borrow from other funds in fiscal year 2014-15. In fiscal year 2015-16, the general fund borrowed $1.9 million each from the self-insurance fund and the waste management fund for a total of $3.8 million. In fiscal year 2016-17, the general fund borrowed $2.1 million each from the self-insurance fund, the sewer assessment fund, and the waste management fund for a total of $6.3 million. In fiscal year 2017-18, the general fund borrowed $3 million dollars from the development impact fee fund, $2.2 million from the self-insurance fund, $4.3 million from the sewer assessment fund, and $1.3 million from the waste management fund for a total of $10.8 million. In fiscal year 2018-19, the general fund borrowed $4 million from the development impact fee fund, $5 million from the sewer assessment fund, and $500,000 from the waste management fund for a total of $9.5 million. Finally, in fiscal year 2019-20, the general fund borrowed $3.5 million from the development impact fee fund and $5 million from the sewer assessment fund for a total of $8.5 million. The source of the figure is San Gabriel’s audited financial statements for fiscal years 2014-15 through 2019-20.

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Figure 5
San Gabriel Will Likely Continue to Have a Significant Reserve Deficit Through Fiscal Year 2025–26

Figure 5 is a line graph showing San Gabriel’s general fund balance in millions of dollars from fiscal year 2020-21 through 2025-26 as projected by San Gabriel compared to the city’s general fund reserve balance for the same period as projected by the State Auditor. The graph displays teal line that depicts the amount of San Gabriel’s general fund balance as projected by the city for fiscal years 2020-21 through 2025-26. The graph also displays a purple line that depicts the amount of San Gabriel’s general fund reserves balance for fiscal years 2020-21 through 2025 as projected by the State Auditor. The figure notes that the State Auditor projection of the city’s general fund reserves balance excludes cash that the city must hold as collateral for its public works loan and is thus unavailable for use.

The figure shows that San Gabriel projects that its general fund balance will increase steadily during the period. It starts with a deficit of almost $2 million for fiscal year 2020-21 followed by balances of about $700,000 for fiscal year 2021-22,  $1.7 million for fiscal year 2022-23, $3.3 million for fiscal year 2023-24, $4.6 million for fiscal year 2024-25, and $6.4 million for fiscal year 2025-26. Whereas the State Auditor projects that the city’s general fund reserve will increase between fiscal years 2020-21 and 2021-22 from a deficit of $7.5 million to a deficit of $6.5 million. However, from fiscal years 2022-23 through 2025-26 the general fund reserves balance will decline again with deficit balances of $7.6 million, $8.3 million, $9.2 million, and $9.9 million, respectively.  The reasons for difference between the city’s projections and the State Auditor’s projections is because the State Auditor’s projections exclude cash that the city must hold as collateral for its public works loan and is thus unavailable for use, and factors in a lower growth rate for hotel tax revenue, a modest personnel cost increase, and pension costs increases that will need to be covered by the general fund. The source of the figure is analysis of San Gabriel’s most recent financial forecast.

The figure also notes that President Biden signed the American Rescue Plan Act of 2021 in March 2021. This Act provides money to state and local governments to assist them in recovering from the negative effects of the pandemic. Because this occurred at the end of our fieldwork and was not included in the city’s projections at the time of our review, the impact of these funds is not reflected in our projections. However, we discuss the potential effect these funds may have on the city’s finances in the report.
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Figure 6
Mission Playhouse Operating Expenditures Have Significantly Exceeded Operating Revenues Since at Least Fiscal Year 2014–15

Figure 6 is a bar graph displaying teal bars depicting the operating revenues next to black bars depicting to the operating expenditures for the Mission Playhouse for fiscal years 2014-15 through 2019-20. The graph shows that operating expenditure exceeded operating revenue in every year during the period. In fiscal year 2014-15, the Mission Playhouse’s operating revenues were just under $600,000, but its operating expenditures were about $1.1 million. Operating revenues remain around $600,000 through fiscal year 2018-19 but drop to under $400,000 in fiscal year 2019-20. Meanwhile, operating expenditures for the Mission Playhouse rise to about $1.3 million in fiscal year 2015-16 and over $1.7 million fiscal year 2016-17. These expenditures fall below $1.7 million in fiscal year 2017-18, further decrease to $1.3 million in fiscal year 2018-19, and then decrease to less than $1.2 million for fiscal year 2019-20. However, these expenditures continue to be more than double operating revenues over the entire period. The source for this figure is San Gabriel’s audited financial statements for fiscal years 2014-15 through 2019-20. The figure notes that revenue amounts in this graph do not include funding to the playhouse from San Gabriel’s general fund or retirement fund.

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Figure 7
The City Has Not Conducted a Competitive Bid for Waste Collection for More Than 70 Years

Figure 7 is a timeline graphic showing that San Gabriel has not conducted a competitive bid for over 70 years for its waste collection contract. The figure has bar on the bottom that indicates the years starting with 1948. Then 1950 and each ten increment thereafter. Dots on the bar indicate a change in the contract: Black for contract amendments, blue for substantive change in contract, and purple for contractor assignments. For each contract and assignment the figure includes an explanation in a textbox with an icon: blue icons for contracts and purple icons for assignments. The figure also includes yellow textboxes to indicate the length of the agreement term.

In 1948, the city conducted a competitive bid for waste collection and executed an initial contract. It executed an additional contract with the same vendor in 1951. In 1957, the city then executed a new contract with the same vendor after three contract amendments. Also in 1957, the city amended the contract once and assigned the terms of its contract to a different company once, with city council approval.  Over the next 30 years, the city amended this contract five times. In 1987, the contractor again assigned the terms of its contract to another company, with city council approval. The timeline shows that some of the amendments executed by the city increased the contract length, such as in 1994 when the city extended the term of the contract by 7 years. In 2000, the city executed a substantially rewritten amendment with the current contractor, and increased the contract term to 11 years. The city has since amended that contract amendment five times. In 2020, the city executed the most recent amendment, and extended the contract term to an ongoing service period of 25 years with an automatic one-year extension each year. The source for this figure is San Gabriel’s contract documents and city council meeting minutes.
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