Report 2011-131 Recommendation 37 Responses

Report 2011-131: City of Vernon: Although Reform Is Ongoing, Past Poor Decision Making Threatens Its Financial Stability (Release Date: June 2012)

Recommendation #37 To: Vernon, City of

To minimize the continuing financial losses on the two currently outstanding interest rate swaps, the city should develop a clear process for deciding how it will terminate these swaps based on the cost and future risk to the city.

Agency Response*

On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a section specifically addressing investment derivative monitoring, reporting requirements, and financial conditions or thresholds for termination. (See page 5 of Budget Policies and Procedures Manual.) The Finance Director is continuing to monitor the swap transactions to determine the appropriateness of partial or full terminations of the agreements.

  • Response Type†: Annual Follow Up
  • Completion Date: February 2014
  • Response Date: July 2014

California State Auditor's Assessment of Status: Fully Implemented


Agency Response*

On September 4, 2012, the City Council adopted Resolution No. 2012-178, approving the termination of the portion of cash flow exchanges under the 2004 Series A Swap scheduled to occur through December 1, 2015, and entering into an Amended and Restated Confirmation with a new effective date of December 1, 2015. On May 7, 2013, as part of the first of three public City Council study session meetings for the proposed 2013-2014 fiscal year budget, the Finance Director provided an up-to-date analysis of the City's debt structure. The Finance Director is continuing to monitor the swap transactions to determine the appropriateness of partial or full terminations of the agreements.

  • Response Type†: 1-Year
  • Completion Date: May 2013
  • Response Date: July 2013

California State Auditor's Assessment of Status: Partially Implemented

As the city indicates, the finance director provided an analysis of the city's debt structure at the May 2013 city council study session meeting for the proposed 2013-14 fiscal year budget. However, the city did not indicate or provide documentation that it has developed a process for deciding how it will terminate these swaps.


Agency Response*

The city indicates that the city administrator and finance director have enlisted BLX Group LLC to perform an assessment of the viability of terminating the city's swaps and a detailed process for doing so. The city administrator and finance director expect to present the results of the assessments and any appropriate recommendations to the city council by May 7, 2013.

  • Response Type†: 6-Month
  • Response Date: January 2013

California State Auditor's Assessment of Status: Partially Implemented


Agency Response*

The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)

  • Response Type†: 60-Day
  • Response Date: August 2012

California State Auditor's Assessment of Status: No Action Taken


All Recommendations in 2011-131

†Response Type refers to the interval in which the auditee is providing the State Auditor with their status in implementing recommendations made in an audit report. Auditees must submit a response regarding their progress in implementing recommendations from our reports at three intervals from the release of the report: 60 days, six months, and one year or subsequent to one year.

*Agency responses received after June 2013 are posted verbatim.


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