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City of Montebello
Its Structural Deficit and Poor Operational Processes Threaten the City's Financial Stability and Delivery of Public Services

Report Number: 2018-802

December 11, 2018

The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814

Dear Governor and Legislative Leaders:

As requested by the Joint Legislative Audit Committee, the California State Auditor presents the results of our audit concerning the city of Montebello (Montebello), conducted as part of our high‑risk local government agency audit program.

This report concludes that Montebello is a high-risk city because of its significant financial and organizational risks. Specifically, for much of the past decade, Montebello has struggled to generate sufficient revenues to meet its expenses and as a result, it suffers from a structural deficit. Further, Montebello has relied on one-time revenues to balance its budget and its recent plans to increase revenues and decrease expenditures are not adequate to eliminate its structural deficit. Additionally, Montebello's enterprise activities, including a municipal golf course, water utility, and two hotels, pose a significant financial risk to the city's general fund. For example, over the past five fiscal years, Montebello's municipal golf course has relied on subsidies of $800,000 per year, on average, from the city's general fund. Further, we found that the city did not competitively bid 10 of 16 agreements we reviewed and did not adequately justify the lack of competitive bidding in most cases. To address these risk factors, we developed recommendations for the city to implement, such as exploring alternate uses for its golf course. We also recommend that the city amend its municipal code to require competitive bidding for most procurements to ensure that Montebello obtains the best value from the services it receives.

Respectfully submitted,

California State Auditor

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