March 16, 2021
2020-803
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 directed by the Joint Legislative Audit Committee, my office conducted an audit of the city of El Cerrito (El Cerrito) as part of our high-risk local government agency audit program. Our assessment focused on El Cerrito's financial and operational risks, and the following report details the audit's findings and conclusions. In general, we determined that the city is at high risk of financial instability because of its continual overspending, poor budgeting practices, and lack of a comprehensive plan to address its financial challenges, all of which threaten the future provision of city services.
El Cerrito depleted its financial reserves in fiscal year 2016–17 and has since relied on short-term loans to continue operating. The city's poor budget development practices have led to substantial increases in budgeted expenditures that it cannot afford. Poor budget monitoring practices have also allowed city departments to routinely overspend. For example, El Cerrito's city management department spent a total of $1.9 million beyond its budget from fiscal years 2015–16 through 2019–20, even after the city approved budget increases for each of these years. Moreover, even though El Cerrito recently proposed spending reductions of $1.7 million for fiscal year 2020–21, we question whether those reductions are realistic, given the absence of specific detail in the city's budget, which should explain how the city's departments intend to achieve the reductions.
To address these concerns, we present several recommendations, such as documenting the assumptions and data the city uses to develop projections of revenue and expenditures, providing monthly updates to the city council on the city's budget status by department, and developing and implementing a comprehensive financial recovery plan. In addition, we recommend that El Cerrito seek opportunities for savings by conducting a comparative analysis of the city's total compensation for its employees and by recovering additional costs of its fee-based services.
Respectfully submitted,
ELAINE M. HOWLE, CPA
California State Auditor