The city of Richmond has made progress addressing the areas of opportunity we identified related to its financial reserves and projections. In 2022 we noted that although Richmond had a reserve policy that met the GFOA's minimum recommendations, it may need to amend that policy to address its unique challenges and risks. When we audited Richmond, its financial projections showed a pending deficit that it predicted would grow to $13.8 million in fiscal year 2025-26, which it would need to address with either decreased expenses or increased revenue. We recommended that the city propose budget actions to help it ensure balanced budgets and eliminate projected deficits. Richmond could also improve its financial forecasts by including scenarios that include potential additional risk factors so that the city can respond appropriately.

In June 2023, Richmond provided the State Auditor with updated information on its implementation of our recommendations. This update included a new reserve policy which raised the city’s required reserve to 21 percent, and financial projections that considered multiple scenarios. Richmond also provided us with a staff report on its 2023-24 budget, which shows balanced revenues and Expenditures. However, we have yet to see proposals for cost controls and revenue increases that would allow Richmond to address its predicted future deficits.

Richmond's pension and other postemployment benefits (OPEB) liabilities require funding policies informed by the city's own analysis, which may lead to increased funding levels and therefore minimize risks to the city. CalPERS reports that Richmond's annual pension costs are increasing, and it projects that the costs could reach $53 million by fiscal year 2028-29. Reaching full funding at Richmond's current rate of contributions could take decades. In addition to its pension liabilities, Richmond's OPEB funding of $39 million at the time of the audit represented only 27 percent of its promised future benefits. In its May update, Richmond indicated that it had contracted with a private firm for ongoing monitoring related to its pension costs. The firm made its first presentation to the city council in May 2023. In June 2023, Richmond provided an update on its implementation of our recommendations, which included the creation of a pension trust fund policy. However, it has not yet provided evidence of briefings to the city council concerning the potential of direct contributions. Richmond also provided us with its OPEB trust fund policy.

Richmond will also need to conduct a workforce analysis to mitigate the costs of salary increases it began providing in 2022. Richmond had not increased some positions' salaries for as long as seven years, and the city had relied on the annual anticipated savings in labor costs to contribute to balancing its budgets. A workforce study would allow the city council to consider eliminating vacant positions it deems no longer necessary, which could minimize the impact of increased salary costs in the long term. In its June update, Richmond indicated that it had hired a consultant to perform a workforce analysis.

To address issues with its contracting compliance and fees schedule, we recommended that Richmond update its contracting processes and fee schedule. For example, we indicated that the city would need to begin documenting that it is following its requirements when entering into a contract, and to ensure that it follows its contracting process, Richmond should develop a checklist. In its May update, the city provided us with a new contracting checklist that it had created that addresses our concerns. Further, city staff reported that they conducted an assessment of its training materials to ensure compliance with contracting requirements and prepared a training program to ensure compliance.

To address issues with the frequency and completeness of its fee schedule reviews, we indicated that Richmond would need to determine a cost-effective process for the city to apply in the future. In May 2023, Richmond’s city council approved a new ordinance that requires fees to be updated annually or as needed based on changes to the Bureau of Labor Statistics Employment Cost Index.