Wednesday, July 18, 2012

Cooking the Books in San Bernadino ... Government in Action

Another California city is bankrupt. This time it appears that the "books" have been "cooked" over the years.

Bankrupt California City Faces Crime Probe has the story:

"Law-enforcement officials said they have launched a criminal investigation of San Bernardino city government, which (last week) voted to seek bankruptcy protection . . . .

The investigation has been going on for several months and includes other law-enforcement agencies . . . . {See also Labor Costs Push San Bernardino Near Bankruptcy 7/11/12}
    "Several months ago at the request of San Bernardino City officials, the San Bernardino County Sheriff's Department, along with the San Bernardino Police Department and the District Attorney's Office began an investigation related to allegations of possible criminal activity within departments of the San Bernardino city government," the statement said.The Sheriff's Department released no other details.

City officials blamed the bankruptcy authorization on the city's collapsing economy and rising labor costs. The city of 210,000 about 60 miles east of Los Angeles has suffered more than other communities in the hard-hit county. Its property values plummeted; and 70% of its homeowners owe more money on their mortgages than their homes are worth. Unemployment in the area is stuck at 11.8%, and sales tax revenue for the city took a 30% dive in the past six years.

But city attorney James F. Penman said publicly this week that city officials have falsified financial reports for more than a decade. Mr. Penman didn't name any officials in particular, and didn't say how much of an impact those reports might have had on the city's current financial situation.

"We have now learned that for 13 of the past 16 years the documents presented to the mayor and council were falsified . . . the documents showed that the city was in the black when for 13 of those 16 years the city was actually in the red," Mr. Penman said at a city council meeting this week when the council voted on bankruptcy.

Asked to elaborate in a news conference the following day, Mr. Penman said, "Any evidence of suspected wrongdoing has been turned over to the appropriate government agencies and there is little else I can share with you."

San Bernardino city officials have acknowledged mismanagement of funds, but said they were unaware of any criminal actions or cover-up.

"I cannot speak to Mr. Penman's allegation," city spokeswoman Gwendolyn Waters said earlier this week. "However, I believe it is acknowledged by all our city officials that there were less-than-best practices in place and poor accounting that largely led to this problem."

San Bernardino will run out of cash to pay its 800 employees within 90 days, Jim Morris, the mayor's chief of staff, said earlier this week. The city expects its deficit to rise to $45 million in this fiscal year, Mr. Morris said.

Two other California municipalities have filed for bankruptcy protection in recent weeks: Stockton, in Northern California, and the resort town of Mammoth Lakes."

My Take

Government accounting sucks, and sorely lacking is government officials' accountability for actions purportedly taken on behalf of We the People. In far too many situations, the concept of genuine public service is missing.

Numerous cities, states and even the national government employ sloppy accounting procedures and frequently adopt somewhat phony, if not fraudulent, projections about the future impact their decisions will have on taxpayers. It's pure and simple "short termism" in action, and the long term consequences of the governments' decisions are simply ignored.

Because governments usually employ the cash method of accounting, they don't even recognize at the time the decisions are made the financial impact of promised but as yet unrecognized future expenditures. Public sector pension and health care costs are good examples of this terrible practice, albeit not the only ones. To take a different situation, unreasonably optimistic future revenue estimates for public infrastructure projects are often far off initial cost and revenue projections as well. In all cases, the taxpayers eventually are presented with the real and final bill.

Whatever the reason for this constant mismatch between estimated government receipts and expenditures, various U.S. governments (local, state and federal) share one thing in common. There simply isn't enough revenue collected from taxpayers and fees to support the promises for expenditures made by our "public servants." Missing estimates on the downside by government officials has become too much of a well established habit not to have been intentionally done.

What still remains unclear, however, is when the elected officials are going to be forced by We the People to stand up and tell us the truth, the whole truth and nothing but the truth about all this.

Whether it has been a result of incompetence, neglect or even something sinister, these improper government actions which have resulted in unforeseen and unbudgeted costs to taxpayers are unacceptably high and out of bounds.

In my view, this inappropriate government accounting and lack of public accountability must be acknowledged and dealt with sooner rather than later.

Thanks. Bob.

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