Ryan McDonald

Audit of Manhattan Beach finances is positive, council eyes future concerns

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Millie Newton, fourth from left, stands with MBPD Chief Eve Irvine and city council members at Tuesday night’s meeting. Newton was honored in recognition of 36 years of service as a police department volunteer. Photo by Kendra Davis

by Ryan McDonald

Manhattan Beach runs its financial department about as well as a city can, but officials remain wary about key fiscal pressures. This was the message at Tuesday night’s city council meeting, when the city received the highest possible evaluation of its financial disclosures.

The audit examined the soundness of the city’s internal financial accounting, delivering an “unmodified opinion,” and finding no “material weaknesses” or “significant deficiencies” in the city’s reported figures, according to a report from independent auditor LSL CPAs.

The audit came as the city delivered its comprehensive financial report for the 2015-16 fiscal year. The report, prepared by Finance Director Bruce Moe, offered a variety of good news, including a surplus of more than $3 million in the city’s general fund, due mostly to higher-than-expected revenues. But while city council members appreciated the financial news from both internal and external sources, they prodded at aspects of the data. Their search for clearer presentation of certain information conveyed underlying concern about some long-term obligations to pension and enterprise funds.

“Most of our budget is really straightforward. But stormwater is a big issue. Street lighting is a big issue. And this pension thing is an even bigger issue,” said Mayor Tony D’Errico, referencing a recent story in the Los Angeles Times about large pensions owed to employees in the city of El Monte.

The audit evaluating the city’s disclosures is a customary annual practice for Manhattan. Rich Kikuchi, managing partner at LSL, said that he handles audits for about 65 municipalities, and that he often referred to the city as a model for the way it made its data and personnel available to auditors.

“It’s not uncommon for me to reference Manhattan Beach as the way to do it,” Kikuchi said.

Reassured that the numbers they were looking at were accurate, the council began thinking longer-term. The most recent fiscal year saw $1.7 million in transfers out of the general fund, more than $1 million of which went to subsidize enterprise funds, which are accounts for municipal services with associated fees that are maintained independently of a city’s general fund.

This includes the city’s stormwater fund, which funds infrastructure used to deal with rain runoff. The council discussed stormwater over the summer, and noted that the fee households are assessed was fixed at $19 in 1996. The most recent estimates indicate that, to keep pace with costs, it would need to jump to $192.

Also on the council’s radar was the implications for long-term pension liabilities. Due to recent modifications from the Government Accounting Standards Board, total unfunded pension liabilities now need to be included in municipalities’ statement of net position. Based on figures from the California Public Employee Retirement System (CalPERS), the city has an unfunded pension liability of about $49 million. And as Councilmember Wayne Powell pointed out, this figure could grow further still, given a recent decision by CalPERS to downgrade the expected rate of return on its investment fund.

The existence of the liability is common across California cities, reflects more of a change in financial reporting rules than a change in underlying finances, and does not modify the overall picture of financial soundness for Manhattan. Councilmembers instead asked for some of the data to be presented more clearly. While Tuesday night’s presentation was mostly informational, a budget meeting next month will be devoted to longer-term financial planning.

“It would be nice if we could have it all on one sheet to see what it really means. If we set aside money for this, what does it mean for, say, our stormwater fund?” said Councilmember Amy Howorth.

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