Behind-the-scenes turmoil contributed to Sausalito spending $1.4 million more than budgeted last fiscal year, city officials said.
The explanation was part of a long and heated discussion Tuesday about why city staff did not seek budget adjustments, even though the council and the city manager had approved work ranging from a state-mandated housing plan to $17 million in infrastructure upgrades.
The absence of budget adjustments was flagged by an independent auditor reviewing the 2024-2025 fiscal year.
“These expenses weren’t timely submitted,” City Manager Chris Zapata said. “The question is how does that happen? Who’s responsible for that? The answer is I’m responsible for that. I can tell you how it happened.”
The narrative that followed was the first public airing of what ensued behind City Hall doors and in closed council sessions. City officials also detailed what caused the cost overruns and steps being undertaken to prevent a recurrence.
Councilmember Jill Hoffman and others demanded a fraud-detecting forensic audit, which Mayor Steven Woodside and the rest of the council again rejected as unwarranted given multiple internal investigations and audits.
Woodside, a former county counsel, said he has overseen such audits.
“I do not believe there is evidence or reasonable suspicion of fraud and therefore there’s no reason for a forensic audit,” he said. “It’s unwarranted under the circumstances.”
Zapata described those circumstances in a staff report summarizing his five-year tenure as city manager. He is leaving the post in May.
In February 2025, a series of chaotic events unfolded rapidly. Sausalito police were notified by out-of-state police that finance director Chad Hess was “involved in a dispute over gift card payments and aggressive inappropriate communication,” Zapata’s report said.
The notice prompted an in-house review overseen by the city manager that led to Hess’ dismissal in March 2025.
Two weeks before Hess left, City Hall was targeted by a cyber attack involving 190,000 log-in failures that disabled computers. At the time, Hess was also the city’s information technology chief.
County and state cybersecurity experts helped the city stop the attack, Zapata said. The experts then investigated whether any city systems and data had been altered or were vulnerable. After Hess’ exit, the city separately audited all of the “purchases and reimbursements” during his tenure, Zapata said.
The hacking crisis unfolded as Sausalito was preparing to spend $17 million for once-a-generation public works and facilities upgrades. Zapata recruited a former colleague, Jesus Nava, to step in as interim finance director until a new director could be recruited.
Meanwhile, Hess’ departure caused more problems.
“April 22nd after repeated requests … for return of the City issued lap top and cellphone the City received a box which contained a severely damaged laptop and cellphone within rocks and a large quantity of dirt,” Zapata’s report said.
Sausalito hired Kroll, a digital security firm, to decrypt the drives of the damaged computers to check for malfeasance and “provide an independent review of the cyber attack.”
The investigation found no “financial fraud, credit card misuse, or other potentially improper activity,” Kroll said in a memo.
“We were very, very busy at the time, including the sewer transfer,” Zapata told the council, referring to the city’s deal with the Sausalito Marin City Sanitary District. “So, you know, in that process, things fall through the cracks.”
“I take full responsibility for the overages,” he said. “And I’m working with the new financial director to make sure that this doesn’t happen to the city again.”
Zapata emphasized that the city’s most recent independent audit concluded that the city’s finances were strong. The 2024-2025 fiscal year ended with a $1.65 million budget surplus. The audit cited no issues apart from the absence of council budget adjustments for previously approved projects.
Angeline Loeffler, the recently hired finance director, itemized and described every spending overage.
Some departments came in under budget, she said, including police and parks and recreation.
Others exceeded the approved budget’s projections. The largest overages were $307,000 in community development related to contractors and legal work to comply with the state’s housing element. The $17 million capital improvement program had $400,000 in overages.
“The overspending on each individual certain departments does not reflect the overall performance as a city,” Loeffler said. “At the end of the last fiscal year, the city, the general fund, is actually surplus of $1.6 million in spite of the overspending.”
During council discussion, Hoffman expressed alarm at Zapata’s account and Hess’ tenure.
“Well, one of the issues that has come up repeatedly is whether or not there’s evidence of some sort of misconduct by our former finance director and the circumstances of his departure,” Hoffman said.
Woodside, Vice Mayor Melissa Blaustein, Councilmember Joan Cox — who was mayor last year — and Councilmember Ian Sobieski all said the matter had been thoroughly investigated and no financial malfeasance was found.
They emphasized that the city’s budget approval process is being tightened and additional departmental reporting deadlines are being instituted. The city also is setting up technology to allow the public to track spending.
Hoffman still called for a forensic audit.
“We legally exceeded our budgeted amounts … it was throughout the fiscal year,” she said. “This is why we need an audit, a forensic audit. I don’t know why we’re still fighting about it.”
Cox said, “To continue to raise public concern, to forward an agenda, is misleading, deceptive and very disappointing. Our auditor is not recommending a forensic audit.”
Sobieski said, “This conspiracy theory stuff is tearing the country apart and it’s here in our community. The nuggets of facts are exploited to sow fear, uncertainty and doubt instead of clarity.”
Blaustein: “We did what you’re supposed to do when you receive feedback from the audit. We took immediate action. Our city manager completed an extensive memo explaining what happened.”
“We are now moving on to talk about our budget next year and how we can do a better job,” she said. “That’s what you’re supposed to do.”
Hess could not be reached for comment.