Placentia City Council members are largely relying on spending cuts and layoffs to pull the North OC city out of a roughly $1.5 million budget deficit.
It marks a different approach compared to a host of other Orange County cities that closed budget gaps by using reserves, reallocating money and issuing hiring freezes.
[Read:: How Rocky Are Orange County’s Municipal Budgets?]
“I know the changes are probably tougher to see than what we’ve seen in the past,” said Councilmember Jeremy Yamaguchi at the June 30 meeting. “We’ve experienced, I think, a long run of having very nice things that we’ve wanted to have for a long time, but I think it’s time to go back to basics.”
The council unanimously approved the spending cuts and layoffs.
“I think the council’s been really clear that we want to focus on the basics, primarily infrastructure and public safety,” said Mayor Chad Wanke at the meeting.
In May of this year, staff gave a presentation stating that the initial gap would be patched using $1,458,351 from other funds.
City staff proposed closing the gap using $682,454 from the Section 115 Trust – a fund used to help support retired employee benefits – and $775,896 from a sum of money paid to the city for their annexation of unincorporated county land, Hamer Island, in 2022.
But city council members decided against it after they questioned how future budgets would fill a similar gap without one-time funds being available.
“My main concern, honestly, is sustainability,” Yamaguchi said at the May 19 meeting. “It starts small and if you don’t nip it in the bud then it’s going to grow to something that’s a lot harder to handle.”
To bridge the gap, council members rolled out a series of spending cuts within the city, including two layoffs, two unfilled positions being unfunded, reallocation of funds from staff to sewer funds and reducing landscaping on city properties.
An additional $180,000 in savings from Advanced Life Support costs will help balance the budget as well.
According to a city presentation at the June 30 meeting, operating revenues for the city will total around $53.9 million – giving the city a balanced budget. The initial proposal in May showed $55.3 million in expenditures – $1.46 million over the city’s revenue.
‘Sloppy Accounting’
City council members were presented a financial audit that revealed miscalculations in last year’s budget.
The report showed two uncorrected misstatements – the city did not record or receive $132,367 in receivable interest from Veterans Village, and the city had to adjust the beginning net position of $546,912 for the implementation of Governmental Accounting Standards Board Statement 101 about compensated absences.
“Seems like sloppy accounting,” Wanke said at the meeting.
There were several corrected misstatements listed during the presentation at the June 30 meeting.
Approximately $2,808,000 was incorrectly recorded to the City Capital Projects Fund instead of the Risk Management Internal Service Fund, and the city also recorded $2,880,000 in liabilities twice.
The city also forgot to record some entries for its leases, resulting in a series of misstatements in the budget that added up to over $1.6 million, including mistakes where staff over or under counted how much money they had coming in.
In the Placentia Regional Navigation fund, $650,000 was recorded as revenue for the wrong fiscal year, and there was an overstatement of revenue and understatement of unavailable funds of about $1,218,000.
About $564,000 of fiduciary fund property tax additions was not recognized as revenue, city capital project fund accounts expected to collect $196,000 in revenue but was later determined to be uncollectable, and $862,000 was adjusted to clear the city’s balances.
The city also did not properly record $647,000 in revenue receivables before the fiscal year ended, requiring adjustments.
“It looks like we have this kind of similar issue repeating itself, with this overstatement of revenue and understatement of unearned,” Wanke said.
According to the staff report, all misstatements were corrected and the finance department has updated procedures to ensure that those mistakes will not be repeated.
An auditor from Clifton Allen Larson said during the June 30 meeting that he does not have any concerns with not being able to correct the mistakes moving forward.
According to the presentation, there were no unusual transactions – like fraud – identified in the audit.
Yamaguchi said that it’s important to note what is not included in the budget this fiscal year, including underfunding road maintenance, sidewalk repairs and street repairs by at least $3 million.
“In hindsight, I almost wish we would have made deeper cuts last year because we would have been able to invest more – our dollar would have gone further last year.”
Wanke and Yamaguchi also said that because they are reducing maintenance spending to balance the budget, public facilities will continue to deteriorate.
“At some point, the buildings are going to be unsafe, or just unusable, and I don’t think that’s what the public wants,” Wanke said.
During the June 30 meeting, Wanke said that the council knows that not all of the roads in Placentia are good, and they are continuing to look at other roads that need repairing that aren’t included in the Capital Investment Program
“We had a bit of a crisis here, getting this budget put together. This is a special meeting, but I think that over the next six months, we’re gonna need to continue to look at further changes [and] additional revenues if possible.”
Lauren Contreras is a Voice of OC intern. You can reach her at laurencontreras615@gmail.com.
Michelle King is a Voice of OC Tracy Wood fellow. You can reach her at mcaitlin254@gmail.com.
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