Created by and courtesy of Wayne Padilla
The five year budget forecast created by municipal consultant Wayne Padilla and recently supplied to the city manager and city council shows a rapidly escalating series of multi million dollar deficits looming in Madera’s near future if current spending isn’t immediately and significantly reduced.
Municipal finance veteran and lifelong Madera resident Wayne Padilla said he has been following the recent budget deficit and salary developments in the City of Madera with a mixture of shock, discouragement, and utter disbelief.
Padilla, 55, a CPA with a bachelor of science degree in accountancy, has 22 years of experience as a city finance director in four cities, including the City of Madera between 1996 and 2006. He had recently offered his consulting assistance without charge and provided a professional budget analysis and 5-year forecast to the current Madera City Council and interim City Manager Steve Frazier.
Padilla is also credited with helping financially turn around the city of Chowchilla as assistant city manager there. The city was struggling with bankruptcy in July 2009, after their city staff reportedly made unsound budget recommendations to that city council and the city manager abruptly left under a cloud. Those city officials were later found to have moved millions of dollars around into inappropriate accounts, enhancing their Public Employment Retirement System benefits on the basis of those contribution amounts, which Padilla said incorrectly bolstered the appearance of the general fund. Then the city’s bonds went into default about the time the recession hit, he said.
“The council in Chowchilla was incredulous but knew they had to act very quickly. I gave them the information and we went forward ... their staff took 10 percent reductions in pay, and introduced furloughs. Everybody went along with what it took and appreciated it was across the board. They knew it was this or lose (more) jobs. Chowchilla is now, by far, the better managed city (compared with Madera),” he said. “We had the situation resolved in less than three years.”
$1.3 million deficit budget
The Madera City Council unanimously passed the 2018-2019 budget in early July, with a $1.3 million deficit, on the recommendation of retired chief of police and interim current City Manager Steve Frazier, who took the job after the abrupt retirement in December of longtime City Administrator David Tooley.
“The city (of Madera) believes it’s revenues are growing at a specific rate, and they are not...” Padilla said. “It is totally irresponsible to say ‘that if it doesn’t work out we’ll take it from the (city’s) reserve funds,’ a statement made by Frazier at the council budget meeting. “Any three guys sitting in Courthouse Park could have given that answer. And we are paying someone (Frazier) to give their best, intelligent response to the biggest item the council considers all year and his response is ‘I don’t know, or I don’t understand?’ And the council just sits there and accepts it? This is what we are paying an obscene amount of money to Frazier for?” Padilla asked. “I’m sorry — I know Steve Frazier. I’ve been friendly with Steve Frazier, but this is reprehensible behavior. This city needs better. But the biggest issue of the night was the lack of discussion regarding the city’s own forecast of massive deficits that are expected to hit in the next two years due to increases in retirement costs.”
Forecasting isn’t rocket science
The progress of forecasting city expenditures, sales tax and property taxes collected within a city can be complex and should be balanced with a cautious, conservative approach, Padilla said, and it is being done all across the state even in small Central Valley cities. “After the recession hit all revenue bets were off. One year it’s way up and the next down. But budgets have to accurately represent expenses and revenues. Here in Madera I see a finance director that struggles and fails to answer basic questions,” said Padilla. “It seems he may be following a script and not his real instincts.”
Padilla said he was not sure if the city budget could be brought back into balance by following the current course.
“If they would leave the positions that were currently vacant, vacant ... and follow the plan I laid out for them, then yes. But they are working with false assumptions going forward about their revenue base. They are going to hire a bunch of new rank and file people and then find out they do not have the means to balance the budget. I was sick to my stomach when I saw the recent help wanted ads go out for these positions, because the last person hired is the first one released.”
Padilla questioned how the previous administrations and councils had come to their conclusions. Other residents were not so diplomatic, recently calling it out as corruption — public officials enriching themselves at the expense of others, right from the council podium at City Hall.
“Why did prior councils sign off on those cities in the salary study? They should have known it was going to cause a mis-measurement and a misalignment of staff salaries and benefit rates. I am not even sure the council saw the 2015 salary study. The staff makes recommendations all day long ... but the council has the final authority to decide if they agree or not. What’s lacking on the council is members that clearly understand their role (to represent the taxpayers,) and vote their conscience. I’ve talked to council members who tell me when they don’t understand something they vote with the rest of them. These council members don’t seem to understand the responsibility and magnitude of what they are voting on.”
Padilla said it was unfortunate more members of the current or retired Madera business community didn’t choose to serve on their own city council, because watching out for taxpayer funds was everyone’s responsibility.
“Councils assume that that city staff have the best intentions of the city at heart. And that’s why I am speaking up. When I worked for Madera, we, as a team, worked to protect the interests of the community. We valued that trust. Our staff role was to do the right thing for the city. I don’t see that as being the focus of the recently departed and the current city administrations. The council also failed to invest the time to understand these items and more importantly, question them,” he said.
“Council member Will Oliver kept pointing out the necessity of another, fresh set of eyes to look at the budget. He brought that up several times, but Steve Frazier was adamant, and said ‘no, we don’t want an outsider involved.’ Padilla said. “That’s what they are afraid of. City Manager Steve Frazier has repeatedly said he doesn’t understand the (city) budget. That should have caused a time out for everybody. Council needs to understand that just because something’s in front of them, they don’t have to consent to it.”
Not a unique problem
“Cities of all sizes, very small with narrowly focused economies are dealing with exactly the same thing as Madera is right now — poor revenue and poor prospects for economic development — and they are balancing their budgets. They are doing the same reduction things now with an eye towards four, five years out, knowing that what we do today will see us through the lean times (surely) coming.” These other cities act on what they know today. If they increase revenues later, they deal with it then. Most of us do the same with our own finances so why can’t our council be as careful with the community’s resources?” Padilla asked.
Five-year forecast missing in Madera
“Nowhere in the public documents could I find a reference to a five-year forecast. Madera is alone in taking a look at a single-year budget forecast. It appeared the staff intentionally turned the focus to just a single year. And council fell for that mind set, ignoring everything they had heard about the coming future impacts of retirement costs and stagnate revenues from their own staff. The city is right now advertising for rank-and-file positions they may have to turn around and let go in two to three years. To me that is an ethical breech ... treating your people as pawns because of some agenda and ignoring what’s plainly in front of them — the potential financial train wreck that is in front of them. It’s tantamount to fraud.” The five-year forecast supplied to the city by Padilla shows multimillion-dollar deficits escalating rapidly in Madera’s near future.
Padilla was not yet ready to call the budget malfeasance or intentional wrongdoing, but said he is very uncomfortable with the outcome.
“Clearly, in the report by (Ron) Manfredi it was revealed there was an inaccurate set of assumptions made about city salaries that benefited not just the management team, but benefited everybody who was a city employee. The prior council in 2015 priced themselves essentially out of a balanced budget with these current salary raises. They couldn’t afford these ongoing salary raises.
“Like Ron Manfredi said, it wasn’t just the initial increase; they gave a five percent, and then two, three percent raises. It was very aggressive.” Padilla said.
Some Madera residents called the city’s budget looting and cronyism, and accused the city senior staff of feathering their own nests in November of 2016, when the annual salaries and benefits of between $250,000 and $330,000 for the former city manager and some senior city department personnel were first brought to light.
Predictable business cycles
Some cities with booming, diverse economies are right now preparing for the inevitable downturn in the business cycle, Padilla said. “I know some cities with massive economies and explosive growth that are going to their labor bargaining groups and asking for an 8 percent cut to get ready for the coming PERS explosion,” after the state mandated contributions for city retirees went up significantly. “And that’s today.” Padilla said.
A pattern of a ‘wish and prayer’
The Madera city administrative staff have also made a series of unfounded growth projections to justify increased spending on salaries as far back as 2005, according to Padilla.
“Back then it was Target (the large retail chain store) coming into Madera out on Avenue 17. And the assumption was Target sales tax revenue was going to pay for those raises. It’s a recurring pattern of wishful thinking and a significant departure from standard sound operating practices. My goal since 2016 has been to try and get the city council to focus on the fact they owe the employees a promise — a promise of continued employment.”
Leaving frozen (unfilled) positions open isn’t just the only answer, Padilla said.
“The city needs to learn how to function with fewer staff positions now, so when you come forward you can adopt further adjustments (as needed). Some of the things said during the (July 5th) budget meeting were absolutely misleading and false. And they were intentionally false. One of the things said by Frazier was the city will generate a million dollars from the truck stop. ... not so,” said Padilla.
Among other things “He gave an erroneous amount.” Padilla said. “He failed to indicate whatever the amount of sales tax revenue was, the city has agreed to rebate half of it (back to the truck stop business.) I’ve done the math. It’s still not enough. Even with Frazier’s tenuous assumption we are going to do more economic development, generate more revenue, place substantially higher tax burdens on our businesses. And not contain the (salary) cost structure? It’s not a slam dunk and absolutely the wrong thing to do. It’s a fool’s errand. On top of all this, by stating in public what the expected tax receipts were from the truck stop owner, Frazier violated the developer’s confidentiality by sharing how much money they expect to make. He also failed to mention that raising business license fees would require a ballot measure to enact,” he said.
Living within current means
“Council member Derek Robinson has it right. Live within your means. No one else on the council was hitting the pause button — they were all too worried about moving forward. Then they want to lay this at the feet of the new city manager? Most new city managers are not going to want to make significant reductions the priority of their first year. This council wants the new city manager to help them push the problem down the road. It’s absolutely irresponsible. And then it was a unanimous vote to adopt this budget. They don’t really understand their role or their responsibility to the public, to question things that don’t appear to be right.”
Padilla agreed that the trust was gone and the current city council had failed in their responsibility to be responsible stewards of taxpayers’ money. He said he was now struggling with how to put his professional knowledge to best use for his city, but had no time for, or illusions about now running for city council.
“I’ve ruled that out. I could be one of seven (votes) on the council, if I ran (and won), I’d be fighting against the other six, maybe joining forces with (any) others that have the same vision and might see reason. Or maybe I can help the community better understand what is going on. All of this came about because of such apathy in the community.
“That has allowed this to happen.
“But in the good ol’ days, we did what was right. We upheld the public trust. We only paid ourselves what was right — truly proven to be a reasonable increase in pay, in moderation with our peers. We looked out for the best interests of the community as a whole. This seems to have disintegrated into self interest,” by the city administration, he said.
Padilla recommended a separate set of independent eyes watching all the financial actions of the city administration and city council from now on.
An oversight committee
“Short of having business-minded residents as city council members, the best thing the city could do would be to create an independent oversight committee of knowledgeable people to watch over the city budget and finances, Padilla said. “People with relevant experience. To hire someone just because he or she is a CPA means nothing. You need someone who has done government audits, who understands the nuances of a government agency. Knows standard, acceptable practices. You hire someone from a non profit, or from another government agency to sit as an informed observer.” Padilla said.
“The council asks a question and the staff pushes back. The council doesn’t know what else to ask. This is how this crisis happened. The council needs to ask for specific information in separated form, not in a massive agenda packet. The fix is hopefully Madera gets a new city manager that demands a better work product from city finance. More timely and comprehensive financial reports that span a 5-year time horizon with realistic estimates...
“And this council needs to focus on the five-year forecasts. And every decision needs to be focused on how this decision affects Madera five years from now.”
Need for more transparency
“There also has to be a desire on the part of the city administration to accurately share information. It’s also going to take the community demanding transparency, and demanding better. Why is it OK for Madera to have a city manager who doesn’t understand the budget and the council to vote on it, with no dissenting votes? Where is the city attorney in all this? What advice is he rendering?” Padilla asked.
Falling on deaf ears?
Padilla said he had met voluntarily and privately with the City Council and city manager several times, as recently as last August, as a concerned resident working in the industry, and attempted to freely share his expertise as a former finance director.
“I told the council in 2016 they were adopting a budget that was unsustainable. They didn’t listen. I sat out the 2017 meeting. Then I sat down with the public information from the city’s website and have put together my own five-year analysis. I put together a list of recommendations for addressing the fiscal imbalance going forward, and they have ignored it. In fact, it was made fun of in the council meeting by Steve Frazier. For my efforts I’ve been made persona non grata, for whatever their reasons,” he said.
Other, more vocal residents wondered aloud over the months what the city administration and council had to hide. “Nothing to hide, nothing to find,” said longtime business owner Velvet Rhoads in January, while demanding transparency and a reduction in top city administration salaries. Some residents say they feel they have been intentionally ignored and outmaneuvered by Mayor Andrew Medellin, who appears to be protecting the department heads and has his own agenda for the city.
“As they have discredited me and my information,” Padilla said, “they then need to bring in someone they respect, totally independent of and not under the control of the city and have them perform the same analysis. Lay out a five-year forecast and basically lay out what the future of financial (standards) and budget reporting should be. Paying someone else $20,000 to straighten out a potentially multi-million-dollar deficit budget is a good investment.”
No time to waste
“Unless there is a $1.3 million in savings coming from somewhere ... they truly have a problem they have to deal with now,” Padilla said. “I don’t understand the vacillation — either your finance director has a grip on the numbers or he doesn’t. The budget of $96 million is not that big. The city needs a credible financial leader that is bringing them comprehensible information. And shame on the city admin for keeping the council in the dark,” Padilla said.
“I’m not sure how much of this was intentional. But it does sound like the previous city manager knew this was an opportunity ... Council’s not watching, but it’s OK because the (long proposed) casino is coming, and we’ve got the truck stop coming.
“A year or two before I left in 2006 the previous city manager, David Tooley, got a new contract. That was when this concept of cashing out your (paid) leave took off. He got the council to sign off. Admin leave, vacation leave, sick leave, he wanted all that melded together in his new 2002 contract around 2003 or 2004. He got it, the city attorney, and Jim Taubert (director of the RDA) got it. That was like 262 hours of paid leave, if you used a certain portion, you could cash out the rest. This wasn’t a standard practice in the industry.
“Some of these other sleepy, little small towns in the valley, like Chowchilla, Livingston, have more intelligent thinking going on than Madera does today or in the last ten years. They are doing things more ethically and more professionally than what you have going on here. That’s the honest to God truth.”
Padilla also thought the recent waiver of fees for the downtown corridors was window dressing. “I had to laugh when I read about the concept of (city) fee reductions for downtown buildings. You already had Jim Taubert, who was a monumental force for Madera redevelopment, take multiple runs over the years at that same concept with no success. These building owners are absentee, third generation and some of the buildings are in embarrassingly poor structural shape. The owners are not going to want to make those improvements. The city building fees are the most inconsequential part of that expense.”
The actions needed now
“Madera needs to go outside the city and hire a completely independent person to fully assess what their true prospects really are for revenue growth. I’ve already done that. In 45 minutes I built a five-year forecast in September of 2016 that was highly accurate. And I laid out for the council that they needed to freeze any vacant positions a year ago. Determine what their established commitment to salaries and benefits is. There are also numerous other people out there who can do that.”
“I believe they are also manipulating Measure K money ($3.5 million in annual sales tax increase passed by the voters) to back fill the general fund, and their documentation doesn’t allow the council to see it,” Padilla said.
Annual city audit is misleading
“The annual city audit is not relevant to the financial position of the city,” Padilla said. "All that budget award means is you meet requirements for recognition because of the content and the way it’s formatted. They don’t pass any judgments. You are misleading the public, because you point to these ‘awards’ when they have absolutely no bearing on the financial standing of the city. It’s all window dressing. A city can be in absolute financial distress and as long as the financials and budget have the correct types of exhibits, you get a prize. I know, because I used to be a reviewer for the same award program the city participates in now. What’s worse is for the last 2 out of 3 years, the budget submitted by the city for an award will not be the same version that the council saw. Staff adds schedules and details later and in at least one instance this meant that they added a 5 year forecast that the city council never saw.”
Audits don’t assure stability
“I used to audit all types of government agencies. Nothing has really changed from that time and the current auditors will sign off on the financial statements saying (only) they are put together in the right format. But they also state that the outcome of the city’s finances is management’s responsibility. Only in extreme cases will the auditors comment on a city’s overspending. Another thing the auditors don’t look at is whether utility rates have been prepared properly and are being used as intended. Auditors sample a few bills, make sure that the amount charged to the customer represents what the fee study says it should be and that’s it. Fairly present that and you will pass the audit. Madera needs more experienced people ... to ask the right questions about financial status and what’s going on,” Padilla said.
Hiring the new city manager
“The City Council has also essentially put the cart before the horse when they hired personnel consultants and started the search for a new city manager without settling on or reducing the salary range for the new city manager, something that has brought residents out to heatedly question their decisions and judgment.
“There is no recognition that they can’t afford what they have done,” Padilla said. “What they have already done is made the PERS retirement contribution nightmare worse. More pay, more expensive benefits. Higher costs down the road. It’s like throwing gasoline on an inferno.”
Kicking the can down the road
“It’s coming down to the City Council’s failure to acknowledge the coming fiscal hardship. It is a crisis. I’ve spoken to them individually, I’ve spoken to them from the podium. And none of what I have provided them has been deemed credible — yet. The city management has worked very hard to discredit me, and my information or analysis. I believe the city management has intentionally misled the council, forced the adoption of a single year budget with a $1.3 million deficit without a clear lack of understanding on anybody’s part. I’ve never seen a situation where not even the staff can tell you what is going on. It’s a massive system failure ... and then a council vote 7-0 in favor of a budget no one can explain. Madera has unmet needs, but the council has decided to make pay raises their priority. But it’s their failure to address the even larger deficits that are coming that is the real problem.”
What Padilla recommends
“Get to it fast. Make the strategic reductions now and go forward. Time is our only ally. Acting early allows you to make smart decisions that affect fewer city services and staff than if you wait to the very end.
“The city and the entire council can’t wish this problem away. What I see is a group on the council that has aspirations for higher office that don’t need a train wreck on their records right now. Robert Poythress got off. Poythress, (now a Madera County supervisor) was one of the council members who voted for the 2015 budget with these pay raises, who has now gone on to higher office and touts what a great budget manager he is.” Poythress, a three-term Madera City Council member and the city’s first elected mayor, is now running for California State Senate. He also is a vice president of Citizens Business Bank.”
This has significant consequences for the residents and the city employees, Padilla said.
“My motivation is to see that the lives of all city employees are disrupted as little as possible. That the level of city services is diminished to the least extent possible. That there would finally come answers to whether the water and other rates paid in the community are accurate and appropriate. This is kind of my last ditch effort to inform the community of the seriousness of this issue, given the fact the council has apparently ignored everything that has been said to this point. As the leader of the council the Mayor bears a lot of that responsibility. Very much so.” he said.
Having already provided his analysis voluntarily, Padilla said, “I have no conflicts or business before the city,” and said he is not seeking any. “I am a resident and concerned about my community. I feel like I have now done everything humanly possible to bring to light this situation. This will allow me to sleep with a clear conscience. I even went so far as to build them a road map ...” he said.
“My consulting firm has over 400 municipal city clients.” Padilla said, “Every year I visit with over 100 of them. City managers, finance directors. We often have these same discussions ... about now anticipating cuts. No one is immune. I know of no other agency that hasn’t taken steps to start reducing costs.’
“And I’ve never seen such an unprofessional performance by a municipal management team in my life — by the staff and the (city) council. They still don’t have a handle on this year’s revenues but they may get by, because of salary savings and the use of Measure K monies. But just down the road it’s going to get really bad and that is with the staff’s own admission. The community is at risk. The apathy displayed by the community has to end. Residents need to keep challenging the council to minimize these future impacts to services now, to avoid more massive changes later. The public doesn’t know how bad it has sunk.” Padilla warned. “And if the phone should ring and someone from the city or city council asks me to discuss my viewpoints, I’ll talk to them.”