LEMON GROVE FACES TOUGH BUDGET BUT AUDIT IS CLEAN

Lemon Grove’s financial future remains uncertain, but the city recently received a clean audit for the first time in three years.

Greg Fankhanel, of Van Lant & Fankhanel LLP, told the City Council recently that a deep dive into the city’s budget from July 1, 2019 to June 30, 2020 showed no errors in accounting.

The firm said that previous audits uncovered the need for changes in financial management practices. They found six issues in fiscal year 2017-18 and three more in 201819, all of which have been addressed, City Manager Lydia Romero said.

Auditors said they found no major issues this year mostly because Lemon Grove “has implemented new policies and procedures to ensure the accuracy of the city’s financial record-keeping and reduce opportunities for fraud,” they wrote in their report.

The auditors found that Lemon Grove’s capital assets (land, buildings, infrastructure and equipment such as city vehicles) depreciated by $1.3 million, but the city is not investing in its capital assets at a pace that matches or exceeds the rate of depreciation. In the long term, the city’s infrastructure, equipment and buildings will continue to deteriorate unless a large capital investment is made in the future. The audit found Lemon Grove collected $26 million in revenue and spent $23.1 million.

They also reported that Lemon Grove’s 19 governmental funds had a combined ending balance of $16.1 million, an increase of $1.4 million from the year before. City funds are divided into three categories: governmental funds (consumer or property tax-based), proprietary funds (for its sanitation department) and fiduciary funds (the city’s investments). Governmental fund activities are related to Lemon Grove’s governance and its public safety, public works, community services and development services departments.

Net pension liability has been the biggest hurdle for the city. Auditors noted the city’s long-term outstanding debt after 2019-20 was $14 million, of which $8.3 million was for pensions with another $4 million owed for retiree health care for city workers.

Also at the recent meeting Administrative Services Director Molly Brennan went over the city’s midyear budget for fiscal year 2020-21 for accounts besides its General Fund, the account which funds day-to-day expenses. Brennan said there was some relief that most of the city’s Fiscal Year 2020-21 budget “is trending in line with expectations.”

Last December, Brennan shared some sobering information with the City Council, including that the city’s General Fund budget was operating at a deficit of more than $340,000 in the current fiscal year and that the deficit would rise to $1.5 million in 2021-22, expected to hit $1.8 million in 2024-25.

Not much has changed, but Brennan said sales tax receipts in the city were not as affected by COVID-19 as anticipated and that the new cannabis business tax would likely bring in about $175,000 to this year. However, most cuts remain in place, including a citywide hiring freeze. She said the budget deficit for the current fiscal year is now estimated at $371,371.

Brennan said because of the current recession, the city has been generating less money for its Gas Tax Fund and the Transnet Fund, which translates into reducing the scale for the city’s road repaving and potholes program. She also said that between the state and county Coronavirus Aid, Relief, and Economic Security Act funding, Lemon Grove received and spent $808,294. The majority of the money — about $650,000 — was shared as relief grants with Lemon Grove small businesses.