'Hidden money' in Fresno's budget? Council weighs one-time $10 million increase

Fresno City Council
Fresno City Council Fresno Bee file

The Fresno City Council questioned the transparency of the mayor and his administration this week during a budget hearing after the council learned it may be able to use an accounting trick to "infuse" nearly $10 million into the proposed 2019 budget.

Both Councilman Steve Brandau and Mayor Lee Brand mentioned the notion of "hidden money" during a budget hearing. Several people in the public meeting also referenced a memo about the optional budget tool that seemed to take councilmembers by surprise.

But the mayor assured the council no money was "hidden" in the budget and it's a transparent document.

Council President Esmeralda Soria kicked off Tuesday's budget hearings by asking the council's budget analyst, Wayne Padilla, to discuss the city's method for recognizing sales tax revenue.

Padilla is an independent budget analyst hired by the council to find funding sources in the city budget managed by the mayor's administration. He previously worked for the cities of Madera, Chowchilla, Modesto and San Luis Obispo, according to his resume on HdL Companies. He works separately from the city manager and city budget offices.

Padilla told the council it has the option to shift the sales tax revenue accrual schedule and recognize a 13th month of revenue in the upcoming budget, which would total about $9.9 million.

Padilla cautioned the councilmembers that the revenue would be one-time monies.

Questions arose about the tax revenue schedule after Padilla reviewed the mayor's proposed budget upon the council's request.

Late Monday afternoon, councilmembers received the memo regarding the city's methodology in recognizing sales tax revenue. During Tuesday's budget hearing, councilmembers implied they were surprised by the information in the memo.

It's not clear what exactly the memo said and how the councilmembers received it. City officials declined to provide a copy to The Bee, citing attorney-client privilege.

During Tuesday's budget hearing, Brandau, who represents District 2, said he received the memo via email. Others, including Padilla, also referenced the memo.

"I think we all found out about this within the last 24 hours," District 3 Councilman Oliver Baines said. "We can’t pretend like it doesn’t exist.

"I know the mayor, and I know the city manager and staff," Baines said. "The perception can be different than the reality. I think the reality is you all want to be transparent with us and get on the same page. I think there’s an opportunity to do that right now in this moment. I think the council is really understanding, and I think we would really understand and work with you on what the best options are. But, we need to talk about it honestly and forthrightly so we all get to the same page."

Both Baines and Brandau said they don't believe the mayor or his administration "hid" the money and chalked it up to differences in accounting methodologies.

"It doesn’t feel like it was hidden money. Or, it seems to me like it is a budgeting tool that, if used, allows for $9.9 million to be put into play in this year’s budget," Brandau said. "But I don’t think it was just sitting there hidden. It doesn’t seem like it was sitting there hidden. It was only hidden because it would require all of us to make a decision to change the way our budget is reported regarding sales tax."

The $9.9 million the council discussed already was accounted for in the city's five-year budget outlook, Assistant City Manager Jane Sumpter said.

"It is not new money. It is not money that has just been sitting around," Sumpter said. "It will be acknowledged in the city's budget and has been within the five-year plan."

The city currently acknowledges sales tax revenue from August to July. The possible change would tack on August's revenue payment to the end of the proposed budget and shift the schedule for fiscal year 2020 to September through August.

The council made a similar adjustment to the budget in 2012 "in a desperate attempt" to keep the city from going bankrupt, Sumpter said. Brand said then it was the city's only option to close the books and avoid layoffs.

"Quite frankly, I forgot about it," he said.

But he cautioned the council on how to proceed, saying the five-year plan doesn't take into account a possible recession that could mean a reduction in sales tax revenue.

During Tuesday's budget discussion, Luis Chavez, councilman for District 5, wondered if putting the money in reserves in previous budgets could've bumped the city's credit rating higher.

The mayor said his office will consult with external auditors and credit agencies to see how it could affect the city's credit rating. A committee of councilmembers Soria (who represents District 1), Brandau and Chavez will sit in on all the meetings.

"I appreciate the job you have and how difficult it is to balance so many competing priorities out there," Brand said. "And I’ve said before, we’re probably in the best financial shape we’ve been in in years. But that’s not good enough. This city does not generate the revenues necessary to pay for our essential core services, whether that’s police, fire, parks or public works. We simply need to have a plan down the road. Getting there through gimmicks or one-time things is not the path I would go. I would really give the caveat that we be very careful in how we review this."

Soria responded, noting that the city's fiscal health is in a different place than six years ago and that she favors shifting the accrual schedule. "Mayor, with all due respect, I wouldn’t call it a gimmick because this is real cash."

The city charter requires the council to approve a balanced budget by the start of a new fiscal year, or June 30. The council is scheduled to vote on the budget June 21 but may postpone the vote to its June 28 meeting.

Brianna Calix: 559-441-6166, @BriannaCalix
Related stories from Fresno Bee