Grand Jury: Watsonville Government in Financial Crisis

A follow-up investigation regarding Watsonville government transparency by the Santa Cruz County Grand Jury has revealed a mountain of procedural errors that have led to the city's poor financial standing. 

The Grand Jury commissioned an independent Performance Audit of the City, prepared by Harvey M. Rose and Associates. The report, released Thursday, shows that Watsonville has helped dig its own grave in terms of its money management.

The principal problems flagged by the audit are as follows:

• Watsonville is in bad shape compared to similar cities
• Loans and expenses are poorly handled
• Many budget changes are never approved by the Watsonville City Council

In the audit report, it says that "the economy does not fully explain the City’s current poor financial condition. A pattern of spending beyond the City’s means, particularly in the case of the General Fund, has contributed to a depletion of the City’s reserves and net assets."

Even significant reductions in General Fund expenditures over the last few years have "not been sufficient...particularly since the City was in weak financial condition for several years prior," according to the report. 

And while expenses have come down, the audit revealed that for at least the last three years, "most General Fund department expenditures have exceeded their approved budgets."

The Watsonville Fire Department and Watsonville Police Department went over budget by $1.8 million and $1.2 million respectively in 2010 and 2011, and according to the audit report, some of that has to do with unregulated overtime pay. 

The investigation also showed severe mismanagement of loans by the City. General Fund loans to the airport and parking garages, including the garage next to the Civic Center, have helped drain the General Fund. Furthermore, at least three inter-fund loans betwen 2008 and 2011 resulted in an estimated loss of $740,000 to the General Fund.

A main culprit of Watsonville's financial woes is a failure to adhere to proper procedures, the audit found. The Watsonville City Council is not being provided with enough information to help make financially sound decisions for the city.

"More accurate summarized information needs to be regularly presented to the city council on the overall financial position of the City to better assess the fiscal impacts of its decisions on expenditures, revenues, loans and transfers," the report says.

Additionally, often the City makes large financial moves without approval from the city council. Policies require that the council approve any expenditure over $50,000; a review of 21 purchase orders from FY 2010-2011 of more than $50,000 showed that only 11 were approved by the council, while 10 were not. 

"The ten that were not approved by the city council had an aggregate value of $1,486,070 or an average value of $148,607 each," according to the audit report.

The study concluded that the blame lies largely in the finance department which "has limitations such as not providing effective and timely reports to city managers for measuring budget variances."

What do you make of the Grand Jury's report? Are you surprised to learn of so much dysfunction in Watsonville government? Tell us in the comments!