South Tucson, in disarray, faces budget shortfall

2014-05-28T00:00:00Z 2014-08-06T18:17:19Z South Tucson, in disarray, faces budget shortfallBy Carli Brosseau Arizona Daily Star Arizona Daily Star

South Tucson City Manager Luis Gonzales puts a new word of the day on the whiteboard in the city’s conference room before each staff meeting.

Most recently: “Improvise. Think!”

“We can’t keep doing what we have been doing and expect better results,” he said.

The stakes are high.

The square-mile city, home to about 5,500 people, has been roiling with change in the months since the election of a new council majority. Gonzales was hired to replace longtime City Manager Enrique Serna almost a year ago, and an exodus of another dozen employees from the tiny administration followed.

South Tucson is now facing a massive budget shortfall without a permanent finance director. The city’s last finance director, Ruben Villa, resigned in September after 13 years with the city and hasn’t been permanently replaced.

The finance supervisor — Sylvia Salomon, who held the department’s No. 2 position — also resigned recently. She was charged this week with six counts of theft as part of an ongoing investigation into more than $71,000 in cash paid to the city but never deposited into its bank accounts.

The Finance Department is now down to its two most junior employees and an interim director on a 90-day loan from the city of Tucson. Roy Cuaron, a finance administrator for Tucson’s Transportation Department and former Marana finance director, is expected to return full-time to Tucson early next month.

AWAITING THE AUDIT

Part of what Cuaron was brought in to do was steer the city through its annual audit.

“We needed someone to put the numbers in the right place,” said Paul Diaz, South Tucson’s mayor.

Gonzales pushed to replace longtime auditor Heinfield, Meech & Co.

“It’s my management philosophy that you should not have the same auditor for more than three years,” Gonzales said. “I don’t like the coziness that develops between auditors and staff. They should be separate functions.”

The city invited bids for a new auditing contract last fall, and the review board selected a new auditor, Fester Chapman.

But the contract was signed Dec. 30, six months after the fiscal year to be audited ended.

While the contract dictated that the audit would be complete in March, after the state’s submission deadline, the audit of fiscal year 2013 is still unfinished. Gonzales expects it to be done in mid-June.

The budget for the next fiscal year must be completed June 30.

Gonzales has refused to release Fester Chapman’s initial submittal to the city with questions.

He argues that the document is not subject to the Arizona Public Records Law, though there is not a statutory exemption for draft documents and there is a presumed bias is toward disclosure.

“The draft document is a document that is in flux,” he said. “You know how the recourse is to follow. I’m just not going to release that draft.”

“DRASTIC RECOMMENDATIONS”

In the meantime, Gonzales has been working on recommendations for the next fiscal year’s budget, recommendations he characterized last week as “pretty drastic.”

The city faces a shortfall of about $900,000, he said. In fiscal year 2012, the most recent year for which an audit is available, the city had revenues of about $7.7 million. And revenues have declined since then.

“Some people say the economy is improving, but in a poverty-stricken area like the city of South Tucson, we don’t feel that,” Gonzales said.

The result, he said, is a situation that demands “changes not seen for years.” That means an overhaul of the tax structure to include permitting, licensing and property taxes.

The council is to begin evaluating his recommendations this week.

“We are going to balance the budget, but we’re not going to balance it on the backs of employees,” Gonzales said.

Since Gonzales took the helm in South Tucson, employees have received a 5 percent pay raise, the first cost-of-living increase in a decade, but top administrators saw their pay decline.

In the months before former City Manager Serna left, he gave raises of as much as $7 an hour to the finance director, fire chief and other top administrators while lower-level staff got no pay increase.

Former Finance Director Villa said that was because top administrators took the earliest and biggest pay cuts during the recession and they had taken on expanded responsibilities as staffing dwindled.

It was “absolutely not” self-dealing, he said. “It was part of a well-thought-out process.”

But Gonzales reversed it. “The morale in this place was as low as it could go,” he said. “It was unfair.”

NEW PROCEDURES

There have been major changes in every city department over the past year, but in none more than the Finance Department.

“That’s where we had some real problems, and that’s the worst place you want to see them,” Gonzales said.

His review of past year’s audits led him to look at how the city deals with collecting what it’s owed. There was no system for tracking unpaid business license fees. The city now has a database for tracking those bills, sending past-due notices and penalizing businesses in arrears, he said.

Procedures for handling cash payments were also revamped after more than $71,000 was found to be missing. The city’s court will now collect the fees it levies, to maintain a separation of powers, and several people in different departments will count cash receipts, Gonzales said.

How the city handles cash is one of the issues that came up during the ongoing audit of last year’s books, he said.

There was also one previous high-profile case of theft: Former South Tucson Lt. Richard Garcia stole $560,000 from the city’s forfeiture funds and cash from the police evidence room. He was sentenced to 33 months in prison in 2009.

Audits from 2010 through 2012 show a recurring finding that the “city does not have a sufficient control process or defined policy to review and approve adjusting journal entries posted to the general ledger for year-end closing.”

Former Finance Director Villa said the problems that have been highlighted were simply the result of losing staff because of the recession. “It wasn’t that we did anything wrong,” he said. “We were just late.”

Villa said he noticed that Salomon, the former finance supervisor, was a few months behind in depositing cash receipts when he resigned in September, but it was difficult for her to get away from the department to go to the bank downtown. Attempts to reach Salomon were unsuccessful.

Villa said if there had been a significant problem with cash accounting before last year, it would have shown up in past audits, and the late deposits were something that should have come to any finance director’s attention.

“It’s not hard to discover,” said Villa, who now works full-time preparing the budget for Tombstone’s Finance Department. “Even if it’s not a permanent finance director, you have to fill that void. There’s a lot of room for error when you’re trying to meet your daily obligations on top of everything else.”

Gonzales has another view. “When you see that and the lack of oversight, it’s very disturbing,” he said. “For administrators who have been around a goodly amount of time to make those mistakes, if that’s what they were, it is incomprehensible to me.”

HIRING A NEW DIRECTOR

The city began advertising for a new finance director last fall and went as far as second interviews for two finalists.

Ultimately, though, Gonzales determined that they didn’t have the experience he needed.

“To me, that’s a very important position,” he said. “If you don’t have a person with the experience and capacity to keep your books straight and follow all the regulations and laws, then I’d rather wait.”

Mayor Diaz said the city is focused on training its staff to promote from within.

Gonzales hopes that Tucson will allow him to keep Interim Finance Director Cuaron on for a couple of more weeks, at least part time. He expects to have a permanent director hired by the end of the month.

Copyright 2014 Arizona Daily Star. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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