Because State Agencies Are Supposed to Lose Money Each Year, Silly!

According to City of Alameda Development Services Manager Leslie Little, who is also on the board of the California Redevelopment Association, a Sacramento-based lobby group, Alameda’s redevelopment agency, the Community Improvement Commission (CIC), is supposed to lose money each year, “because agencies operate this way Statewide.”

Hey Leslie, if we told all the redevelopment agencies statewide to jump off the Golden Gate Bridge, would the CIC jump off too, because everyone else is doing it?

Ms. Little was responding to an Action Alameda News public records request regarding the the recent State Controller’s report on California Redevelopment agencies for the Fiscal Year 2007-2008, and our request for budget data on Fiscal Year 2008-2009, which closed on June 30, 2009.

With some creative accounting, Ms. Little transformed the CIC’s FY 2007-2008 $4.5 million loss – revenues minus expenditures – into “not a loss.” She also declined our request for revenue and expenditure data for FY 2008-2009. Here’s what she wrote by way of the City Clerk’s office (note Ms. Little’s use of quotation marks around the word “deficiency,” apparently to suggest that a loss is not a loss…) :

“In response to your inquiry, the FY 07-08 State Controller’s report indicates a ‘deficiency’ of revenues over expenditures of approximately $4.5 Million. This is absolutely correct and it reconciles completely with the FY 07-08 city auditor’s report for the Community Improvement Commission, page 29 for that same fiscal year.

It is important to note that this ‘deficiency’ is only an accounting classification for one year’s cash flow activity. This ‘deficiency’ is actually a draw down of fund balance equity of $29.0 Million (note second from bottom line on page 29), leaving an ending fund balance of $24.5 million at June 30, 2008. This is not a loss as your inquiry characterized.

What the reports demonstrate is that the CIC expended more than it raised in revenues that year. Was it supposed to expend more than it raised in revenues that year – answer YES. WHY? Because agencies operate this way Statewide. The goal is to use cash, loans, bond proceeds to pay expenses. The important number to note in redevelopment agencies is not the difference in cash flow each year, but whether the fund balance is negative and reducing more than a reasonable amount annually. Thus, when reading the city’s audit or the State Controller’s report, the annual negative or positive cash flow is important only in relationship to the available fund balance on the subsequent line in the report.

In response to your request for the 08-09 fiscal year, the city audit and the State Controller’s report for that fiscal year will be released in late December. Upon release, I would be pleased to review these balances with you again if desired.”

(Emphasis added.)

We encourage readers to try running their households in the same manner as Ms. Little runs the redevelopment agency – spend more each month than you earn in income, and make up the difference with your savings. See how long before you run out of money.

At the rate that Ms. Little is drawing down the CIC’s fund balance, she only has about 4.5 years left ($24.5 million / $4.5 million loss-but-not-a-loss annually.)

With City of Alameda employees applying this fiscal management methodology to $18 million of redevelopment property tax increment revenue and $12 million to $14 million of lease revenue from Alameda Point tenants, it’s no wonder the City has budget problems.