Update: La Mesa Is in ‘Great Financial Position,’ New Auditors Tell City Hall

Updated 12:10 p.m. Dec. 11, 2011

It was showtime for Terry Shea and fellow CPA Scott Millsom on Tuesday afternoon. But they were the reviewers in this case.

Offering their first inspection of La Mesa’s finances as new independent auditors, Shea and Millsom gave the city two thumbs up. (Their written report is attached.)

“Overall, the city is in great financial position,” said Shea, a partner in Rogers, Anderson Malody & Scott of San Bernardino—replacing previous auditors Caporicci & Larson Inc. of San Diego.

Meeting in City Manager Dave Witt’s windowless conference room, a group including Mayor Art Madrid, Councilman Ernie Ewin, city Treasurer Eldon “Bud” Vogt and city finance director Sarah Waller-Bullock heard Shea’s “unqualified clean opinion” of city finances for the year ending June 30, 2011.

Shea said the auditors had no disagreements with city staff on the figures, which include total net assets of $162.45 million.

He called the numbers “pretty good in a lean budget year” and “very, very healthy,” especially when compared with other municipalities teetering on insolvency.

“You’re a lot better off than other cities’ enterprise funds,” Shea told the group, called the Audit Committee, during an hour-long meeting.

But possible land mines down the road commanded some attention, including fallout from the potential loss of the city’s redevelopment agency (under the new state budget but challenged in court) and the uncertain size of the city’s pension obligations under its two-tier benefit system for city employees.

Shea said the La Mesa Redevelopment Agency’s debt obligation “is manageable.”

City Manager Witt said: “For us, it’s been a really effective tool. We’d be sorry to see it go away.” 

Witt noted that three longtime redevelopment project areas are reaching the end of their life expectancies.  Loss of the property tax revenues from those projects are a “concern” for La Mesa, Witt said, but not as bad as that of other cities.

Shea said: “If you had to write that off in a year, that would not look pretty.”

Looking ahead, Witt told the Audit Committee, “our biggest concern [in redevelopment] is purchase of the old police station site” east of the Windermere Real Estate building on Allison Avenue.

City Treasurer Vogt raised a question about the city’s unfunded liability for employee pensions—which the state retirement system CalPERS oversees.

Shea said that in 2014 CalPERS will issue its formal calculations of what La Mesa is on the hook for—a complex formula given the changing dynamics of city benefits and employment.

Waller-Bullock noted that “we just received [the] 2010 [CalPERS report] a week and a half ago,” so the 2014 report might be delayed as well.

However, the general outlines of the city’s pension obligations are available, Witt said.

The new auditors were hired in May 2010 for $25,000 a year through 2012-13 after six firms applied for the job and two became finalists. (See attached.)

“It’s typically a good practice to change [auditors] every five years,” Witt said after the meeting. “I think for us it had been six or seven years.”

A draft of the detailed audit report is available for public inspection in a binder at City Hall. The finalized report will be posted online next week—in advance of a formal presentation at the Dec. 13 meeting of the City Council.

Auditor Shea closed by saying, “You guys are in good shape.”

Replied Witt: “We don’t take that for granted.”