Michael S. Tilden Acting State Auditor
November 10, 2022
Shasa Curl, City Manager
City of Richmond
450 Civic Center Plaza, Suite 300
Richmond, CA 94806
Subject: 2021-806—Audit of the city of Richmond
Dear Ms. Curl:
Enclosed please find our report titled City of Richmond: Anticipated Deficits, High Pension Debt, and Mismanagement of Its Housing Authority Cause the City to Be High Risk and an accompanying Fact Sheet that highlights the report's key issues.
California Code of Regulations, title 2, section 61140, requires that you provide to us within 60 days-by January 9, 2023- a corrective action plan that identifies how you will address the deficiencies identified in our report. The law also requires you to submit subsequent updates every six months from the issuance of this report to report on your efforts to implement the plan.
Your first update will be due by May 10, 2023.
Richmond's corrective action plan should include the following:
1. The specific actions the city will perform to address the deficiencies we identified.
2. A timetable for implementing those actions.
3. The names of the individuals who will be responsible for implementation.
Do not include any confidential or sensitive information in your corrective action plan because the plan will be publicly available after we review and evaluate it.
Every six months after you have submitted the corrective action plan -and until you have satisfactorily addressed the conditions we identified in the report—you will submit to us an update about your efforts to implement the corrective action plan. To demonstrate your actions and progress, you should provide any available supporting documentation, such as the rules, memoranda, or other relevant materials that prove either your implementation of recommendations or the steps you have taken to rectify the problems discussed in our report.
Because this documentation is subject to disclosure under the California Public Records Act, be sure to clearly identify any specific information that may be confidential, and provide us with the legal authority for nondisclosure.
621 Capitol Mall, Suite 1200 Sacramento, CA 95814 | 916.445.0255 916.323.0913 fax| www.auditor.ca.gov Shasa Curl, City Manager
November 10, 2022
It is imperative that you provide sufficient evidence for us to evaluate your corrective action plan and the progress you make toward implementing it. We will use what you provide to determine when or if you have satisfactorily addressed deficiencies and whether to retain or remove the city's designation as high risk.
You should submit the corrective action plan, subsequent updates, and supporting evidence or documentation in PDF or Word formats via encrypted, secure email addressed to Nicholas Phelps, team leader, [email protected]. Our encrypted secure email protocols are enclosed.
Once we have determined that Richmond has satisfactorily implemented necessary corrections, we will notify you of our conclusion in writing.
Sincerely,
mith In
MICHAEL S. TILDEN, CPA
Acting California State Auditor
Enclosure(s)
Instructions for Submitting Responses to the California State Auditor Please note the following important information regarding your responses • Responses should have all necessary departmental and agency approvals before you submit them to the State Auditor.
Responses should include both a timetable for implementing our recommendations and the name of the person or people who will be responsible for implementation.
Responses will be available to the public after our review and evaluation; therefore, you should not include any confidential or sensitive information.
Responses should be copied and pasted from a source document into the website's entry fields. • Responses should be entered in plain text only-formatting (bullets, italics, bolding, or underlining) is not available.
• Responses are limited to 250 words for each recommendation.
1. Login to www.auditor.ca.gov/responses/login using the username and password provided in the cover letter.
After each of the following steps of this process, select Next at the bottom of the screen.
2. Select the report for which you are submitting responses or updates. Please note that only reports with recommendations currently outstanding will be available.
3. Select the 6 month response type.
4. Select the recommendation for which you are submitting a response.
5. Select implementation status from the following options:
• Fully Implemented
• Not Fully Implemented
• Will Not Implement
6. Provide the additional information required by whichever option you selected in Step 5:
• Fully Implemented
• Date of Completion.
• Brief description of how your agency fully implemented the recommendation.
Name, email, and phone number of the person we should contact if we have any follow-up questions regarding the recommendation.
• Not Fully Implemented
• Brief reason for not fully implementing the recommendation. Name, email, and phone number of the person we should contact if we have any
follow-up questions regarding the recommendation.
• Will Not Implement
• Your agency's reason(s) for not implementing the recommendation. • Name, email, and phone number of the person we should contact if we have any follow-up questions regarding the recommendation.
7. Review your response and select Edit to make changes or correct any errors.
8. Select Submit when you are ready to submit the response.
9. Complete the above steps for each remaining outstanding recommendation.
10. Provide any supporting documentation, such as the rules, memorandums, and other relevant materials that document either your implementation of the recommendations or the steps you have taken to rectify those problems discussed in our report. Submit this information by either U.S. mail or encrypted email attachments to the email address in the cover letter and include the report number in the subject line of your correspondence.
Because this documentation is subject to disclosure under the California Public Records Act, you should identify and mark as confidential any specific information that is exempt from disclosure and provide us with the legal authority for nondisclosure.
Nobember 10, 2022
COMMITMENT Report 2021-806
LIFORNI INTEGRITY
LEADERSHIP FACT SHEET
Michael S. Tilden, CPA Acting State Auditor CONTACT: Public Affairs Office | (916) 445-0255 City of Richmond
Anticipated Deficits, High Pension Debt, and Mismanagement of Its Housing Authority Cause the City to Be High Risk
Summary SACRA
Richmond has a long-standing history of financial challenges, which contributed to the State Auditor's Office rating it as at high Richmond fiscal risk from fiscal year 2016-17 through fiscal year Risk Designation: SAN
2019-20. In our most recent local high-risk dashboard assessment, FRANCISCO
HIGH RISK
Richmond demonstrated some improvement in certain risk SAN JOSE indicators-moving from the 9th to the 10th California city • Population: 116,000 at greatest risk. However, Richmond retains many high-risk • Median Household Income: $72,463 characteristics, including the risk of significant projected deficits, • Unemployment Rate: 8% (annual average 2021) which may critically deplete its reserves. In fact, Richmond's projections—which may be too optimistic-indicate that it may • The housing authority may owe $1 million or more in federal have less than two weeks of expenses in reserve by fiscal year taxes and penalties. 2027-28. The risks Richmond faces and the totality of our audit The city has not consistently followed its contracting policies or findings led us to designate Richmond as high risk. updated its fees. • In at least two instances, Richmond could not demonstrate that it followed its own procurement policies, or it made errors or Key Risks omissions that could affect its management of contracts.
Despite recent improvements, Richmond's long-term financial • The city has not updated its fee schedules as required, and it stability remains uncertain. risks incurring costs for services its fees should cover. • Richmond forecasts a significant long-term deficit, which recent financial trends may worsen. Key Recommendations
• The city's debt burden remains high at $250 million as of June 2021. Richmond should do the following:
Addressing its poorly funded retirement benefits and below-market • Review the city's reserve policy and determine whether a higher employee compensation will increase Richmond's expenses. target is appropriate. • Richmond's retirement costs were more than $35 million in fiscal • Propose actions that would help ensure balanced budgets and year 2020-21, almost a quarter of its $162 million in general eliminate projected deficits. fund expenditures for the year. CaPERS anticipates that the city's annual pension costs will increase to $53 million by fiscal • Implement policies for funding its pension and retiree benefit trust funds.
year 2028-29.
• Increased expenses related to cost-of-living adjustments • Devote sufficient resources to the housing authority to resolve all to employee wages-which Richmond deferred for up to past-due requirements and meet remaining deadlines to comply seven years-will result in additional costs to the city. with the agreement to transfer public housing responsibilities to other entities.
The city has mismanaged the Richmond Housing Authority for a decade. • Resolve the housing authority's past tax liabilities and prevent • As a result of numerous instances of mismanagement, the unnecessary new liabilities. federal government is directing the housing authority to transfer • Comply with its municipal code and contracting policies when its direct public housing responsibilities to other entities. entering into contracts. • The authority has missed 11 of 26 deadlines associated with this • Determine a cost-effective frequency to update its fee schedules transfer of responsibilities. to reflect all allowable costs. 621 Capitol Mall, Suite 1200| Sacramento, CA 95814 1916.445.0255 9163270019fax /www.auditor.ca.gov