Category Archives: Budget

Beyond Hypocrisy, Indeed

At last Tuesday’s Council meeting, Chico Police Officers Association (CPOA) president Peter Durfee addressed the Council regarding the $25,000 Supplemental Appropriation for the City’s labor negotiator. (Quené also addressed the item, but I want to leave that for a separate post, since my comments will differ significantly.) When we posted the meeting notice, we mentioned that Durfee had also commented on the original appropriation to hire the negotiator, saying in part that $80,000 would certainly not be enough money to complete negotiations with all nine bargaining groups and asking, what then?

So, on Tuesday, Durfee spoke again saying, “I told you so” and calling the City’s negotiator a “hired gun.” Here’s the brief video clip of his comments:  Durfee_Hired Gun

Quené followed him at the podium, and after she finished speaking there was a discussion among the Councilmembers, during which Mark Sorensen opined that complaining about the City having a hired gun when the CPOA had one of its own was “beyond hypocrisy.” Here’s the video clip containing that comment: Sorensen_Beyond Hypocrisy

Newsflash: The City has three top Executive Team members, each with a six-figure salary, whose job descriptions include “labor negotiations.” The CPOA does not. Now, I’m not saying one way or another whether I agree with some of the tactics used by the safety groups during negotiations. I am saying, however, that comparing CPOA’s resources with the City’s is the height of hypocrisy.

If the City’s Executive Team does not have someone qualified to negotiate, among the half million dollars plus in salaries it pays to the three who are supposed to be doing it, perhaps the citizens should take another look at who should be filling those positions rather than dipping into the Emergency Reserve Fund (and the taxpayers’ pockets) to fund an additional six figure contract to correct the deficiency in internal talent. Just sayin’…

We thank you for your continued readership and welcome your comments and questions. Please continue to share our posts with your fellow Chicoans. Nothing we do makes any difference unless we can get the citizens and taxpayers involved.

Remember: Truth Matters, Chico!


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Council Meeting Tuesday Night

Tuesday night’s City Council Meeting starts at 6:30 pm at 421 Main Street. The meeting agenda can be found here.

Of particular interest on the agenda are:

(1) Request on the Consent Agenda for a $25,000 supplemental appropriation from the Emergency Reserve Fund to pay the City’s contracted labor negotiator. (I find it fascinating that the agenda describes it as a budget modification rather than a supplemental appropriation. That’s the new Chico Way — transparency at its finest.)

We expressed concern about the original $80,000 Emergency Reserve Fund appropriation both at the September 3 Council meeting and in a September 29 post. A primary concern was that this item had made it to the Consent Agenda with absolutely no public discussion beforehand. Bad form! (Did they improperly discuss in Closed Session?) A second but equally important concern is that this Council is repeatedly spending down the Emergency Reserve Fund for its pet projects. There is a clear restriction on the Fund that the money only be used for “emergency needs as determined by the City Council.” I just can’t see how this qualifies as an emergency by any reasonable person’s definition. Another speaker at the September 3 meeting, Peter Durfee, pointed out that $80,000 would certainly not be enough money to complete negotiations with all nine bargaining groups and asked, what then? Now we see “what then.” (Supplemental Appropriation_Negotiator)

(2) Request for an extension of completion of the audit to no later than March 18, 2014. This topic deserves, and will receive, a separate post. Sorensen has been pushing for findings of improper fiscal management and fraud, in furtherance of his personal mission to destroy the professional reputations of former staff. If these auditors make adverse findings and require the entirety of the City’s debt to be moved into the General Fund, the City will find itself unable to borrow or bond. It truly will become the crisis that Sorensen has been screaming from the rooftops. I’m looking to Chris Constantin to explain what a bad move that would be, and I’m hoping Sorensen will back off and Constantin and his staff will be able to negotiate with the auditors to produce an unqualified audit and allow the City to move forward with its adopted deficit reduction strategy. This could be bad, folks. (Audit Extension)

If you’ve never attended a council meeting before, please know that there are typically plenty of seats, and you can come and go as you like (in case you can’t make it until after 6:30 and/or really don’t want to hang around until 11 pm!). It’s okay to just come and observe — no need to speak unless you are so inclined.

If you do wish to address the Council, there are speaker cards in the back of the chambers, and it’s as easy as filling out two fields and placing it in a basket. (Do make sure your speaker cards are submitted to the City Clerk’s station before your item comes up, particularly if it is on the Consent Agenda or under Reports and Communications, since there may be no discussion whatsoever if there is no request to be heard.)

If you can’t attend the meeting, you can watch from home via live stream or at a later date on the video recording. Our permanent link to the Council Meeting page, along with an explanation of how it works, is here: Watch Council Meetings

Again, we urge you to get involved. This is your community, and being informed and engaged is crucial. The Council works for you, so make your voice heard. Write letters, attend meetings or watch from home, ask questions and make comments on our blog posts, and hold the elected officials accountable at the polls.

We thank you for your continued readership and welcome your comments and questions. Please continue to share our posts with your fellow Chicoans. Nothing we do makes any difference unless we can get the citizens and taxpayers involved.

Remember: Truth Matters, Chico!

Seen or Unseen: 03/11/2008 Finance Committee Meeting

Next up in our Seen or Unseen series, where you, the reader, get to decide whether your local politicians are dishonest or merely incompetent… The March 11, 2008 Finance Committee meeting!

As before, let’s start with the minutes, so we can establish who the players were: 2008-03-11_Finance Committee_Minutes. Lo and behold, in early 2008, the Finance Committee was still being chaired by Scott Gruendl, with Mary Goloff (aka Flynn) and Larry Wahl rounding out the party.

(As a point of information, note that the Finance Committee minutes are prepared as a memorandum to the full council. This is standard procedure, so whatever information is contained in the minutes gets passed along to each and every council member.)

The first item on the minutes: Consideration of Deficit Reduction Strategy Implementation. According to the minutes, the council adopted a balancing strategy on December 18, 2007. So, why all the hoopla at the December 17, 2013 council meeting about the new-and-improved Executive Team “breaking new ground” by addressing deficits?

Want proof? Here are the minutes from that meeting: 2007-12-18_City Council Minutes_re_Finance Committee

I took the liberty of highlighting some fun details, such as Gruendl specifically calling out that “a significant reduction in costs totaling $912,323 has already been realized,” and seconding a motion that, among other things, reduced the Fleet Replacement Reserve by $300,000 for the next four years and reduced the transfer to the Private Development Fund [oh no he di’int!].

That intentional reduction in the Fleet Replacement Reserve should be kept in mind for a later blog post, which will delve into the Administrative Services Director’s shocking revelation to the 2012-13 Grand Jury about the decline of Fund balances over the last several years. The Private Development Fund deficit, always a council sweetheart, was clearly part of these discussions and the General Fund contribution to it was intentionally reduced. Yet now we’re being asked to believe that this is all news to the current council, including Gruendl and Goloff.

(As an aside, these minutes also demonstrate that Larry Wahl had to disqualify himself from downtown issues, along with Ann Schwab. So why all the recent flap about Schwab’s disqualification from the Sit/Lie Ordinance discussions?)

Now, back to the March 11, 2008 Finance Committee meeting. Next up on the minutes is a Financial Status of All Funds. Of particular interest is the following passage: “…as of 6/30/07 a total of 12 funds were in a deficit position.” [audible gasp] But I heard at a recent meeting that no one ever told them there were negative Fund balances!

While the Mayor has routinely snarked over the last few months that he didn’t like the flashy power point presentations provided by former staff, I’m finding them to be PRICELESS. Here are a few of my favorite slides; Gruendl and Goloff obviously nodded off and missed them.

The 12 funds in a deficit position as of June 30, 2007, and the two types of deficits: 2008-03-11_Finance Committee_Deficit Funds

The Private Development Fund’s existing and structural deficits, explained and with solutions offered. Wow! Does one of those bullet points read, “To resolve existing deficit, the City needs to transfer funds from the General Fund”? I thought no one ever told them the negative Fund balance was a General Fund obligation! 2008-03-11_Finance Committee_F862

The impacts of deficits, including the statement that “large deficits negatively impact the City’s cash flow.” But wait! No one ever warned them of cash flow issues! 2008-03-11_Finance Committee_Deficit Impacts

Want to flip through the entire presentation? Happy to oblige: 2008-03-11_Finance Committee_Status of all Funds

So, do we have convenient memory lapses, or intentional false accusations against prior staff? Ultimately, the council is responsible for all city actions, and plausible deniability doesn’t work when there are public records to dispute that plea.

Hey, Council — Here’s a suggestion: Learn the true history, and start paying attention to the lies you are being fed. Question the sudden need for drama, and what the underlying agenda — that someone else is setting — is really all about.

Hey, Readers — We appreciate each and every one of you. Doubly so when you share our blogs with a friend.

Remember: Truth Matters, Chico!


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Leaking the Top Secret Operation

Well, here we go again. At the December 17 meeting, I addressed the Council about its running commentary on the 2nd Floor Staffing/Finance Workout Plan, hoping to put that baby to bed once and for all.

It was going pretty well; in fact, the Mayor was very polite and asked me some clarifying questions — and then allowed me to answer. The Administrative Services Director followed up with positive comments, acknowledging that previous staff had taken action to address the plummeting Fund balances. I was pretty satisfied with that much progress.

But then Mark Sorensen jumped right back into full assault mode — seemingly driven by some sort of clandestine, private-frequency radio transmission (perhaps from a spy drone?) reaffirming his theory that former staff had conspired to harm the Council and destroy the City by secretly driving Fund balances into the red.

You think I’m kidding? I’ll link you to the one-minute video clip so you can see for yourself, but I just want to point out that he actually used the words “top secret operation.” Yes, he really did say those words. Out loud. He did.

Here’s the clip: Sorensen “Top Secret Operation”

After Sorensen made his ill-advised (and ill-informed) remark, I emailed him to let him know he was off base, that it would have been more beneficial if he had simply asked me about it during the discussion, and that I would be happy to speak with him publicly or privately to fill him in on the details of the mini-allocation.

He responded by telling me it was something Quené said during her comments that had triggered the thought, as if that excused it, and so I politely replied and repeated my offer to talk with him openly and honestly about anything he wanted to know.

I received no further response, which has unfortunately earned him a dose of embarrassing public enlightenment in lieu of a pleasant, informative conversation. I swear, I just can’t figure the guy out.

Back in September, we three gals had some pretty lively conversations with the Mayor about believing media reports, after which Alicia finally pinned him down and asked him, if we aren’t to believe the media, can we at least rely on what is said during Council meetings? After a little soft shoe routine and some political double speak, the Mayor finally said, “Everybody holds one another accountable in this chamber.”

Mr. Sorensen, consider yourself on notice that you are going to be held accountable. You don’t get to just say whatever you want from the dais and expect it to be accepted as truth simply because you’re the one who said it. There is a truth to be told, but you have been so preoccupied with your personal mission to ruin the professional reputations of honorable public servants that you refuse to listen and therefore can’t possibly understand it, much less explain it to anyone else. You need to stop. Really.

Now, here is some factual information about the Private Development Allocation (known internally as the “mini-allocation”):

As we explored in a recent post, allocations distribute costs, as opposed to transfers, which distribute dollars. The mini-allocation distributes operating costs from the Private Development Fund (Fund 862) to a handful of other Funds that benefit from work efforts by Planning staff, and to a lesser extent, Building staff. Keep that in mind as you read along.

This particular allocation was first developed in fiscal year 2010-11, as part of the 2nd floor finance plan. It was a tool we used to clean up accounting for the Planning Services Department’s operations, so we could quantify the true cost of processing development applications. For the moment, please just trust me that it resulted in a net reduction in costs to the impacted Funds. There was no additional money being spent.

As you can see in the following document, staff cleverly hid this “top secret operation” from the Council on page 2 of the City Manager’s fiscal year 2010-11 budget message — that would be the second page of the proposed budget — where they would be sure to overlook it.

2010-07-06_Budget Message

Ooooooh, and in the next document you will see that former Finance Director Hennessy went to great lengths to bury the mini-allocation in the budget page dedicated to Fund 862 by assigning it a specific department called Private Development Cost Allocation, so no one would recognize it.

That was such a sneaky move that Administrative Services Director Constantin and his new-and-improved budget team mustn’t have even noticed it when they put it in the current fiscal year’s budget! According to Sorensen, it took the City’s super-duper fraud seeking auditors to finally discover it and bring it to everyone’s attention.

(Also notice how Ms. Hennessy mistakenly revealed the uber-classified negative Fund balance at the bottom of the page… Bad form!)

Fund 862_Mini-Allocation

And the final straw: The next document is an example of how the mini-allocation was hidden in the Funds that received the allocation. I’m using the Sewer Fund (Fund 850) budget page, since Sorensen specifically called that out in his “top secret operation,” but if you go to the City’s published budget, you can find the same line item on every single impacted Fund. This is certainly advanced trickery and foul play!

Fund 850_Mini-Allocation

In the documents above, you can see that the allocation appears in the Operating Expenditures section for both Funds. It is a negative number for Fund 862, since it is technically an offset to expenses, and a positive number for Fund 850, since it is a true expense. The numbers aren’t the same for both Funds, because Fund 862 shows the aggregate allocation, whereas Fund 850 only shows its portion of the allocation.

Now that we’ve established there was absolutely nothing “top secret” about the mini-allocation, let’s look into why we created it.

Since at least as far back as 1991, when the Private Development Fund was created, some Planning salaries were budgeted to other Funds, including the Sewer Fund and the Subdivision Fund. Unfortunately, I no longer have access to my paper files (I had to dig through dusty old budget binders to figure out what had originally happened… ack!), so I don’t have the complete list of funding sources to share with you. Suffice it to say that Fund 862 never fully funded Planning’s operations.

Instead of development staff charging their time to what they were actually doing, they charged time based on where they were funded in the budget. To make the funding ratio work out properly, some staff were charging up to 60% of their time directly to other Funds. (Click here if you’d like to see an example of pre-Private Development Allocation funding for Planning staff.) This was specific direction that came from the City Manager’s office, and it was a source of considerable concern for both Finance and development staff.

Don’t get me wrong, I am not being critical of the funding sources; there is a legitimate nexus between development staff work and benefit to other funds. The problem was a lack of accountability and transparency, which translated into the inability to properly quantify costs and develop appropriate User Fees. How can the cost of processing a Use Permit be accurately tracked when the staff person working on it is charging time to Sewer or Transportation or Redevelopment, just to make the budget numbers work?

There is much more to this, and I promise you I will break it all down when I write the dedicated Private Development Fund post, but for now it is enough to say that we unwound that particular problem by allocating costs, eliminating direct staff charges to the benefiting Funds, and then fully accounting for private development costs in Fund 862.

Here’s an oversimplified explanation of how it worked: We added up all of the private development staff charges to Funds other than Fund 862. We applied a 10% discount factor, since we were attempting to cut budgets in all impacted Funds. Then, via the mini-allocation, the costs were distributed as expenses to the benefiting Funds. Here is the official calculation for the original mini-allocation (which, incidentally, is included in the City’s files for anyone to examine — nothing top secret here):

F862 Mini-Allocation for Final Budget Resolution

Once the allocation was in place, we tied it to a percentage of staff salaries for development work, rather than allowing it to continue as a fixed cost to the benefiting Funds. The effect of this can be seen in the dollar decrease from fiscal year 2010-11 to fiscal year 2011-12. In other words, the more we reduced Fund 862 salaries, the more the allocation was reduced, for a net savings to the benefiting Funds. (There was also a reduction in the allocation due to the loss of RDA funds, but that is immaterial to this discussion.)

The other effect of allocating the costs and direct charging only Fund 862 was the ability to assign cost centers to specific Planning staff work efforts and other operating expenses. This was critical in our effort to establish solid data for a new User Fee Study. Incorrect underlying data will always result in incorrect fees, no matter how skillful the technical analysis and mathematical calculations used in the study might be.

We cleaned up Fund 862 to enable us to use a formula based on actual costs for processing the various types of applications, divided by the actual volume of applications. Unfortunately, however, once ACM Rucker and BDSD McKinley mysteriously vanished, the authority behind the effort vanished with them. But that’s another story in and of itself. What a waste.

And so, the mini-allocation was a good part of the finance plan. I doubt it is still functioning properly at this point, since there is no one left who understands the mechanism of tying it to salaries or the process we put in place for monitoring the Fund balance on a bi-weekly basis. Fund 862 finished fiscal year 2012-13 in the black (annual revenues exceeded annual expenditures); it was the first time that happened since 2001. It will be interesting to see how the Fund finishes for fiscal year 2013-14.

So much for Sorensen’s “top secret operation” conspiracy theory. Hopefully, someone who loves him will splurge on a tin foil hat for him, to keep those wacky cloak-and-dagger ideas in check. Hey, it could help…

We thank you for your readership and ask that you continue to share our posts with your family, friends, and neighbors. As always, your questions and comments are welcome. Consider making a New Year’s resolution to be more involved in what’s happening with your local government; after all, these folks work for you.

Remember: Truth Matters, Chico!


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Special Council Session Tomorrow

In addition to Tuesday evening’s regular Chico City Council meeting, an agenda has been posted for a special “Goal Setting Session” at 6:00 p.m. tomorrow. If you plan to follow the City’s budget process, this will be an important meeting to either attend or watch from home.

I attended last year’s two goal setting meetings, while I was still a City employee. The only thing I took away from the meetings was a realization that Nakamura’s leadership style would consist of quashing any communication between staff and Council by convincing Council they are corporate bigwigs rather than public servants, of further reinforcing the theme of management by fear and secrecy, and of blowing pretty-colored smoke up the Council’s collective skirt. It was during the first of those two meetings that he promised the Council a list of the department directors’ priorities for their consideration, which never publicly materialized, and about which he subsequently lied to Councilmember Ritter on March 5, 2013 (watch for a future post on this topic!).

At this meeting, Nakamura is supposed to “provide the Council with an overview of the priorities and goals that were approved by Council in January 2013,” which as far as I can tell wound up being just a list of vague ideas: Public Safety, Economic Development, Administrative Services (Finance), Transportation / Environment, and Technology. In other words, Nakamura had free rein to do what he pleased, as long as he could jam his agenda into one of the categories on that list. I guess we’ll find out what his interpretation of those “priorities and goals” was, based on where the budget dollars end up.

I was looking at Nakamura’s presentation linked to the agenda and had to laugh. I remember seeing the pre-meeting version of last year’s presentation, which included a blank page right in the middle. Staff thought that was where the department director priorities would show up, but it turned out to be his lame excuse for a rightsized organizational chart. That bombshell was the beginning of the end of staff’s respect for him. I wonder what surprises will pop up during this year’s presentation.

I also noticed that he listed the Cost Allocation Plan (CAP) under Transportation / Environment. How many times can I say that the CAP is a FINANCE study? It distributes ADMINISTRATIVE DEPARTMENT costs across Funds? It has absolutely nothing to do with transportation or the environment. Maybe Nakamura is the source of Sorensen’s ongoing confusion about the CAP; he can’t seem to sort it out from the User Fee Study and still somehow believes the CAP was “buried on the 2nd floor for two years.” The 2nd floor is Building, Planning, and Engineering — not Finance. But I guess those departments could easily be mistaken one for the other. I shouldn’t be so judgmental.

Here is the Chico Enterprise Record’s slightly different take on the meeting: ‘Chico City Council to set goals in workshop Monday

Anyway, I would encourage you to watch the meeting. Perhaps you will get some foreshadowing of the direction in which Nakamura intends to take your city next year. I expect to hear about more consultants and studies and contracting out of services. Is that what you want? Will that grow Chico’s economy or send your tax dollars away to other communities?

Please get involved and make your voice heard. Nakamura still has no clue about what makes Chico such a special place, so if you want your Councilmembers to consider what’s important to you in the goal setting, you’re going to have to speak up and tell them yourself.

Thank you for your continued readership, and for continuing to share our posts with your family, friends, and neighbors. As always, we welcome your questions and comments.

Remember: Truth Matters, Chico!


2nd Floor Staffing/Finance Workout Plan

Although this post is related to the Private Development Fund, known internally as Fund 862, its purpose is not to explain what happened to cause the balance to go negative. That subject requires its own post, which will be forthcoming in the following weeks. (For any of you who are fans of self-torture, I will go ahead and provide a link at the end of this post to my February 2013 Finance Committee report that does explain what happened, and you can read it at your leisure.)

Rather, this post explains the measures taken to correct the annual structural deficit; in short, it describes the plan we developed and implemented to stop the hemorrhaging. It was a good, solid plan, and it worked.

Now is probably a good time to point out that the $9m negative Fund balance always was, and still is, a General Fund obligation. Fund 862 is what is known as an Enterprise Fund — it provides services for a fee — and new fees are not permitted to pay for old debt. What that means is any annual shortfall in Fund 862 revenues should have been matched by a transfer from the General Fund.

Of course, therein lies the problem: General Fund dollars are premium, since they pay for Police and Fire. Fund 862 can legally carry a negative balance, so the General Fund transfer to cover operating shortfalls was pretty far down on the list of budget priorities. But enough of that for now; we need to get back to the purpose of this post, which is to explain how we arrested the annual operating losses.

While it may seem the two Fund 862 posts are being published in reverse order, this one is in direct response to the ongoing sarcastic commentary emanating from the Council dais, which I addressed from the podium at the December 17 meeting. I’ve just really had enough of the Council’s political grandstanding at the expense of staff who worked diligently (and successfully) to correct a decades-long error in funding development operations.

Here is the video clip of my 3-minute presentation and responses to questions posed by the Mayor:


And here is the chart I distributed to the Council during the meeting:

Fund 862_Annual Deficiency

Note that the chart represents the annual structural deficit. To reiterate, nothing but General Fund dollars will ever correct the negative Fund balance.

And now, for your edification, here is the detailed version of the workout plan story:

In February of 2010, former Assistant City Manager John Rucker, whom l had never met, stopped by and asked me to walk across the street with him to get coffee. Although l was very nervous, l went along to see what he had on his mind.

He opened the dialogue by saying, “Mary, tell me about the Private Development Fund.”

And so, he and I talked at length, and I explained what I knew, although at that time I had never even seen the Fund-level accounting. I only knew what I could see from a Planning operations standpoint.

I cautioned him that the Council would never let him daylight what had gone wrong with the Fund, since it was a political bomb that would get everyone very messy when it went off. Nevertheless, he assured me that he had been directed to analyze the Fund and repair the structural (annual) deficit, and that the Council did in fact want an explanation of what had caused it.

I had been trying for some time to call attention to things that weren’t working right for Planning operations, although I had never been included in City Manager level budget meetings until the lead-up to fiscal year 2007-08, after Steve Peterson was hired as Planning Director and needed me there to explain his budget. Once I got into the meetings and was able to express my concerns, former Finance Director Jennifer Hennessy began making adjustments based on my working knowledge of Planning’s operations and funding. I suspect that either she or former City Manager Dave Burkland had pointed Mr. Rucker in my direction, since I had been a squeaky wheel for a few years.

But once Mr. Rucker put his shoulder behind the effort in 2010, and I was given full access to the City’s financial software and the ability to request custom reports to see all the moving parts, what a can of worms that Fund turned out to be! While the funding adjustments Ms. Hennessy had made were definitely steps in the right direction, they had really only scratched the surface of the operational issues that still needed to be addressed.

Former Building & Development Services Director Fritz McKinley led the 2nd floor team, collaborating with former Capital Projects Services Director Tom Varga to identify work efforts that had been pushed to the back burner after two rounds of early retirements had cost the 2nd floor 31% of its staff — that amounted to 22 bodies.

I have such a fond memory of watching the two of them using different colored markers to draw floor-wide organizational charts on sheets of butcher paper and brainstorming to identify opportunities to cross-train staff and build interdepartmental project teams. It was the beginning of an enormous undertaking, but they committed themselves to the plan and worked together even when things got very uncomfortable.

Meanwhile, I was working on developing the finance plan, coordinating with Ms. Hennessy and my current partner-in-crime, Alicia Meyer. We built an interdepartmental alliance, where in the past there had been distrust, and we developed a plan to properly finance 2nd floor operations. Ms. Hennessy made changes to the budget that allowed for greater transparency, so 2nd floor staff could clearly see what was impacting our funding.

Alicia taught me to run complex financial reports, and together we unwound decades of less-than-transparent time card coding. Direct charges to other Funds ceased, in favor of a multi-Fund allocation tied to Fund 862 salaries. Cost centers were assigned to specific staff activities to provide solid data for the User Fee Study projections. These changes enabled us to identify the true cost of processing development applications.

Revenues and expenses were monitored on a bi-weekly basis in an effort to stay ahead of any negative trends. Historically, 2nd floor Departments simply monitored their Operating Budgets, without regard for whether or not revenue projections were being met. That obviously didn’t work out very well.

Citywide Indirect Cost Allocation Plan (CAP) bases were analyzed to determine which allocations should be redirected to operating budgets in Funds other than Private Development. The allocation to Fund 862 was reduced to reflect what was being used in the most recent User Fee Study.

Development projects subject to time and materials billing (rather than flat fees) were moved into the Subdivision Fund. This enabled us to more accurately identify true City costs, without having to sort them from charges that would be passed through to project applicants.

A General Fund operating budget was established for Planning, to account for unrecoverable operating costs related to non-fee activities (e.g., Tree Ordinance, Historic Preservation Ordinance, Economic Development Committee).

Floor-wide operations were thoroughly analyzed to maximize service levels while living within constricted means. Staff were cross-trained across department lines to ensure they were working where there were both need and funding. There was no “created” work. As I mentioned earlier, the 2nd floor had lost 22 bodies, all of whom left work behind that needed to be redistributed. In addition, the Federal ARRA (Obama’s shovel-ready) grant projects had come in, which required extensive staff work and reporting. There was plenty of work, and we built a team to get it done.

Specifically, we consolidated the remaining six administrative staff into a floor-wide team to absorb the duties of seven who had opted for retirement; we transferred one Building Inspector to Construction Inspection to absorb the duties of two retired Inspectors; we assigned double duty to the Senior Development Engineer, who absorbed the work of the retired Senior Civil Engineer in Construction Inspection; we transferred a Senior Planner and an Associate Planner to Capital Projects Services to work on environmental review, the ARRA projects, the update to the Bike Master Plan, and the “ultimate annexation” that was to incorporate the entire Chapman-Mulberry area; we moved an Assistant Planner to Sewer/Storm Drain Engineering to work on the Nitrate Action Plan projects and provide backup support for the public counter. In short, everyone was working on whatever needed to be done.

Here is an email from Mr. Rucker reinforcing the cross-department assignments during the workout plan. This was serious business, not some ploy to avoid making tough decisions.

2010-08-06 JRucker Re: Notify Staff_Workout Plan

What the 2nd floor staff accomplished — working at that level of efficiency to give the taxpayers the maximum bang for their buck — should serve as a model for all City departments. Yet the Council continues to say staff did nothing.

Now, as promised, here is the report I wrote for presentation at the February 26, 2013 Finance Committee meeting. This is the last iteration before Nakamura directed me to strike all references to Council actions. He told Mr. McKinley, in my presence, that the Council actually did not want to know what had happened. (Odd, isn’t it, that the Council has subsequently spent so much of their grandstanding efforts accusing staff of withholding information?)

As it turned out, Mr. McKinley “mysteriously resigned” the night before the meeting, so the report did not get presented. As I mentioned earlier, lots of important folks would have had messy stuff blown all over their pretty faces if that bomb had been detonated. And we can’t have that…

2013-02-26_Finance Committee_Memo_Final

Next up will be the Private Development Fund, I guess. If you read that memo, you’ll likely want it to be translated from bureaucrat-speak to English, so I will oblige. I’m really sorry this stuff is so complicated, but if it were simple, the government would have to find some other way to do it, right?

Thank you for your continued readership. As always, your comments and questions are welcome. Please continue to share with your family, friends, and neighbors. An informed citizenry can create an accountable government.

And finally, a very special Merry Christmas to all City staff, former and present, who made the 2nd floor staffing and finance plan work. You did an excellent job.

Remember: Truth Matters, Chico!

Into the Weeds: Revenues, Transfers, and Allocations

We’ve stepped Into the Weeds over the course of several posts now, and we’re just about ready to start looking at the larger picture and delving into some of the issues that have been in the news over the past months. We need to take a look at one more piece of the puzzle, though, and that is how money is received and moved around in and between Funds. The primary mechanisms are Revenues, Transfers, and Allocations.

Revenues are simply monies coming into the City from outside sources. They include taxes (e.g., General Fund, Gas Tax Fund), fees for service (e.g., Private Development Fund, Sewer Fund), time and materials billing (e.g., Subdivision Fund), development impact fees (e.g., Street Facility Improvement Fund, Community Parks Fund, assessments (e.g., Maintenance District Administration Fund), and grants (e.g., Capital Grants Fund, Community Development Block Grant Fund). Revenues are listed by specific types in the top section of each Fund Summary.

Here are some examples of how the Revenue section of a Fund Summary looks: General Fund, Community Development Block Grant Fund, Capital Grants Fund, and Private Development Fund. In the City budget, each Fund has its own separate page. I combined them into one document for our purpose, which was to look at how different types of Revenues are called out.

Transfers shift dollars from one Fund to another to pay for expenses. They are used, for example, when an Operating Expense is paid out of one Fund, but all or a portion of the Revenues designated to cover the expense has been paid into a different Fund. A simple example of this type of transfer is from the Parking Revenue Fund (853) to the Transportation Fund (212).

It is important to note that there are no “hidden” transfers in the budget. Both the dollar amount and the purpose of any transfers are clearly identified in the Fund Summary for both the donor and recipient Funds.

Transfers out of a Fund are labeled 9FFF, where FFF represents the recipient Fund number. Likewise, transfers into a Fund are labeled 3FFF, where FFF represents the donor Fund number.

This is how the Parking Revenue Fund (853) Summary describes the transfer: “Transportation transfer (9212) reflects the estimated cost of the Downtown Employee Free Fare Program which allows employees to ride the Transit system for free as an incentive to increase the availability of parking downtown.”

You will find a similar description in the Transportation Fund (212) Summary: “Parking Revenue Transfer (3853) reflects the estimated cost of the Downtown Employee Free Fare Program which allows employees to ride the Transit system for free as an incentive to increase the availability of parking downtown.”” 

So, the $36,000 is moved from Fund 853 to Fund 212, and then the cost of the Downtown Employee Free Fare Program is included in Transit Services payments due to Butte Regional Transit (B-Line), out of the Transit Services Department (212-653).

Allocations distribute expenses from one Fund to one or more other Funds. The largest and most complex Allocation is the Citywide Indirect Cost Allocation Plan (CAP), which will be coming forward to Council in the near future. That Allocation deserves and will receive its own separate post, once the basics of all the moving parts have been explained.

Simpler to understand are Internal Service Fund Allocations, which distribute costs for providing certain services to City Departments. Some of the Funds that receive their Revenues via Allocations are Central Garage (Fund 929), Municipal Buildings Maintenance (Fund 930), and Information Systems (Fund 935).

The basis of the Allocation depends on what services are provided. For example, the Information Systems Allocation (from Fund 935) is based on the number of computers per Fund-Department. It is allocated at the Department level, but accounted for at the Fund level. [Stay with me — I’ll explain!]

In a previous post, we discussed Planning operations, so I will use it as an example here as well. Planning’s Department code is 510, and it has operations in the General Fund (001), the Private Development Fund (862), and the Subdivision Fund (863).  In order to see Planning’s Allocation detail, you would need to look at all three of its Operating Budgets: 001-510, 862-510, and 863-510. As you can see, the Information Systems Allocation for Planning is spread across all three Funds. Please note that those are last year’s figures, since I no longer have access to internal budget pages without submitting a PRR and causing an uproar in the City Clerk’s office.  🙂

This level of detail is not available in the published budget. Instead, it contains an Operating Summary Report for Planning, which shows its total Allocations and only separates them by General Fund and Other Funds.

The important thing to remember is that Transfers and Allocations are related, in that they both effect inter-Fund cost sharing; however, the mechanisms are different. Transfers distribute dollars, and Allocations distribute expenses.

Clear as mud, I know.

Next in line for the budget posts will likely be the Private Development Fund. I had planned to move from this post directly to the Cost Allocation Plan, since it went to Finance Committee earlier this month; however, insider information has it that there was a problem with figuring out the Fund 400 piece [audible gasp!], and the study is now back at the staff level for further review rather than moving forward to the full Council. We’ll see which topic inspires me more the next time I feel compelled to wield my machete and continue blazing a trail through the weeds for you. Yee haw…

Thank you for your continued readership. We welcome your comments and questions, and ask that you please continue to share our posts with your family, friends, and neighbors.

Remember: Truth Matters, Chico!


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Update: Remedial Funding

Welcome to members of the Chico City Council who are reading our website! We always knew you would eventually, since it’s the politically astute thing to do — keep an eye on those speaking out in opposition to you — but this past Tuesday’s Council meeting was the first time we received clear confirmation that at least some of you are following our posts.

You addressed nearly every point in my original Remedial Funding post before opening the floor for public input; effectively heading off at the pass any comments we were prepared to make. Recognizing that you aren’t getting sufficient information from your Executive Team is the first step toward better decision making, and we applaud you for that.

For our readers who were not in attendance at the meeting or unable to watch the meeting streaming live, here is a video clip of the discussion on the Consent Agenda Item 2.2, a request for a supplemental appropriation to allocate $25,000 from Fund 312 to remediate a mold problem at Fire Station No. 5. The video is approximately 21 minutes long, but it is definitely worth a watch. The Council was finally asking tough but appropriate questions, and the staff was clearly unprepared to answer them.

Public Works Director Ruben Martinez and Facilities Manager Kim Parks should be embarrassed about their inability to answer Council’s questions and ashamed to have requested funding from a source about which they clearly have no knowledge. Had I still been on staff, and responsible for this project, I assure you I would have been prepared to answer any questions that could arise from a staff report (especially one that I drafted!) and would not have needed to defer to the City Attorney regarding proposed funding and the impacted project. I mean, really, is it the City Attorney’s job to answer project-specific or funding source questions? Absolutely not!

Now, back to the Councilmembers: Your decision was wrong. While the mold remediation needs to occur, and quickly, use of an inappropriate funding source is still not acceptable. In my original post, I even told you which funding source should be used. I cannot comprehend why you did not simply vote to approve proceeding with the mold remediation, but directing staff to use a different funding source.

Both the Public Works Director and the Facilities Manager should be familiar with Fund 930, the Municipal Buildings Maintenance Fund. Furthermore, Accounting Manager Frank Fields was seated at the dais during the meeting; his job description surely requires him to have the ability to answer questions about funding sources. That entire question and answer session was ludicrous; where are the competent staff? The answer, of course, is they were ‘rightsized’ out the door. Pathetic.

I am no longer paid by the City to provide technical analysis regarding programs or projects. And I intentionally did not get into specifics on the Chico Municipal Airport (CMA) Groundwater Remediation Project in my original post, because I wanted the funding source issues surrounding the Fire Station No. 5 mold remediation to be its focus. That said, it appears that someone other than the City’s current staff will have to provide guidance regarding the CMA Groundwater Remediation Project as it relates to the use of Fund 312 monies, and I guess that someone will have to be me…

Here’s my advice: Handle the CMA Groundwater Remediation Project with extreme care.

The State of California Department of Toxic Substances Control (DTSC) is the City’s oversight agency. Any changes in its management or staff can result in additional expenses. As we have seen recently within the City, loss of institutional knowledge in an agency can lead to unforeseen problems, and reinventing every wheel can be costly. It has already happened once with DTSC staff and the CMA Groundwater Remediation Project, and it can certainly happen again.

Additionally, if the newly approved Revised Remedial Action Plan results in activation of the City’s Contingent Remedy, there will be additional active groundwater extraction and treatment wells required to achieve the Remedial Action Objectives. This may seem insignificant, but keep in mind that the CMA is surrounded by environmental concerns — specifically vernal pools and Butte County Meadowfoam (BCM).

When I last calculated an estimate on the CMA Groundwater Remediation Project for takes of BCM, the anticipated value was 19:1. That means for every one acre of BCM impacted, the City will be responsible for the cost of 19 acres’ worth of environmental impact. I can say with some certainty that this ratio will not get better; BCM continues to be an environmental concern that is becoming more and more difficult to offset, due to a lack of available environmental credits.

Well, I hope I did not put our readers to sleep with that! It is important to both understand and acknowledge the big picture when considering what responsibilities the City has for each project and how each project impacts total funding availability. Funding decisions should never be made in a vacuum.

The $25,000 appropriation from Fund 312 to pay for mold remediation at Fire Station No. 5 may not seem like a big deal, but every little bit adds up. As with any budget, a few dollars here, a few dollars there, and suddenly you have spent more than what you have.

As the City Attorney mentioned during the Council meeting, Fund 312 has already been used to pay for lead remediation at Horseshoe Lake. The Public Works Director has continued to attempt to tap Fund 312 to pay for the required ongoing monitoring and reporting of that cleanup. I would opine that Horseshoe Lake being charged to Fund 312 was either the result of someone’s lack of knowledge of funding sources or someone simply picking the low-hanging fruit instead of doing what was necessary to fund the project appropriately. That certain someone succeeded because the project was approved for funding without consulting with Capital Projects staff, and it did not become apparent until after the money had already been spent.

Here is a fact to digest: Had the CMA Groundwater Remediation Project not been able to use Redevelopment funds for a number of years, all settlement funds received under the Consent Decree and used to create Fund 312 would have already been expended. That is correct; Fund 312 would have a zero balance, and the City would have already been required to find alternative funding sources to continue this State-mandated work. This over-expenditure is not the City’s fault; the original Remedial Action Plan required remediation on a parcel of land not included in the Consent Decree (and please take my word that this was a huge and costly issue).

The point remains, even if Fund 312 had been completely restricted to use on the CMA Groundwater Remediation Project, all revenue would have already been expended. No one could be proposing to use Fund 312 for mold remediation anywhere.

You can see this by comparing the Capital Project page for the CMA Groundwater Remediation project and the current Fund Summary for Fund 312. I have highlighted the areas of interest. If you calculate how much Redevelopment money was expended on the CMA Groundwater Remediation Project ($564,194 + $18,898 + $765,381), you come up with $1,348,473. Compare that total to the $774,045 that was available in Fund 312 at the beginning of the current fiscal year. You see that expenditures have already exceeded what was available from the Settlement Agreement funds.

Yep, if Redevelopment funds had not been used, Fund 312 would be running a deficit of $574,428 ($774,045 – $1,348,473). And, as acknowledged by the City Attorney, the Fund Summary states in part that, “…[the] Chico Municipal Airport remediation will continue for decades…”

But barrel on ahead, Council! Approve inappropriate spending from Fund 312 based on an opinion written by an employee that retired more than seven years ago, with no updated financial analysis of the impacted project. Do it, because that is just brilliant!


Remedial Funding

It looks like Public Works Director Ruben Martinez is playing pin the tail on the fund list to choose funding sources again. We think he should remove his blindfold and try reading the Fund Summaries for allowed uses, but that is just our opinion. Maybe he needs a remedial budgeting class. We can only speculate about how he is coming up with the funds he has been proposing.

One thing is for sure; whatever method Martinez is using, it’s not working for him, or the taxpayers. Municipal finance rules are there for a reason, and it is clear he does not understand them.

We have already described to you his lack of knowledge of Fund 400 (Capital Projects), as well as his inappropriate use of Fund 850 (Sewer). At the November 19 City Council meeting, I will be pointing out yet another misuse of City funds by Martinez. The fund being negatively impacted this time is Fund 312, the Remediation Fund.

A few days ago, we shared the agenda for this City Council meeting. Item 2.2 of the Consent Agenda is a request for a supplemental appropriation to allocate $25,000 from Fund 312 to remediate a mold problem at Fire Station No. 5. The City is looking into whether or not its insurance policy will cover the cost of the project; but even if it is covered, the $25,000 request is still proposed to pay the City’s current insurance deductible.

(As an aside, our resident insurance expert, Mary, says there is no way this is a covered loss. Mold is a maintenance problem, specifically excluded in standard property insurance policies. She also asks a couple of thought-provoking questions: If the total cost of the project is $25,000, why are they even checking with the insurance company? On the other hand, if the project cost exceeds $25,000, why are they only asking for $25,000 to remediate the problem? If you are interested, you can read more about mold remediation and insurance here.)

I mentioned above that Fund 312 is the Remediation Fund. Does that mean it pays for any and all remediation projects? Nope. It was created to pay for groundwater remediation, primarily at the Chico Municipal Airport.

There is some important history regarding this Fund. (I am about to get highly technical here; please bear with me. I will try to limit it to a paragraph or two!)

Back in the early 1990s, the State of California Department of Toxic Substances Control (DTSC), sued the City of Chico, and more than 15 others who owned properties in the vicinity of Chico Municipal Airport, for groundwater contamination. Previous military and industrial activities that occurred sometime between the 1940s and 1980s resulted in the release of hydrocarbons and volatile organic compounds (VOCs) into the soil, therefore contaminating the groundwater. The primary VOC identified as a concern was trichloroethylene, most commonly referred to as TCE. In case you are interested, TCE is a chlorinated hydrocarbon commonly used as an industrial solvent. (In laymans terms, it was a great degreaser!)

Neither the City of Chico nor most of the property owners included in the lawsuit were directly involved in the release of TCE into the groundwater; however, as they are now the owners of the property where the problem exists, they were named as responsible parties. I am going to skip discussing the many steps of the lawsuit to get to the important part – a Consent Decree was placed on the properties, requiring groundwater remediation, and a Settlement Agreement was established to pay for the expected remediation. All of the parties listed in the lawsuit had to pay into the Settlement Agreement, and because the City of Chico was the local municipality and owner of the Airport, the City was listed as the Responsible Party for the cleanup and was given the Settlement Agreement monies to cover necessary work.

Fund 312 was created using the monies from the Settlement Agreement. While other monies have since been transferred into Fund 312 from Fund 850 (Sewer) to pay for groundwater remediation projects at other locations, the remainder of the money is clearly dedicated to remediation of the properties identified in the Consent Decree whose owners paid into the Settlement Agreement.

The Fund Summary for Fund 312 describes many of these important details; it specifically states that the use of the Fund is restricted, and it states that the authorized uses for this Fund include only capital and operating expenditures related to groundwater remediation. The Fund Summary concludes that “The City contemplates that Chico Municipal Airport remediation will continue for decades, therefore, use of these funds is committed to this purpose.” Can it be more clear?

Also important to note is the sentence directly before what I have quoted above: “…liability of all other parties is limited to monies already provided in the settlement.” To be clear, if the monies in Fund 312 run out, the City will have to find alternative funding sources until the remediation is complete – a decision that DTSC will make. The Consent Decree was issued by a U.S. District Court and is legally binding.  If Fund 312 is depleted, the City cannot just say, “Oops, guess that project is done.”

Let’s go back to Martinez’s funding request for mold remediation at Fire Station No. 5. He is asking the Council to allocate $25,000 from Fund 312. Mold remediation is not an allowed use of Fund 312. Period.

It is curious that the Municipal Buildings Maintenance Fund isn’t being charged for this project. If staff and Council do not want to charge the Municipal Buildings Maintenance Fund, at the very least, would this not be a cost of the Fire Department (100% General Fund)? After all, it is a Fire Station being impacted.

One thing is for sure, use of Fund 312 to pay for mold abatement at a Fire Station is inappropriate. If this funding request is approved without changing the proposed source, it will be just one more indication that this Executive Team and Council cannot be entrusted to make the right decisions regarding our City.

Thank you for your continued readership. As always, your questions and comments are welcome.

Remember: Truth Matters, Chico!


Into the Weeds: Operating and Capital Budgets

In the most recent Into the Weeds post, I provided an analogy to help you understand the difference between Funds and Departments in municipal accounting. That concept will be important now, as we discuss the differences between Operating and Capital budgets; and even more so once we begin discussing Revenues, Allocations, and Transfers. As a reminder, I am keeping permanent links to all of the Into the Weeds series on a separate page, so you can easily go back and reread old posts when necessary.

Operating Budgets are developed and accounted for at the Department level. They are designed to pay for the anticipated costs associated with conducting a Department’s routine business. These budgets are similar to your household budget, in that you have a pretty good idea what your annual expenses will be, based both on past experience and expectations for the coming year.

The City separates its Operating Budgets into several Categories (Salaries & Benefits, Materials & Supplies, Other Expenses, etc.), which are then separated into Line Items (Salaries – Overtime, Office Expense, Training, etc.). Here is an example of what an Operating Budget looks like:  Sample Operating Budget

Some Departments have Operating Budgets in more than one Fund. A good example of this would be the Community Development Department (CDD). Because CDD conducts some of its business on private projects for which a fee is charged, those costs are budgeted in the Private Development Fund (Fund 862).  CDD also conducts some operations on a time-and-materials basis, primarily large developer projects such as subdivisions or development agreements; those operating costs are budgeted in the Subdivision Fund (Fund 863). Most of the City’s residual Housing operations are grant funded, so CDD has a budget in the Community Development Block Grant Fund (Fund 201). Finally, some CDD operations are conducted in a General Fund (Fund 001) budget, specifically non-project related activities that benefit the community as a whole, generally at the direction of Council or mandated by another agency.

When you look at the published City budget, you will not see the Line Item detail provided above. Instead, you will see an Operating Summary Report, which totals up all of the Department’s Operating Budgets by Category and then breaks them out by Fund totals.

While I would like to show you what Community Development’s Operating Summary Report looks like, this fiscal year’s budget ignored the new organizational structure altogether. So instead, I will show you what the Planning Division’s Operating Summary Report looks like, since it includes three of the four Funds mentioned above.

Planning Operating Summary Report

The top section shows Category totals for the entire Department, across all Funds in which it operates. The bottom section shows Fund totals, without any detail. (What you originally saw is an internal budget page. It includes Line Item details for all Department expenses, with separate budget pages for each Fund in which it operates.)

Capital Budgets are created to fund special projects rather than ongoing operations. There is generally a beginning and ending to a project, defined by creation of a specific, tangible asset.

Most Capital Budgets fund one-time infrastructure improvements (such as the Water Pollution Control Plant Expansion), although they are also sometimes used to fund consultant studies (such as the General Plan Update), if the cost exceeds $20,000 and/or multiple Funds are being used to pay for them. Expenses frequently cross fiscal years, so the City budget looks 10 years out to capture the entirety of the project.

Although some projects do have a fixed annual Capital Budget, work generally occurs at different locations each year. A good example of a project like this is the Annual Pedestrian Improvements. A fixed amount of money is budgeted for citywide improvements, and work is prioritized based on need.

Unlike Operating Budgets, City Capital Budgets are developed and accounted for at the Fund level. While each project is assigned to a certain Department for management purposes, all staff work on the project is charged to one budget account number without regard for departmental lines. Also, whereas Operating Budgets are developed using annual expense Categories (Salaries & Benefits, Materials & Supplies, Other Expenses, etc.), Capital Budgets are developed based solely on the total cost of the project.

Separation of project costs in a Capital Budget occurs after the expenses are incurred and is based solely on Activity Codes. In other words, staff salaries and postage and consultant costs and construction materials and contractor payments are all lumped together, separated only by whether the expenses were related to Property Acquisition, Project Design, Environmental Review, Construction, Inspection, etc. This is a critical concept that will tie into our future discussion of how the Capital Projects Fund (Fund 400) works.

In the City’s published budget, there are a couple of ways to look at Capital Budgets, but the simplest way is the Capital Improvement Program detail pages. Since Quené recently corrected some of the Public Works Director’s funding misstatements about the West Trunk Line Improvements project, and its funding and activities are clean and simple, we’ll just use that as our example.

Here is the detail page for the project: 16016_West Trunk Line Improvements

Notice the heading in the upper left corner – it assigns this project to Building & Development Services (which no longer exists). As I mentioned above, that assignment is for project management only. The Actuals column includes cumulative costs incurred, from project inception through the previous fiscal year, regardless of what Department incurred them.

Below the heading, the far left column shows Activity Codes 4110 (Preliminary Design / Study) and 4140 (Design) with expenses that have already been incurred. Beneath those, you will find Activity Code 4998 (Project Budget) with all projected costs for the current and future fiscal years. The final Activity Code, 4999 (Overhead), includes actual costs incurred as well as a budget in the out years, estimated at 15% of project costs. (Budgeted overhead rates vary from project to project, depending on a variety of factors. This particular project qualifies for a 15% rate.)

The second column indicates that the project is paid for solely by Fund 320 dollars, which is why you only see each Activity Code once. If there were two funding sources, you would see each Activity Code twice – once for Fund 320 and again for the second Fund.

Just so you can see what a more complicated project looks like, here is the project detail page for the SR 99 / Eaton Road Interchange project. The only thing I need you to see is that some of the Activity Codes are repeated for different Funds. This is what I meant when I wrote that Capital Budgets are developed and accounted for at the Fund level.

So, that’s plenty for one day. If you have questions about anything I’ve covered, please, please let me know. As we move forward with this series of posts, it is important that you grasp the concepts. I don’t want to lose you in the weeds!

Next up will be a discussion of Revenues, Allocations, and Transfers. Once we get through that, we can start looking at some of the issues currently being thrown around as political hot potatoes. That’s when the REAL fun begins. Whee…

Thank you for your continued readership. There are serious matters moving through the City bureaucracy, and it won’t be long before they come forward to the Council. Every Chico citizen and taxpayer should be concerned, so please continue to share our posts with your family, friends, and neighbors.

Remember: Truth Matters, Chico!

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