A preliminary state audit of Hollywood, Fla.'s finances shows troubling past management practices, and unaddressed high pension costs.
Despite some poor budget practices, the 25-page auditor general's report did not indicate that the city missed bond payments or misspent bond proceeds.
Auditors found that the city declared a financial urgency in fiscal years 2011 and 2012 without considering all available funds. The declaration enabled the city to reopen union labor agreements and reduce benefits.
The state contends that the city could have borrowed excess revenue from its Water and Sewer Utility Fund to mitigate general fund deficits.
Auditors found that Hollywood officials need to develop a formal plan to replenish general fund reserves, and establish minimum target levels of working capital in the water and sewer fund. They also said that the city had no funding policy for pension plans to ensure that sufficient resources would be available to fund benefits promised to employees.
In other budget matters, auditors said the city had ineffective revenue projections, over-spent, and failed to bring prior year balances forward. The city's Beach Community Redevelopment Agency also failed to include prior year balances when adopting new budgets, and failed to spend revenues in accordance with CRA plans.
In August, Fitch Ratings affirmed the city's A rating on $50.5 million of outstanding general obligation bonds, and said the outlook remains negative due to the "uncertainty surrounding the maintenance of structural balance and the outcome of labor negotiations for fiscal 2013 upon the expiration of financial urgency."
In 2012, Fitch downgraded Hollywood's GOs twice from a high of AA-minus to the current A rating, in part because of shortfalls due to "optimistic revenue projections."
Moody's Investors Service downgraded its GO rating to A1 from Aa2 last year.
The CRA's rating on $49.5 million of outstanding bonds was affirmed at A-minus last year by Fitch, the only agency that rates the debt.
After city officials have responded to the auditor's preliminary report, a final version will be released.