SAN FRANCISCO — California Controller John Chiang said he found “glaring holes” in the finances of the city of Hercules during two audits.
The audits of Hercules’ use of state, federal and transportation funds, released Thursday, slammed city staff for shoddy accounting and compliance, allegations disputed by city officials.
“During my time in office, this could be the worst set of city accounting records I have seen,” Chiang said in a statement Thursday.
The controller ordered the review in August after finding major discrepancies in the city’s financial reporting, which included misstatements in its debt service fund.
Hercules, located on the northeast shore of San Francisco Bay with a population of around 26,000, has been battered by self-inflicted financial problems, leaving it on the brink of bankruptcy.
Chiang said city staff could only provide 15 documents out of the 107 requested, which included few records showing how it spent more than $2 million in state and federal grants.
He said meetings with city staff were often ignored or canceled.
Mayor Dan Romero disputed Chiang’s characterization of the audit process and was surprised by the controller’s harsh statements.
“I wish the state would help the city and not put the pressure they are putting on us,” Romero said. “We are just trying to get out of this hole.”
He said city staff have been “stressed” and in turmoil.
Hercules’ budget has been slashed 40% and staff has been cut by about the same percentage over the last year, including more than half of the finance department staff.
The city is on its fourth finance director in less than three years.
The mayor said Hercules is likely facing at least a $1.5 million deficit for next year and trying to find ways to make payments on more than $315 million of redevelopment agency obligations.
“The city of Hercules is a poster child for what not to do in redevelopment,” said Romero, who took office in a 2011 recall election that changed control of the City Council.
When asked whether Hercules’ finances denote a larger problem in the state, Chiang spokesman Jacob Roper said, “We received over 200 requests for audits for various local governments and they have come in a flood since we finished auditing the city of Bell, and they keep coming in.”
The controller has already started an audit of Stockton. Chiang’s office will also release two more audits of Hercules’ internal controls and its redevelopment agency.
The controller’s audits are just the latest in a string of financial and political troubles for Hercules.
Last year, a Contra Costa County grand jury said in a report that Hercules used bond funding to make up a $6.6 million deficit. In 2010, the same grand jury described the appearance of impropriety and-or lack of transparency in the city’s housing and business loan program.
The allegations of fiscal improprieties led the Federal Bureau of Investigation to open a probe that is ongoing.
The turmoil also led residents to recall the mayor and a council member who served while the former city manager, who some blame for the financial troubles, was reinstated even after problems had been discovered.
Earlier this year, Hercules settled a lawsuit brought by Ambac Assurance Corp. over a default by the city’s RDA.
Ambac alleged the Hercules Redevelopment Agency illegally transferred $4.1 million of tax money to the city instead of using it to pay bondholders.
The city manager said at the time that Hercules could have been pushed into bankruptcy if it lost the lawsuit.
The city will put a measure on the June ballot asking for a half-cent sales tax that could raise up to $500,000 annually.
