LOS ANGELES — Riverside, Calif.'s finance director characterized as minor three issues mentioned in an audit conducted on the city's sewer fund and 2009 sewer bonds.
The audit was conducted to assuage citizen concerns voiced when the city began work last spring on a new bond issue.
In a review of 34 interfund loans and 86 bond requisitions, auditors Macias Gini and O'Connell found the city prematurely withdrew $1.2 million in bond money, improperly spent roughly $25,000 and paid back 10 short-term loans from the sewer fund a few months late.
The city postponed plans to issue $140 million in sewer revenue bonds pending the audit results, according to City Finance Director Brent Mason. The bond proceeds are to help fund the city sewer system's roughly $550 million in long-range capital projects.
"We didn't want to find ourselves in the same situation as Anaheim," Mason said.
Anaheim's underwriter Citi canceled the closing on a $265 million bond sale, which had already priced, after a lawsuit was filed May 12 by an activist organization seeking to invalidate the bonds. After receiving a favorable ruling in September, Anaheim returned to the market to sell $300 million for its convention center expansion.
City gadflys claimed that Riverside wanted to issue new bonds because it had inappropriately loaned the bond funds to other city projects, which is the opposite of the truth, Mason said.
City officials hired the auditing firm at a cost of $110,000 to conduct the review and to lay the claims to rest before moving forward on the bond issue, he said.
The interfund loans reviewed by auditors were made to the city's former redevelopment agency in 2007 - prior to the issuance of the 2009 bonds - to bridge a gap for the RDA until a bond issue sold, Mason said. The loans were repaid past the due date, because it took longer for the RDA's bonds to sell than anticipated, he said.
Independent counsel Musick, Peeler and Garrett LLP and the city attorney's office both rendered opinions saying that interfund loans are allowed by local and state law, in response to a query from the auditors.
The $25,000 in bond proceeds that went for non-qualifying expenses were used for an $8,000 accident investigation and $17,000 for an emergency sewer repair. The expenses were balanced out by $800,000 in qualifying expenses for which the city didn't use bond proceeds negating the need to reimburse the bond proceed fund, auditors said.
As for the $1.2 million prematurely withdrawn, auditors called the transaction a one-time occurrence and noted that shortly after the withdrawal the city incurred sewer expenses the withdrawal covered.
The city plans to issue $140 million plus issuance costs using Wells Fargo as the underwriter sometime in the spring. The city's current sewer bonds are rated A1 by Moody's Investors Service and have an A rating from Standard & Poor's.