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California State Auditor Report Number : 2015-806

City of Hemet
Its Ongoing Budget Deficit and Organizational Inefficiency Threaten Its Financial Stability and Delivery of Public Services

Risks Facing the City of Hemet

In July 2015, the California State Auditor (State Auditor) informed the city of Hemet (Hemet) that it had been selected for review under the high‑risk local government agency audit program. The program authorizes the State Auditor to identify local government agencies that are at high risk for potential waste, fraud, abuse, or mismanagement, or that have major challenges associated with their economy, efficiency, or effectiveness. We initially identified Hemet as an entity that might be classified as a high‑risk local government entity based on publicly available information. The State Auditor conducted an initial assessment of Hemet in July and August 2015. Although we did not observe any conditions related to fraud or abuse, we did identify concerns regarding Hemet’s persistent budget deficits and high retiree medical benefit costs.

In December 2015, Hemet provided the State Auditor with an update on its progress in addressing the risk factors we identified. In particular, Hemet indicated that it had made substantial progress in reducing its retiree medical costs by creating an incentive program to encourage retirees enrolled in its most expensive health care plan to switch to a lower‑cost plan. However, based on our continuing concerns regarding its budget deficit, we recommended an audit of Hemet, which the Joint Legislative Audit Committee approved in January 2016.

To generate additional revenue to fund its police and fire departments, Hemet proposed a 10‑year 1 percent special‑purpose sales tax designated for public safety. However, the proposed tax measure, which Hemet placed on the ballot in the June 2016 election, failed to achieve the necessary two‑thirds approval by voters. Had the measure passed, Hemet estimated that it would have generated an additional $10 million to $13 million in revenue annually for the 10‑year life of the tax. Hemet intended to use this new revenue to hire additional police and fire staff, along with other spending related to public safety, such as purchasing needed equipment. The tax measure would have required Hemet to split the proceeds from the tax between the police and fire departments, with two‑thirds designated for the police department and one‑third designated for the fire department.

One of the reasons Hemet proposed the special‑purpose tax for public safety was to address its high crime rates. Hemet’s 2014 violent and property crime rates were higher than those in surrounding communities and in California as a whole, as depicted in Figure 1. Further, Hemet police department statistics show that the number of violent crimes increased by 30 percent between 2014 and 2015. Various changes in Hemet’s demographic profile over the previous decade may have affected crime rates. However, Hemet’s police chief has specifically identified the reduction in sworn police officers as a factor contributing to the increased crime rates in Hemet. Although the budgeted number of sworn police officers increased by 16 positions between fiscal years 2011–12 and 2014–15, Hemet reduced the number of budgeted officers by 31 between fiscal years 2006–07 and 2011–12, and the number of officers has yet to recover fully to the 2006–07 level. According to the police chief, the reduction in police staffing has forced officers to focus on only immediate needs and limited their time for proactive crime prevention.

Figure 1
The City of Hemet’s Crime Rate Is Greater Than That of California as a Whole and Surrounding Cities

The City of Hemet’s Crime Rate Is Greater Than That of California as a Whole and Surrounding Cities.

Sources: Federal Bureau of Investigation (FBI) Uniform Crime Report for 2014, which is the most recent complete year of data available from the FBI.

* Violent crime includes murder and nonnegligent manslaughter, rape, robbery, and aggravated assault.

 Property crime includes burglary, larceny‑theft, and motor vehicle theft.

Despite Hemet’s recent actions to address our identified risk factors, our analysis concludes that Hemet should be classified as a high‑risk local government agency due to substantial risk factors in the city’s financial management and organizational management. Specifically, Hemet developed a plan to address its financial challenges, but we project that this plan will not eliminate its budget deficit. As a result, its financial condition has the potential to hinder its ability to efficiently deliver public services, particularly in the area of public safety.

In addition, some aspects of city government continue to be ineffective and inefficient, impairing the provision of public services. For example, Hemet’s fire department is understaffed, presenting a public safety risk Further, high turnover of key leaders in city government—chiefly the city manager—has limited Hemet’s ability to plan for the future.

To help Hemet address the identified risk factors, we have developed numerous options the city could implement, including increasing the cost effectiveness of certain services, charging fees for services it currently provides at no cost, engaging in strategic and succession planning, and revising the structure of city government for increased efficiency. As seen in Figure 2, our projections show that by implementing specific recommendations, Hemet could increase the balance of its general fund over time. Specifically, our projections show that it could generate additional revenue annually, ranging from $3.1 million to $3.8 million, and would result in annual revenues exceeding its expenditures over the next four fiscal years.

Figure 2
Implementation of Specific Recommendations Could Increase the City of Hemet’s General Fund Balance

Implementation of Specific Recommendations Could Increase the City of Hemet’s General Fund Balance

Sources: California State Auditor (State Auditor) analysis based on Hemet’s five‑year projections corrected by the State Auditor, fiscal year 2014–15 comprehensive financial report, and State Auditor review.

* Specific recommendations addressed in our report include $2.1 million to $2.8 million additional revenue generated annually by charging for emergency medical services provided by its fire department (based on a 50 percent collection rate), $835,000 additional revenue generated annually for charging for nonresident use of the city library (based on a $50 annual fee collected from 50 percent of the patrons that would be required to pay), and $183,000 annual savings from outsourcing maintenance of city parks (based on $0.15 per square foot).

Agency’s Proposed Corrective Action

Hemet disagreed with our designation of the city as high risk. It plans in August 2016 to submit its corrective action plan, in which it will outline how it will address our recommendations.

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