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Above, 4300 N.W. 36th Street, ak.a. Lauderdale Lakes City Hall -where the 'funny business' happened that's left taxpayers holding the bag.
Chaz Stevens provides a most useful and meaty primer for Broward County mayor John Rodstrom -and you, the curious reader- to be brought up to speed on the latest news re the City of Lauderdale Lakes' financial sleight-of-hand, which has left their own taxpayers the losers -once again- as concerned people throughout Broward County wonder what its future might be if they can't pay their bills, dissolution?
Before you read Chaz's primer, though, consider yet again the devastating words of John W. Scott, the head of the Broward County Office of Investigator General, from his late March report on what he and his team found at Lauderdale Lakes City Hall:
We note that while audits and inquiries of the City’s finances have been conducted by other agencies, they were limited to narrow areas of concern, so that the extent and gravity of gross mismanagement has otherwise not been depicted. In short, the untenable missteps by the City administration catalogued in this report serve as a primer for how not to manage taxpayer monies, a state of affairs which simply cannot be repeated by either the City or any other Broward municipality.
Final Report on Misconduct by the City Manager of Lauderdale Lakes in the Contracting for Management Services of a Former City Employee, OIG 11-021, March 26, 2012, (PDF)
Final Report on Gross Mismanagement of Public Funds by the City of Lauderdale Lakes, OIG 11-017, March 26, 2012, (PDF)
An open letter to Mayor John Rodstrom
By Chaz Stevens
Published: April 14, 2012
Chaz's previous posts on this rather amazing, headache-inducing mess, and how it all came to be that over a long time, many city officials in this central Broward town simply stopped doing the one thing that all elected officials are expected to do once elected: provide a means to hold others accountable to the citizens of the community.
(Something we have lots of experience with here in Hallandale Beach.
The NOT holding others accountable part!)
In fact, they didn't do it for so long, while they were simultaneously being lied to, that transparency as a concept seems to have largely vanished from their vocabulary:
South Florida Sun-Sentinel
Lauderdale Lakes report: The Highlights
7:54 PM EDT, March 26, 2012
Excerpts from the Broward Inspector General's reports about Lauderdale Lakes:
“ … In less than four years, the City went from having over $6 million in general fund reserves to being unable to satisfy $9 million in debts for public safety costs, as well as incurring a $2.5 million debt to its own Community Redevelopment Agency (CRA).’’
‘’The OIG investigation uncovered multiple instances of gross mismanagement, including financial decisions which ultimately led to the City’s present condition.’’
“While actual City revenues were declining by the millions, [former Finance Director Larry] Tibbs employed various maneuvers to supply inflated and unsupported estimates for a fictitious revenue budget of over $18.6 million.’’
“The OIG investigation also substantiated allegations that the City’s CRA funds were improperly used to pay City operating expenses …”
“The nation-wide economic downturn hurt all governmental entities, but no other Broward municipality has realized the level of financial distress encountered by the City, which—in less than four years—went from having over $6 million in general fund reserves to being unable to satisfy $9 million in debts for public safety costs, as well as incurring a $2.5 million debt to its own Community Redevelopment Agency (CRA).”
“In November 2011, the Broward Office of the Inspector General (OIG) began an investigation into allegations that Jonathan K. Allen, the City Manager of the City of Lauderdale Lakes (City), contracted for services in a manner which violated Florida law. Specifically, it was alleged that Mr. Allen engaged in intentional bid splitting and other misconduct to undermine procurement controls, and to improperly authorize a contract for the management services of a former city employee.''
The OIG investigation substantiated the allegations.
Bid splitting is the act of intentionally dividing a purchase into two or more smaller purchases in order to avoid triggering purchasing restrictions that are tied to dollar thresholds. The practice has been widely recognized as violating public policy and is illegal in many jurisdictions. Florida explicitly prohibits the practice in relation to purchases made by state agencies.2 The criminal statutes are less explicit, but the bid tampering statute prohibits the circumvention of legally required competitive solicitations.
“By way of this report, the OIG refers this matter to the City Commission to consider appropriate administrative action to address Mr. Allen’s conduct.’’
"Based upon the findings of this investigation, the OIG makes the following recommendations:
1. The city should adopt language specifically addressing the requirements of a competitive solicitation process for all categories of contracts, and the thresholds which trigger the various requirements.
2. When an informal competitive process is permitted, documentation of market research or other price justification should be required, so that the City does not risk paying highly inflated rates for comparable services.''
The OIG requests that we are provided with a status report in 60 days, or by May 25, 2012, regarding the City’s adoption and implementation of these recommendations.
By way of this report, the OIG refers this matter to the City Commission to consider appropriate administrative action to address Mr. Allen’s misconduct. The OIG also refers this matter to the Broward State Attorney’s Office for its independent assessment of the application of the Florida bid tampering statute.
"While actual City revenues were declining by the millions, Mr. Tibbs employed various maneuvers to supply inflated and unsupported estimates for a fictitious revenue budget of over $18.6 million."
"We uncovered multiple instances of gross mismanagement, including financial decisions which ultimately led to the City’s present condition. Specifically, the OIG investigation determined that the City’s former Finance Director, Larry Tibbs, under the authority of the former City Manager, Anita Fain-Taylor, continued to propose inflated revenue estimates that ignored the downturn in the economy and multiple financial red flags. While actual City revenues were declining by the millions, Mr. Tibbs employed various maneuvers to supply inflated and unsupported estimates for a fictitious revenue budget of over $18.6 million. For example, Mr. Tibbs estimated that revenues would come from non-existent funds, funds that were in deep deficits, and interest income from non-existent assets. In addition, ad valorem revenues were inflated in multiple ways, and other revenue streams were estimated with complete disregard for the economic trend data that showed those revenues were falling. These methods allowed the City, on paper at least, to balance the budget as required by Florida law. As a result of the original inflated revenue projections, the City continued to budget the same level of expenses, but never took cost effective saving measures that could have mitigated the present deficit."
Our investigation also raised concerns about the level of communication with the City’s elected officials, who were misled about the City’s financial condition. Our investigation indicates this state of misinformation is attributable not only to the City administration, but also to the City Commission, because its members failed to properly review and comprehend written reports submitted by independent auditors, and failed to demand more frequent financial reports from the City administration.
Florida Statutes allow for the creation of a community redevelopment plan, to include a CRA and CRA trust fund. The CRA is governed by a Board which consists of all of the members of the City Commission. Funds allocated to the CRA may be used to finance or refinance any community redevelopment it undertakes pursuant to the approved community redevelopment plan. Florida Statutes §163.387(6) enumerates the permissible uses for the funds allocated to the CRA trust fund. In addition, §163.370(3)(c) specifically prohibits the use of CRA funds to pay for general government operating expenses.
This investigation was predicated on information alleging that between 2008 and 2011, officials of the City had grossly mismanaged public funds entrusted to its care. The OIG investigation substantiated the information, and also found that CRA funds were improperly used to pay City operating expenses. In addition, we found that the City Commission and others were misled about the City’s financial condition.
The City’s financial issues began to surface in the 2008 fiscal year when the City’s total fund balance of the general fund declined 29.6% from $6,353,998 to $4,470,755. An additional indisputable indicator of the City’s impending financial crisis surfaced in late 2009 when the fund balance further declined from $4,470,755 to $921,853, or 79.4%. Even if no one had been tracking actual revenues, a decline of almost 80% in the City’s fallback should have raised concerns. Nonetheless, the City administration again proceeded with revenue estimations of over $18.6 million for 2010 and 2011. As of the end of the 2010 fiscal year, the general fund had a deficit of $1,415,269.5 In 2011, the City found itself unable to pay $9 million for public safety services, and also owed the CRA $2.5 million.
Mr. Tibbs admitted that he was responsible for compiling and proposing estimated revenues for the annual budget, but stated his belief that the financial difficulties of the City were due to the City Commission’s failure to cut expenses. However, when pressed about the inaccuracy of his own revenue estimations, Mr. Tibbs admitted to OIG Special Agents that the 2011 revenues had been inflated. His stated reason for inflating the revenues was that the City Commission did not want “bad news.” Mr. Tibbs was unable to identify any support or justification for his many questionable revenue estimates, as detailed below, in the four budgets propounded between 2008 and 2011. In addition, Ms. Fain-Taylor admitted that she was not watchful of the City’s finances since she had total confidence in Mr. Tibbs.
OIG analysis revealed that the budget estimate for “Administrative Cost Charges” revenues in the 2010 budget projections also included $250,000 of revenue from a “recreation trust fund.” That fund did not exist, as it was not reported as a fund in the City’s financial statements. Unable to establish the existence of the stated source for these projected revenues, OIG staff asked the current Finance Director for supporting documentation. She indicated that “there are no revenues or expenditures in the recreation trust fund and that is why it is not reported in the financial statement.” In fact, the “fund” apparently never had any revenues or expenditures and was never included in any financial statements. Not surprisingly, there were no revenues received from the “recreation trust fund” in 2010. Nonetheless, in 2011, Mr. Tibbs increased the amount to be received from the “recreation trust fund” to $305,000, despite the fact that the fund was wholly imaginary.
The City opted to raise the millage rate each year since 2008, to the current millage rate of 9.5, which is the highest of any Broward municipality.
The OIG investigation further determined that when City Commissioners did ask questions about the revenue estimations, they were misled.
Mr. Tibbs also made misleading statements during public hearings. During the September 13, 2010 first budget hearing, a City resident asked what effect the proposed budget would have on the “reserve balance,” a lay term for the fund balance of the general fund. Mr. Tibbs stated that the fund balance would be within 8-10% of the operating expenses. When a City Commissioner inquired what that meant in “dollars and cents,” Mr. Tibbs stated that 10% would mean that approximately $1.7 million would be in the fund balance.17 At the time Mr. Tibbs made those statements, the City had a deficit of approximately $1.4 million.
Mr. Tibbs also sent misleading statements to other parties. On October 15, 2009, two weeks after the 2009 fiscal year ended, Mr. Tibbs sent an email to Bank of America, in support of a request for a revolving line of credit, indicating that the City’s fund balance of the general fund at the end of 2009 was expected to be $3.1 million. (Exhibit 5) As indicated in OIG Table 3, the actual fund balance was $921,853.
The City Commission, as a whole, was misinformed and unaware of the City’s deteriorating financial condition until the situation was beyond repair using normal budgeting measures. The OIG investigation determined that this state of misinformation is attributable to both the City administration and the City Commission itself. For example, multiple commissioners admitted to OIG staff that they did not comprehend the written reports and information they were provided. Further, both Ms. Fain-Taylor and the Assistant City Manager informed OIG Special Agents that the financial status of the City was only discussed at the mid-year budget meeting or during preparation of the budget. Commissioners did not request more frequent updates. All of the Commissioners also admitted that they were unaware of the severe decline in the fund balance at the end of 2009, even though the decline was documented in audited financial reports provided to each of them.
While Commissioners are not expected to be financial experts and understand all the nuances inherent in the estimation of revenues, the City Commission possessed sufficient information in just the financial statements from which they could have determined that the revenue estimates were inflated.
financial statements from which they could have determined that the revenue estimates were inflated.
Ms. Fain-Taylor stated that after the City Commission composition changed in 2008 when four new commissioners were elected, none of which had previous experience as an elected official, she attempted to educate the commissioners on their responsibilities and the realities of the City, but they appeared to be uninterested. She also stated that alliances between commissioners changed on a daily basis and they were influenced by special interests in the community. Ms. Fain-Taylor stated that in the months leading up to her dismissal, her relationship with the City Commission had become strained.
She further stated that during the mid-year 2011 budget meeting, when year to date amounts are reviewed and budget amendments are made, she suggested pay cuts and a lease buyback on City properties, but that the City Commission was not interested in her proposals.
As the official responsible for making educated projections of City revenues, Mr. Tibbs failed to properly execute his professional responsibilities. Although he is no longer employed by the City, the OIG remains concerned about the culture of complacency that allowed him to include revenue projections from non-existent funds and funds with deficits, and to make other completely baseless revenue projections. In addition, although the budget was the responsibility of Ms. Fain-Taylor and the City Commission, they neglected to perform their oversight responsibilities. Their lack of consistent communication and oversight of City public funds has now been transformed into an additional expense for all Broward taxpayers.
Inspector Gen.: Lauderdale Lakes Grossly Mismanaged Taxpayer Money