Lynnwood officials blamed for red ink

LYNNWOOD — More bad news for the city and its budget woes.

The state auditor is finding fault with Lynnwood Mayor Don Gough and the Lynnwood City Council for not controlling costs. The state reviewed the city’s finances for 2009, which is the first year of the city’s two-year budget cycle.

The City Council is expected to discuss a draft of the audit at a special meeting tonight. Auditors cite three specific concerns:

• The city’s general fund decreased from $6.6 million in 2005 to being in the red by $115,733 by the end of 2009, well below the $4 million required under a 2005 city resolution;

• The city saw its cash reserves drop from $4.2 million in 2005 to $74,101 by the end of 2009;

• The city exhausted its $2 million reserve, or “rainy day” fund, and borrowed $3 million from its utility fund to pay for operating expenses.

Auditors noted the city in 2010 cut spending by leaving vacant positions open, putting construction projects on hold and transferring cash set aside for those projects into the general fund.

Those actions left two-year general fund, which pays for core city services such as police, fire and roads, with a $1.5 million balance by July 31 this year, the audit says. The city has a general fund budget for 2009-10 of $86.7 million.

Auditors also noted the city’s had several finance directors since 2005. In March, finance director John Moir resigned days after a heated exchange with some members of the City Council during a council budget meeting. He was replaced by interim finance director Patrick Dugan, who had worked as the city’s interim finance director in 2006.

Auditors recommend the mayor and council establish a formal, written comprehensive plan to address the city’s financial condition and ensure it maintains minimum fund balances. Officials also should closely monitor and evaluate the city’s financial condition “to ensure the plan is followed and the desired results are achieved,” the audit says.

The audit follows months of intensive, often-heated review of the city’s budget by the City Council after they learned the city faced a $5.5 million shortfall for the remainder of 2010.

That review included reports from independent financial experts hired by the council and the city’s main police union.

In April, the council agreed to new taxes on gas, electricity and water and sewer as part of an effort to plug the hole in the second year of its two-year budget. Budget cuts, transfers and a hiring freeze rounded out the reductions.

While the city has had problems with its current budget, the next one isn’t looking too rosy either. The council learned in July the city faces an even larger $21 million budget gap in 2011 and 2012.

Last month, the city notified 102 employees that their positions may be eliminated in January to save money in 2011 and 2012.

Auditors last week altered wording in the draft audit, which originally focused its attention on the City Council for making ill-advised decisions. In the new version, auditors refer to “elected officials,” who are collectively “responsible for managing financial resources to meet its responsibilities to citizens.”

Mindy Chambers, state auditor Brian Sonntag’s spokeswoman, said the wording change is the result of “conversations with city management and city elected leaders.”

Council President Mark Smith said he wasn’t surprised by the audit’s findings.

“There’s nothing in there that the council hasn’t been aware of for a number of months,” he said Friday.

Smith said the council in July asked Gough to provide them with a balanced budget earlier than required by law because of the city’s financial predicament.

Councilman Jim Smith also was critical of Gough.

“The mayor gave the council faulty information,” he said. “That being said, I think the council as a body should have done more to question the mayor’s claims.”

Calls to Gough for comment were not returned Friday.

The city is allowed to respond to the auditor’s findings. The city’s response can be added to the final audit, spokeswoman Chambers said.

Oscar Halpert: 425-339-3429; ohalpert@heraldnet.com.

Public meeting

Representatives from state Auditor Brian Sonntag’s office will discuss the draft audit’s findings in a meeting with the City Council at 6 p.m. today at City Hall Council Chambers, 19100 44th Ave. W.