Lincoln Mismanaged Funds and Overcharged for Services, Auditor Finds

The city of Lincoln is mismanaging public funds, making “questionable loans” and failing to comply with state finance laws, the state auditor reported March 21.

Lincoln, located in Placer County, operates under the council-manager form of government in which its City Council is responsible for governance, while a city manager oversees operations.

The auditor found:

  • The city overcharged the public for city services. “Lincoln overcharged developers and builders for water infrastructure and capacity, thereby accumulating a fund balance of nearly $41 million as of June 2017,” the auditor reported. “Further, Lincoln undercharged the public for other services, such as building inspections and permit administration. Lincoln also violated provisions of the state constitution by failing to pay for its own use of municipal utilities, including water, sewer, and trash collection; it instead passed these costs on to ratepayers through increased utility rates. Lincoln has not refunded or provided equitable consideration to ratepayers for the increases in their rates resulting from the city’s use of utilities.”

  • Lincoln made “questionable loans, transfers, and allocations that did not always comply with state law.” The city established restricted funds related to its different functions to ensure that it uses the revenue it receives for the purposes for which that revenue was intended. “However, it used those funds to make unrelated interfund loans and transfers that it may not be able to repay,” the auditor stated. “Further, as a result of loans and transfers, the city misrepresented the financial position of several funds: although these funds had year-end deficits, the loans and transfers made them appear as though they had positive fund balances. Finally, Lincoln violated the state constitution by using surplus revenue that property owners in certain areas paid in landscaping and lighting assessments to cover costs associated with properties in other areas.”

  • The city didn’t establish or follow procedures to ensure appropriate management of tax dollars. “Lincoln lacks key policies and procedures to ensure consistency, compliance, and transparency in its financial practices,” the auditor wrote. “Moreover, Lincoln did not follow its existing policies by obtaining the appropriate approval from the city manager or the city council for expenditures, resulting in questionable spending.”

Interim City Manager Jennifer Hanson, who has served as director of the city’s Public Services Department since 2015, said the city agrees with all of the findings, and is taking steps to address the problems. “The audit provided the City of Lincoln a valuable opportunity to look internally and improve its operational processes,” Hanson said. “City staff and the City Council look forward to engaging residents to address the heart of the City's challenges, a shortfall in General Fund revenue, and the levels of service provided.”

From 2000 through 2010, Lincoln was one of the fastest-growing cities in the nation, expanding from 11,000 to 43,000 residents. The auditor wrote that the city “experienced significant fiscal challenges” as a result of the last recession, and “fully depleted its unrestricted general fund balance in fiscal year 2008-09, although it had increased the balance to $8.7 million by fiscal year 2016-17.”

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