Misstep on math doubled shortage.

Byline: Karen McCowan The Register-Guard

COBURG - A double whammy math error was responsible for $450,000 of the $600,000 budget deficit confounding this city since last summer, an auditor told the City Council last night.

Julie Arndt of Isler and Co. told council members that the problem began with negative balances in three city funds at the end of the 2003-04 budget year. The city's general fund was about $213,000 in the red, for instance, Arndt said. Instead of adding that total to general fund revenue needed for the next fiscal year, whoever prepared the budget subtracted it from projected 2004-05 budget needs.

"Since total requirements must equal total resources, this error effectively doubled the impact," Arndt and colleague Gary Iskra wrote in their six-page report.

Arndt offered an example at the meeting.

"Say $100,000 was needed for the new year and you were starting with a $40,000 deficit," she said. "You should have budgeted for $140,000 in resources, not $60,000."

Former City Recorder Peggy de Montmorency prepared the budget and former City Administrator/Police Chief Mike Hudson presented it to Coburg's budget committee and City Council, which reviewed and adopted it last spring and summer.

Isler and Co. also found that the city had skipped mandatory payments to Oregon's Public Employee Retirement System from April 30, 2003, to Jan. 9, 2004, and that it had illegally transferred dedicated sewer, urban renewal and traffic fine revenues to its general fund without City Council approval.

De Montmorency, who was placed on paid administrative leave last summer and fired last fall after the budget problems became public, said Tuesday night that she did not recall subtracting the deficits from needed resources, but added that it has been a year since she prepared the budget. Hudson, who resigned last fall in a negotiated settlement that included a year's severance pay, could not be reached for comment.

City Council members could not say Tuesday night how they failed to detect such a big error, though Mayor Judy Volta noted that elected officials were not notified of the deficits or the fund transfers. She said she planned to review the audit, which the council saw for the first time Tuesday night, but was unsure officials would ever learn who was responsible for the errors and fund transfers.

That did not sit well with city resident John Hoffmann, a regular attendee at council meetings.

"They just glossed over it," he said, adding that he intended to press the council at its next meeting to "find out who authorized that money going into the general fund."

Volta asked the auditors if their findings included "either fraud or criminal activity."

"Under our professional standards we are not allowed to do that," Arndt said. "But we didn't see anything like a check made out to someone."

The shortfall has caused the city to eliminate four positions in addition to de Montmorency's and Hudson's, as well as cutting benefits to remaining employees. City voters will be asked next month to approve a four-year local option levy of $1.50 per thousand dollars of assessed valuation to maintain round-the-clock police coverage. Meanwhile, the city will have to postpone until next year repayment of the illegal urban renewal fund transfer in order to end the 2004-05 fiscal year with a balanced budget as required by state law.

Also Tuesday night, the council hired state insurance pool fiscal coordinator David Landrum as Coburg's new city recorder and finance director. Landrum, a Thurston High graduate, is also a 20-year Army veteran where his positions included director of resource management for the 62nd Medical Brigade in Fort Lewis, Wash..