Report 2011-131 Recommendation 37 Responses
Report 2011-131: City of Vernon: Although Reform Is Ongoing, Past Poor Decision Making Threatens Its Financial Stability (Release Date: June 2012)
Recommendation #37 To: Vernon, City of
To minimize the continuing financial losses on the two currently outstanding interest rate swaps, the city should develop a clear process for deciding how it will terminate these swaps based on the cost and future risk to the city.
Annual Follow-Up Agency Response From July 2014
On February 4, 2014, the City Council adopted the Budget Policies and Procedures Manual, which contains a section specifically addressing investment derivative monitoring, reporting requirements, and financial conditions or thresholds for termination. (See page 5 of Budget Policies and Procedures Manual.) The Finance Director is continuing to monitor the swap transactions to determine the appropriateness of partial or full terminations of the agreements.
- Completion Date: February 2014
California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented
1-Year Agency Response
On September 4, 2012, the City Council adopted Resolution No. 2012-178, approving the termination of the portion of cash flow exchanges under the 2004 Series A Swap scheduled to occur through December 1, 2015, and entering into an Amended and Restated Confirmation with a new effective date of December 1, 2015. On May 7, 2013, as part of the first of three public City Council study session meetings for the proposed 2013-2014 fiscal year budget, the Finance Director provided an up-to-date analysis of the City's debt structure. The Finance Director is continuing to monitor the swap transactions to determine the appropriateness of partial or full terminations of the agreements.
- Completion Date: May 2013
- Response Date: July 2013
California State Auditor's Assessment of 1-Year Status: Partially Implemented
As the city indicates, the finance director provided an analysis of the city's debt structure at the May 2013 city council study session meeting for the proposed 2013-14 fiscal year budget. However, the city did not indicate or provide documentation that it has developed a process for deciding how it will terminate these swaps.
6-Month Agency Response
The city indicates that the city administrator and finance director have enlisted BLX Group LLC to perform an assessment of the viability of terminating the city's swaps and a detailed process for doing so. The city administrator and finance director expect to present the results of the assessments and any appropriate recommendations to the city council by May 7, 2013.
- Response Date: January 2013
California State Auditor's Assessment of 6-Month Status: Partially Implemented
60-Day Agency Response
The city did not address this recommendation in its August 2012 response. (See 2013-406, p. 197)
- Response Date: August 2012
California State Auditor's Assessment of 60-Day Status: No Action Taken
Agency responses received after June 2013 are posted verbatim.