DEPOE BAY — The city of Depoe Bay has been struggling to correct problems with its financial reporting for the last two years after it first discovered major issues with its financial record keeping in 2018. After hiring an accounting firm last month, the city seems on track to implement a long-term solution.
While city officials and staff report that Depoe Bay is in good standing and set to meet all of its financial obligations for the foreseeable future, being unable to prove that with the appropriate records has caused several problems for the city.
After failing to meet deadlines to submit its necessary financial reports starting in the 2017-18 fiscal year and in subsequent years, the city lost its bond rating from Moody’s Investor Services in 2019 and has also had more than $32,000 in state revenue funds withheld by state departments until it can file several delinquent financial reports.
Some of the city’s financial reports were successfully filed over the last two years, but others have remained in limbo while the city sought the appropriate expertise to get things back in order.
Depoe Bay Mayor Kathy Short told the News-Times that after roughly two years attempting to find the appropriate professional staff to help with the city’s financial reporting, Depoe Bay hired the accounting firm Merina+Co in March to provide certified public accountant services for the city.
“We’re not in any dire straits and have been very cautious in our spending,” Short said. “We’re making our payments, we’re not in default. We’re in good standing on everything, but we just can’t prove it until we get our paperwork in order.”
Merina+Co will help the city catch up on issuing its financial statements and its municipal debt filing, after which it will provide advisory services for the city going forward. The process will still take some time, but the contract marks a major milestone in the city’s effort after previous attempts fell through.
“It’s going to be a bit of work, both for us and for the city,” said Robert Moody of Merina+Co. “They find themselves in a situation where they have gone through a couple different iterations of trying to implement financial software without the level of project management or knowledge and understanding of that process that they should have had, and as a result it just hasn’t gone well.”
As part of its work with the city, Merina+Co will help implement a new software system that should be able to meet the city’s long-term reporting needs.
Moody said Merina+Co’s target is to get the city’s 2018-19 financial statement submitted to the Electronic Municipal Market Access database before June 30, though he couldn’t guarantee that deadline would be met this soon in the process.
Once the paperwork is properly filed and reviewed, the state should release the withheld funds and Moody’s Investor Services should issue the city a new bond rating.
The state is currently withholding $23,353 in highway funds from the Oregon Department of Transportation and $8,977 in revenue share funds from the Department of Administrative Services from the city because of the delinquent reports, according to information provided by the Oregon Secretary of State’s office.
David Jacobson, a spokesperson from Moody’s Investor Services, said he could only provide limited information about the city’s situation, but confirmed the city’s A2 rating was withdrawn in 2019 because the city couldn’t provide the information to ensure the bond remained accurate before a certain deadline and hasn’t issued all the necessary reports since.
Jacobson said when a city loses its bond rating, it’s usually due to failure to provide an audited comprehensive annual financial report, and withdrawing a bond rating is something Moody’s has to do every once and awhile. He also noted that there were two other cities in California that lost their ratings at the same time as Depoe Bay.
Jacobson said a bond rating is generally used to help investors determine the risk level in certain municipal bonds and while it’s possible to get new bonds without one, it would be at a worse rate. Jacobson added that the city was only $2.5 million in debt in 2019 when its lost its rating, which he said is a fairly small and manageable amount for a city to deal with under the circumstances. The city could have difficulty securing funding for projects until the rating is restored, however.
The News-Times reached out to Baird, a financial services company responsible for Depoe Bay’s current bond, but did not receive a response by the time of this article.
Short confirmed that aside from needing to get its financial reporting corrected as soon as possible, the city of Depoe Bay is in good standing financially. The city’s current bond, which was created in 2012 and was a combination of several of the city’s outstanding bonds and loans at the time, was originally issued for $4.5 million. Short said that despite some hardship over the last year due to the COVID-19 pandemic, the city is on track to pay its bond back within the next three years after adhering to a strict budget.
“We are not in any financial trouble. When COVID first hit we made the decision not to spend any money. Without a tax base and depending on transient room tax that was cut so dramatically, we really didn’t spend any money last year,” Short said. “We made up an essential monthly spending bill and stuck to it.”
The city of Depoe Bay does not levy property tax and relies primarily on revenue from sewer and water services and transient room tax to fund itself, the latter of which was sparse this fiscal year due to the pandemic.
Issues with the city’s financial record keeping first came to light after the council fired former city recorder Jeff Wiseman in November 2018. Wiseman was a former Depoe Bay city councilor appointed to the recorder’s position by the council in September 2017 and served as city recorder for about a year. After his departure, city officials and staff found the city’s bookkeeping had been left in a mismanaged state.
Former Depoe Bay Mayor Robert Gambino said at the time that Wiseman and his assistant likely didn’t have the necessary skill sets to handle the city’s finances, a sentiment mirrored by the current mayor, Short. During Wisemen’s employment, the council approved the purchase of a $50,000 financial software system at Wiseman’s request, which was later found to be insufficient to meet the city’s needs and improperly implemented.
Reporting by News-Times staff at the time cites vendors being left unpaid or being paid twice, unauthorized raises for city staff, payroll mistakes, missing paperwork, misfiled money and un-reconciled financial reports as examples of mismanaged records that needed to be corrected, which had made filing the appropriate reports for the 2017-18 fiscal year impossible.
Wiseman could not be reached by News-Times staff at the time of this article.
When the extent of the city’s issues came to light, Short said the council hired the Oregon Council of Governments to help get its records in order, but it was unable to meet all the city’s needs.
Short said staff hired from the arrangement were able to help the city resolve immediate issues with its payroll and budget, but due to staffing difficulties later down the line, little else was accomplished in the following nine-month period before the city and Oregon Council of Governments parted ways. The city lost its bond rating from Moody’s Investment Services during that timeframe.
The city hired a new city recorder, Barbara Chestler, at the end of 2019, who helped show inadequacies in the city’s financial accounting software and begin the process of correcting its financial reporting issues. Chestler has since been instrumental in getting the city back on track, Short said.
The city hired Grimstad & Associates, a Newport-based accountant, in January 2020 to help with its 2017-2018 audit, which Short said was successfully filed. The city then hired Merina+Co in March to help resolve its remaining issues.