Assessing the Finances of the City of Vernon, California

A team from Analysis Group assisted the auditor for the state of California in conducting a comprehensive review of the management and finances of the city of Vernon and its power department. The auditor's report, "City of Vernon: Although Reform Is Ongoing, Past Poor Decision Making Threatens Its Financial Stability" (June 2012), contains recommendations including addressing the structural deficit of the city's general fund and improving transparency in the city's budgeting process and contract oversight.

The Analysis Group team, led by Managing Principal Mark Egland and including Principals Marnie Moore and Kevin Gold, assisted in evaluating the major financial and energy-related transactions that the city had entered into since 2003. According to the report, the city could not demonstrate that it had assessed the risks of the 15-year, $430 million prepaid purchase of natural gas and various interest-rate swap transactions prior to entering into them. The report also noted that the city of Vernon lacked a clear energy strategy; for instance, it sold its electrical power plant shortly after construction was complete and less than two years after it purchased a 15-year prepaid supply of natural gas to fuel the plant.

The state auditor recommended that, in order to alleviate future financial issues, the city establish a debt management policy to guide city council decisions and "develop an integrated energy strategy that examines all elements of [the city's] energy needs, sources, and objectives."