A new city's first year: a finance director's perspective.

• Author: Daroca, Andrea
• Position: City of Santa Clarita, California

The City of Santa Clarita, California, was incorporated as a general law city on December 15, 1987, after a 20-year period of unsuccessful attempts at cityhood and one effort to separate from Los Angeles County by forming a new county. Comprising four diverse communities, each of which cherished its own hegemony, Santa Clarita is now the fourth-largest city in Los Angeles County with a population approaching 150,000 and an area of 40 square miles. Located about 30 miles northwest of downtown Los Angeles, this new urban center is bounded by major freeway on two sides and by a mountain range to the north. It has a city council/manager form of government.

The birth of this new city affected all its citizens as well as the surrounding communities, the county and the state. Santa Clarita was an instant big city: services were performed by the County of Los Angeles one day, December 14, and then at midnight, a handful of city employees had to assume those responsibilities.

Starting a new city from scratch is a difficult task, especialy in the finance area. This article, written from the finance director's point of view, chronicles the events between September 1988, the month when Santa Clarita's finance director came on board, and September 1989. It highlights the first-year dynamics of starting up a city and how they have influenced subsequent events and organizational changes.

The Infant City

Soon after Santa Clarita's incorporation, an interim city manager set up shop in a storefront next to a motorcycle dealer--the "city hall"--and began organizing the city government, including its finances. The accounting system that was installed relied on record keeping being done by hand, a system that was to result in the first problems faced by the finance director. A community development director was hired immediately, as uncontrolled growth was the main reason the citizens voted for cityhood and planning was perceived to be the major problem of the new city.

Within a few months, the permanent city manager and an assistant city manager were in place to begin recruiting permanent staff. The second department head to be hired was the finance director, who started in September 1988. The only other city employees on hand were the assistant city clerk and clerical staff, a total of 10 people.

Creating a Finance Department

The finance director immediately tackled three tasks:

1) preparation of the city's budget;

2) establishment of a cash management system, an investment policy and an account for all investments; and

3) purchase of computer hardware and software.

The Budget. The accounting records were being kept by a retired part-time bookkeeper when the finance director started. Although a public accounting firm had been hired and banking services were in place, city finances needed structure and refinement.

The chart of accounts, for example, had to be reworked to present a true picture of the projected revenues and anticipated expenses. Since the interim city manager had no data with which to work, he was forced to rely on information provided by the Local Agency Formation Commission (LAFCO) to develop the chart of accounts and the first year's budget, including services and service levels provided in the past to the four unincorporated areas by Los Angeles County. (1) These data proved to be less than desirable. LAFCO had consistently materially underestimated revenues, although estimated expenditures were not accurate. The commission's classification scheme, based on contracting with the county for municipal services rather than performing those services with an in-house city staff, did not lend itself to making timely economic decisions.

Reworking the chart of accounts was the first step to establish fiscal responsibility and to develop a meaningful first-year budget. The hand-written books served as the starting point in developing the chart, which was then completed through a re-analysis of the first nine months' transactions. Besides the chart of accounts, the finance director was able to develop an accurate history of cash flows on which to base revenue projections.

Based on the new chart of accounts and using the reclassified revenues and expenditures, the finance director developed a proposed new first-year budget for fiscal year 1988-89 with a personal computer and an electronic spreadsheet. (2) This document was the focal point of a staff budget retreat to review the preliminary numbers and make appropriate revisions. Participants were the city manager, assistant city manager, the community development director, a consultant hired to act as city engineer and to perform the building and safety functions, county staff for parks and recreation services, and the finance director. The retreat was held at the bank that provided the city's banking services because there was nowhere to meet at the storefront city hall, which was one large room with dividers where newspaper reporters walking in could overhear confidential conversations.

Integrated into the study of the...