Modesto leases exceeded spending limits; fixes aim to prevent future problems

Modesto officials have found lease agreements that exceeded city council spending limits, including nearly $500,000 in rental fees for a modular trailer that’s been used at a work site since 2003.

The discrepancies also included the leases of water well sites that were approved by the city council four years ago. Reports and resolutions submitted to the council at the time did not include $24,000 in estimated increases for Consumer Price Index and tax payments.

Modesto’s Finance Department discovered these discrepancies as the city conducted a comprehensive review of its past and current contracting and purchasing. The Modesto City Council on Tuesday evening unanimously approved a resolution to fix the discrepancies.

When the rental agreement was first established, the annual amount in rental fees for the modular trailer was less than $50,000 and only required approval from the city manager. When the total rental fees exceeded the $50,000 limit, the rental agreement was not returned to the city council for approval.

Councilwoman Kristi Ah You found that troubling. She believes the tide is turning at City Hall, and these types of mistakes are being identified and fixed. But she thinks renting a modular trailer for 15 years is a complete blunder.

“No prudent taxpayer would think spending $500,000 on office space is a good idea,” Ah You said Thursday in a phone interview. “This is the dumbest thing ever. It just absolutely makes no sense.”

Councilman Bill Zoslocki said the city has established a process to find these mistakes and correct them. He said it’s important to show the taxpayers the city is not spending wastefully.

“It’s a mistake, it happens,” Zoslocki said Thursday in a phone interview. “We didn’t lose any money; they paid the correct amount per contract.”

The Modesto Bee spoke with city officials about the discrepancies during a conference call Wednesday. Modesto Finance Director Deanna Christensen said these mistakes will not cost residents any additional money.

Tuesday’s approved resolution ratifies expenditures already made that exceeded the city council’s spending limits, Christensen said, and those expenditures were always captured in the city’s budget. She said there is funding for increases in future expenditures in the city’s water fund.

The Finance Department presented a summary of the increases and estimates of the total expenses, which was attached to Tuesday’s city council agenda and is available to view online.

Since April 2003, the city has paid Pacific Mobile Structures $427,576 in rental fees for the modular trailer at a work site at 236 Codoni Ave., just south of Yosemite Boulevard in east Modesto.

Modesto Utilities Director William Wong said the city’s water division had outgrown two other work sites and needed a third large enough to house construction workers, their equipment, parts, pipes and vehicles.

Temporary site

The Codoni Avenue work site in 2003 was intended to be temporary in anticipation of the city acquiring land for the new water corporation yard. But that didn’t happen until 2016 because of the city’s budget constraints.

“It ended up being a long-term lease that nobody expected,” Wong said.

He and Christensen said it was unclear to city staff why the trailer rental agreement was never re-examined until this year. Wong said buying a modular trailer now could possibly cost the city $200,000 to $250,000. Christensen said there’s no way of knowing how much a similar trailer would’ve cost 15 years ago.

Monica Houston, the city’s auditor, said at Tuesday’s council meeting that the city could have spent roughly a third of the rental cost to buy a trailer. She said it wouldn’t be efficient to pull out of the rental agreement now, so the city should continue to rent the trailer until the new water corporation yard is ready for use.

Councilman Tony Madrigal on Monday asked Houston to review these discrepancies involving the water division. He said council members should not have to ask the city’s auditor to review these types of mistakes; city staff should be working with her as they go through any other corrective actions in city spending.

“I feel relieved that we finally have an internal city auditor to keep an eye on these type of expenditures, so it doesn’t happen again,” Madrigal said in a phone interview Thursday.

Christensen said the city is creating a consolidated list of its contracts, and she agrees with Houston that reviewing each of them annually will prevent other mistakes or oversights.

The city estimates it will spend an additional $61,000 to rent the modular trailer for another 18 months, plus an additional $67,000 for the work site on Codoni Avenue where the trailer has been for the past 15 years.

Construction of the new water corporation yard is estimated to be completed a year from now. After that, the city employees can move into the new yard and the rented modular trailer won’t be needed.

The city also paid for the Codoni Avenue property where the rented modular trailer was located. From April 2003 through August, the city has paid Modesto and Empire Traction Co. $573,354 for that land license. That was $57,204 more than the city council approved.

Water wells

The Finance Department also discovered that the Codoni Avenue land license did not include an end date, annual increases in Consumer Price Index and property tax payments.

Now, the land license ends Feb. 29, 2020, which would give city employees plenty of time to move into the new water corporation yard. The city will pay a total of $640,357 for the Codoni Avenue land license, which now includes annual increases in Consumer Price Index and property tax payments.

The Finance Department also found problems with leases for five wells that support the city’s water supply. Reports and resolutions submitted on Oct. 28, 2014, to the city council for approval of the leases didn’t include annual increases in Consumer Price Index and property tax payments.

Wong said the wells provide millions of gallons of water per year for domestic use in the Beard Industrial Tract area.

The city has spent nearly $590,000 for the five well sites from November 2014 through August, which is $24,000 more than what was approved by the council. The city leased the well sites from Modesto and Empire Traction Co. and Beard Land Improvement Co.

The Finance Department estimates that city will spend more than $1.2 million for leasing the well sites through December 2024, when the lease ends. The estimate includes 5 percent annual increases beginning in January.

Councilmember Jenny Kenoyer was in office in October 2014, and she said the council approved the leases based on the information it had at the time. But she doesn’t believe the city staff intended any malice or fraud, because it didn’t cost the city any extra money.

Kenoyer said maybe the city was short-staffed back then or some employees weren’t properly trained, but city staff has developed a system of “checks and balances” to find these discrepancies.

“They are catching all this stuff,” Kenoyer said in a phone interview Thursday. “They’re really working hard to correct everything. And we won’t see this happen again.”

This story was originally published October 25, 2018 at 3:41 PM.