FINAL REPORT - San Bernardino Superior Court

Section 2: Inter-fund Loans and Use of Restricted Funds
Risks and Harm of Inter-fund Loans
The lack of payments made by borrowing funds to lending funds and the weak financial
condition of the borrowing funds suggest that the inter-fund loans listed above are at risk of
becoming permanent contributions by the lending funds to the borrowing funds. Additionally,
the ongoing use of inter-fund loans, particularly when they occur almost annually, misrepresents
the financial state of the borrowing funds. Of the $69,666,316 in outstanding inter-fund loan
balances, $38,074,171, or 54.7 percent of the borrowed funds were for SCLAA and VMUS, two
entities with significant cash flow issues, an inability to bring in sufficient revenues, and
significant debt obligations.
The City Manager has asserted that a majority of the inter-fund loans, approximately $45
million, will be repaid upon receipt of approximately $52 million 5 in judgment proceeds from the
City’s suit against Carter and Burgess (now Jacobs Engineering), an engineering firm that the
City contracted with for the development of a power generation facility in the Bear Valley
Redevelopment Area. 6 The City Manager anticipates the suit, which is currently under appeal by
Jacobs Engineering, to be completed in FY 2012-13. Nevertheless, the City should develop a
financial plan for each of the existing inter-fund loans to ensure that payments are made to the
lending funds with or without judgment proceeds. The financial plan should include steps to
building up a reserve of funds available for repaying the loan, such as reducing operating
expenditures or the identification of one-time or ongoing resources, such as the sale of assets,
additional tenants, or increases to rents and/or user fees and charges. Additionally, the plan
should include payment targets and schedules. If a set dollar amount cannot be included in a
payment schedule through the end of the term of the inter-fund loan, the loan should be
designated to be at risk and reported to the City Council with alternative justification for
authorizing the loan. If the City cannot establish firm payment schedules, it should set annual
targets as a percentage of surplus funds available after paying other obligations, such as debt
service, and consider extending the terms of the loans.
Use of Restricted Funds
There are some City funds that are designated for specific uses and purposes, whether by local,
State, or federal laws and policies. Any use of those funds for other than those restricted
purposes would constitute a violation of laws. Therefore, the City of Victorville should analyze
any potential violations of law from existing inter-fund loans and include such analysis prior to
approving future inter-fund loans. This is particularly important when considering loans from
City enterprises that rely upon property related taxes or fees to fund operations.
5 Under a reimbursement agreement with BNP Paribas, the City has designated that $22 million of anticipated
judgment proceeds be provided to VMUS to pay the VWD. VWD would then immediately pay SCLAA for amounts
owed under outstanding inter-fund loans.
6 Section 3 of this report provides a more detailed summary of the development of the Foxborough Power Plant in
the City’s Bear Valley Redevelopment Area.
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Harvey M. Rose Associates, LLC