Dear Chairperson Atkins and Members of the Committee:

TaxpayersAdvocate.org is conducting a fiscal and management review of the San Diego City Attorney’s office. The primary intent of this project is to focus on how and where the San Diego City Attorney spends taxpayer’s funds and resources.

Unbudgeted Use of Prop 64 Funds

In the course of our investigation we were surprised to come across the existence of un-budgeted Prop 64 funds, received and spent by the City Attorney’s office. 

For decades the City of San Diego has been involved in dishonest budget and accounting practices which ultimately resulted in Federal criminal investigations, a review by the SEC and the improper use of millions of dollars.   In recent years this Mayor and Council have re-dedicated themselves to open and honest budgeting. Therefore, the existence of an unbudgeted revenue source and expenditures by the City Attorney raises a number of disquieting legal and public policy questions.  

KEY FINDINGS –PROP 64 Funds

City Attorney Controls $2 million Unbudgeted Fund

• Since 2006, the City Attorney has received almost $2 million in state (Prop 64) consumer fraud funds

• These funds are apparently NOT included in the City Attorney’s Budget

• Internal documents indicate approximately $350,000 has been spent*

• Sources in the City Attorney’s office have indicated that approximately $250,000 has been used for pay raises, even for employees NOT involved in consumer fraud-related activities. It is not clear if these raises were from the $350,000 in Prop 64 funds cited above, or in addition.

*Internal documents indicate that these funds have been spent primarily on “Contract Services—City Force.” See Charts A-E

Key Legal and Public Policy Issues

Question:        Have Prop 64 funds been spent consistently with State Law?

State law requires that Prop 64 funds received by the City Attorney be used only for the enforcement of consumer protection laws. 

It is incumbent upon the City Attorney to ensure that time spent by his attorneys/employees being compensated with Prop 64 funds be tracked.

Have time sheets been maintained by attorneys and staff being paid from Prop 64 funds to prove that they were actually involved in consumer fraud related activities?  If not, how can it be known if these funds were properly allocated?

Sources in the City Attorney’s office have indicated that approximately $250,000 has been used for pay raises.  If so, is this a violation of Prop 64?

Question:        Are receipt and expenditure of unbudgeted funds consistent with City’s “open government” commitment?

In response to past practices, the City of San Diego has made “open and honest government” a top priority.  How does the receipt and expenditure of unbudgeted funds fit within this “open government” policy?

Recommendations:

That the Mayor and City Council establish a “Prop 64” budget line-item in the City Attorney’s budget showing all revenues and expenditures.

That the Mayor and City Council require City Attorney employees being compensated by Prop 64 Funds to track their time to ensure letter and intent of law are followed.

That a detailed outside audit be conducted of the City Attorney’s office to determine the allocation of Prop 64 funds.

Detailed Background on Proposition 64

(See Exhibit F for full text of measure)

In November 2004 California voters passed Proposition 64


Official Ballot Title and Summary -- November 2004

Should California's Unfair Business Competition laws be amended to: allow only the Attorney General, public prosecutors or individuals showing actual harm to bring a lawsuit; require those bringing a lawsuit on behalf of others to meet class action requirements; and restrict the use of civil penalty revenue to the offices of the Attorney General and/or public prosecutors for purposes of enforcing consumer protection laws?

• Limits use of monetary penalties recovered by Attorney General or local government prosecutors to enforcement of consumer protection laws.

“…funds shall be for the exclusive use by the Attorney General, district attorney, county counsel, and city attorney for the enforcement of consumer protection laws.”

Unbudgeted Proposition 64 Received/Spent by SD City Attorney

See attachments—Chart A through Chart E for details—Note: According to FY ’08 records only $6,600 in prop 64 funds have been received as of 11/1/07

Thank you for reviewing this matter.

Sincerely,

Scott Barnett
President
TaxpayersAdvocate.org

CC
Mayor
City Council
IBA
City Attorney

Attachments:

• Charts: A, B, C, D, E  Non Budgeted Prop 64 revenues and expenditures by SD City Attorney, FY 2006 – Current
• Exhibit F—Text of Prop 64
• FY 2008 Adopted City Attorney’s Budget

This Document (San Diego City Attorney—Use of Unbudgeted Prop 64 Funds)