State Auditor Says Imperial Beach Faces a Tide of Red Ink : Debt: Report predicts the city will be broke by 1992 unless it turns over its beachfront to the Port District. A $4.5-million loan wouldn’t hurt, either.

Imperial Beach will go broke by January, 1992, unless the Legislature allows the financially strapped municipality to give away its beachfront--which costs more than $1.2 million a year in upkeep--to the San Diego Unified Port District, a state auditor general’s report says.

The report, released Wednesday, also suggests that the biggest boost the state could give to Imperial Beach would be to combine the beachfront giveaway with a state loan of $4.5 million.

“The city’s immediate financial condition would dramatically improve if the city were to transfer its tidelands to the Port District and take out the loan from the State,” the report concludes.

“However, the transfer of the tidelands alone would improve the city’s financial condition to such an extent that it would mitigate the need for an emergency loan in the near term,” it says.

The report comes just one week before legislators are scheduled to consider a bailout for the strapped San Diego County border city of 24,500 residents. The beachfront giveaway and loan proposals are contained in two bills recently introduced by Sen. Wadie Deddeh (D-Bonita) and set for hearings before separate Senate committees.

Deddeh and Imperial Beach City Manager Ronald C. Jack said Wednesday that they were encouraged by the auditor general’s report, especially since it underscores the need for the city to divest itself of the title and financial responsibility for its 3 1/2-mile coastline, which stretches from the beginning of the Silver Strand to the Mexican border.

City officials have estimated that turning over the oceanfront to the port--which already has responsibility for most of the other San Diego area tidelands--would save Imperial Beach between $1.2 million and $1.5 million annually, or about 30% of the municipal budget.

Relieved of that burden, the report says, the city could expect to pull itself out of the red ink starting next year and stockpile a $1.2-million surplus by 1996.

“I’m delighted, because it tells us that if we are successful in transferring the tidelands to the Port Commission, that the major burden on the shoulder of Imperial Beach will be removed,” Deddeh said Wednesday.

Assemblywoman Sunny Mojonnier (R-Encinitas), who formally requested the audit last year, said: “It shows the importance of the transfer of the wetlands. If we can have that occur, then, with some real diligent belt tightening, we can probably help in a fashion that will bring (Imperial Beach) to solvency and avert disaster.”

Imperial Beach City Councilman Bud Harbin said Wednesday that the auditor general’s report is important because it will help persuade skeptical residents that the city really is teetering on the brink of insolvency.

“One of the big problems we’ve had down here is convincing the people that we are on the verge of bankruptcy,” Harbin said. “The city has cried wolf in the past, and we were able to sidestep it with layoffs and whatever . . . so now the people’s attitude is, ‘They (officials) say that, but they’re not going bankrupt.’ ”

Imperial Beach’s financial troubles developed over the past decade as city fathers engaged in deficit spending by consistently dipping into financial reserves to make up for shortfalls in municipal revenues. The problems have been compounded by other miscues, such as a $300,000 beating the city took in 1986 and 1987 on bad stock investments.

In 1988, the council tried a bold move to lift itself out of the financial quagmire by approving a $2.9-million plan to refurbish its 1,500-foot fishing pier, with promises of leasing it out to commercial ventures. But the rosy predictions of rental income have yet to materialize, and now the city is faced with another $356,000 in annual bond payments with no rental income to offset the debt.

State auditors also criticized the city for passing budgets that were unrealistic. They also said the city’s accounting department failed to spot potential losses early enough, and that municipal administrators were not aggressive enough in seeking out the city’s share of some federal and state funds.

The report also suggests that the city try to boost its tax base by stimulating economic development along 13th Street, rewriting ordinances “that tend to force business out of Imperial Beach,” and raise its fees for some municipal services.

Despite the city’s past failings, the auditors gave Imperial Beach’s new administration good marks for scrambling to enact or raise fees on fire inspection, development and sewer connections--moves that will net the city $610,000 in new money this year. They also applauded the move to a new cost-accounting system.

Even with those improvements, the report warns, Imperial Beach will go broke without outside intervention. At the current pace, the city’s general fund will be $83,000 in the hole by June, forcing administrators to tap cash reserves that could be exhausted by January, 1992.

“At this point, the city would be technically insolvent,” the report says. “That is, if the city was a business, it would be bankrupt.”

Simply giving the city a $4.5-million state loan, at 8% interest, would only prolong the agony for a little while, the report says. Avoiding long-term insolvency is pegged on allowing the city to get rid of its beachfront, it says.

Although the city would continue to maintain and patrol the beach, the Port District would reimburse Imperial Beach approximately $850,000 a year for the services, the report says. In addition, the district would take over the annual bond payments for the fishing pier.

“What they say in the report has taken me a year to figure out,” said City Manager Jack, who was hired in early 1989.

The auditor general’s office, which conducts fiscal reviews for the Legislature, hired the accounting firm of Ernst & Young, along with Macias and Pierini, to perform the audit.