$3-Million Deficit Stuns Peninsula City Officials : Rancho Palos Verdes: The City Council blames executive turnover and sloppy bookkeeping. Services will be cut and city employees may be laid off.

Rancho Palos Verdes officials are facing a whopping $3-million deficit in the city’s $8-million general-fund budget because of sloppy bookkeeping, overspending and shortfalls in projected revenues, city officials confirmed this week.

The huge deficit could prompt City Hall layoffs, cuts in city services and postponement of capital improvement projects, the officials said.

“There are going to be some Draconian cuts,” Councilman Robert Ryan said.

The surprisingly large deficit was discovered by City Manager Paul Bussey during an inspection of the city’s financial records. Bussey joined the city in June, after the 1990-91 budget had been drawn up and approved by the City Council.

Bussey declined to provide an exact deficit figure until auditors hired by the city finish examining the records. He said no wrongdoing appears to be involved. However, Ryan said preliminary estimates place the shortfall at $3 million or more.

The 1990-91 budget, which covers the 12-month period that began in July, was prepared at a time when the city was experiencing turnover in its executive ranks.

In the fall of 1989, Finance Director Kevin Smith left to take another job. In January, City Manager Dennis McDuffie, under pressure from two council members, decided not to renew his contract. His resignation came only two weeks after he had hired Mark Rohloff to oversee the city’s finances in the new post of deputy city manager.

After McDuffie’s departure, the city selected William Cornett, who had been city manager in Riverside and Fullerton, to serve as interim city manager. He held the post until Bussey was hired.

Rohloff said he and Cornett prepared the 1990 budget, a process that typically starts in January and drags on for months. He said he, other city officials and auditors are still trying to determine why the budget calculations were so far off. The council appointed Ryan and Councilwoman Jacki Bacharach to work with the city’s staff in this effort.

“Anything we are going to find here isn’t going to be discovered overnight. It will show a pattern developed over a period of time,” Rohloff said. “I can say for certain things just didn’t happen the past year.”

Cornett said putting together a budget was a “real awkward proposition” for him and Rohloff because the job of finance director had been left vacant for so long, and the city’s financial records were incomplete.

Also, money had been switched from one account to another, Cornett said. “There had been transfers between funds to the point it was difficult for us to trace.”

Perhaps as much as half of the deficit is the result of overspending and a shortfall in anticipated revenues, Bussey said.

The remainder appears to be the result of loans the city made to its redevelopment agency, he said. The loans were never repaid but were nonetheless calculated as cash on hand for the 1990-91 general-fund budget. The city made the loans because a pending lawsuit has tied up tax money the agency was supposed to receive from Los Angeles County.

“It has to do with accounting that wasn’t done well and allowed the city to spend money twice it didn’t have,” Bussey said.

Part of the deficit could be erased by tapping revenue sources that the city typically does not use for its general fund, Bussey said. These might include extra funds in the cable television and trash revenue accounts, he said.

Nevertheless, the unexpected shortfall will probably force cuts in some city services and could mean that some city workers, who number about 70, will be laid off, Bussey and Ryan said. Bussey said he hopes any personnel reductions can be accomplished through attrition rather than firings.