Banning's Electric Utility Burned a $31M Surplus Into a $9M Hole

The Banning Electric Utility (BEU), the municipal power company for a city of about 32,000 people in Riverside County, California, went from a $31 million surplus in 2018 to a $9 million deficit by 2022⧉ -- a deficit the 2025-2026 Riverside County Civil Grand Jury's June 2026 report⧉ says still stood as of 2025.▸ The utility isn't a side operation: per the City's own strategic-planning document, electric billing brought in roughly $58 million of the city's $104 million total 2022-2023 budget⧉ -- more than half of everything Banning collects. The Grand Jury's eight findings describe a city where that money moved out of the utility without authorization, two paid outside reviews never surfaced what happened, and turnover left almost nobody in place long enough to explain it.

California's Proposition 26 bars cities from using utility rates to generate general revenue beyond the cost of service; moving a municipal utility's surplus into the general fund requires voter approval.▸ Banning asked for that approval in November 2018 with Measure P, which would have capped BEU-to-General-Fund transfers at 7.5% of gross electric revenue⧉ -- and voters rejected it. No authorization to transfer BEU surplus followed.

Yet the City's own Budgetary and Fiscal Policies, handed to the Grand Jury in September 2025, authorize a 10% annual transfer⧉ of BEU operational revenue to the General Fund -- a standing policy with no voter authorization behind it.▸ Pulling a random sample of one month of BEU ledgers, Dec. 2018, jurors found a $1,840,636 interfund transfer labeled "Administrative Services"⧉ that an interim Finance Director flagged, unprompted, as looking out of place -- a former BEU executive separately told jurors that questionable transfers could more broadly be found in the ledgers under the same "Administrative Transfers" category.

Twice, Banning paid outside firms to explain the deficit, and twice the public was left without an answer.▸ The City spent $153,000 on a forensic investigation by Green, Hasson & Janks (GHJ)⧉ after the shortfall surfaced -- then withheld the full report from the Grand Jury and the public, citing attorney-client privilege on the procedures GHJ says it was directed to perform. Separately, the City contracted Urban Futures Inc. at $275 an hour in 2025⧉ to write a BEU recovery-plan report that, jurors were told, would address the possible illegal transfers directly. After an extended engagement, the firm abruptly stopped and never delivered it.

The consequences reached Banning's credit.▸ The city's 2007 electric system revenue bonds, $45.79 million issued at an A- rating⧉, were downgraded by S&P Global to BBB in March 2024, then to BB with a negative outlook in May 2024, and had fallen to B -- junk status -- by the time the Grand Jury wrote its report⧉.

Underneath the finances sits a staffing collapse: Banning employed ten City Managers between 2014 and 2026⧉, eight of them on an "interim" basis, and only one held the job more than six years.▸ The Finance Department fared no better -- four Finance Directors in five years, then two temporary annuitants -- and the resulting gap forced the City's 2024 auditor, Eide Bailly, to bring its own staff to gather records, adding $145,000 to the audit's cost⧉. Eide Bailly's own conclusion, quoted in the report: "The City is currently in a severe financial crisis."

The Grand Jury's personnel findings extend past finance.▸ One staff member carried a $5,000 monthly purchasing-card limit and a signed agreement not to buy restricted items⧉, then racked up meals, rideshares and gift cards on the card with no waiver on file. In a separate account, the report describes an employee hired despite an extensive felony record -- grand theft, burglary, forgery -- after staff were directed by a former City Manager to disregard a date-of-birth mismatch on a pre-employment background check, an employee the report says was "also given a purchasing card with a $5,000 monthly limit" -- the same figure as the earlier violation, which the report itself uses as the link between the two accounts without stating outright that they are the same person.

Separately, a harassment complaint filed with Human Resources in March 2025 was never investigated⧉: HR staff told jurors it had been delegated to the very person the complaint was filed against, violating the City's own policy requiring such complaints go to the City Clerk for City Council review.