The Guadalupe City Council reacted strongly on Tuesday to a Santa Barbara County grand jury recommendation that the city disincorporate in the face of financial difficulty, criticizing the jury and its report.

The grand jury released its report on Friday afternoon. Citing what it says is a history of financial mismanagement, including illegal transfers of state gas tax funds into the general fund, the jury said that Guadalupe has no path to solvency.

Councilmembers Jerry Beatty and Virginia Ponce were appointed to a council subcommittee respond to the report.

"The grand jury report is not binding," City Administrator Andrew Carter said. "It is a recommendation."

The jury said that an alternative could be to reorganize into a community services district, an idea that councilmembers and the members of the public who spoke reject.

"Guadalupe is a little engine that can, we're just going to keep on going, we're not going to go to the county or get disincorporated or anything like that," Ponce said.

Ponce sees cause for optimism in Guadalupe.

"We recently got a Subway in town," she said.

Former Councilman John Sabedra, speaking in public comment, said that if the city dissolves, the efforts it went through to pass three tax measures, measures V, W and X, last November will go to waste.

"Don't let the grand jury buffalo you," he said.

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All councilmembers took shots at the report during the discussion, while acknowledging that the city had mismanaged some of its finances.

"What I see in the grand jury report is nothing short of a witch hunt," Beatty said.

Councilman Ariston Julian said that the grand jury only had a snapshot of what Guadalupe's finances are.

"We are going in the right direction as we speak," Julian said.

Carter said that none of the information in the report was news to the city.

"I think it's important for the community to know that he grand jury discovered nothing," he said. "Everything that they talk about is information that we gave them, that I discovered, that (Finance Director) Annette (Munoz) discovered."

Carter said that that some of the report was inaccurate, such as a claim that the city owes $456,000 to the IRS.

The report found that the city does not generate enough revenue to cover its expenses and for years took money from special funds to cover the deficits without following a repayment schedule.

The report also called the city's reliance on the long-awaited Pasadera development to help solve its financial problems "ill-advised" and said that measures V, W and X would not be enough for the city to build a reserve fund, maintain aging infrastructure, make capital improvements or add staff that have been cut. 

Beatty and Ponce will work with Carter and City Attorney David Fleishman to draft the city's response to the grand jury, which they have 90 days to do.

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