State auditors could investigate changes during Colangelo's time as interim city manager, vice mayor says

Vice Mayor Jason Lee says the state plans to investigate possible wrongdoing in Stockton city government, including allegations surrounding the misspending of public money and favoritism in hiring for city jobs.

“The State Controller’s decision to move forward validates what many of us have been sounding the alarm about for months,” Lee said in a news release Monday.

The State Controller’s Office had not confirmed any plans to conduct an audit, its possible scope or timeframe to Stocktonia as of Tuesday. But the agency’s press secretary, Bismarck Obando, said he had received Stocktonia’s questions and that responses were pending approval.

Lee told Stocktonia Monday evening that a representative from the Controller’s Office has verbally confirmed to him the agency plans to initiate an investigation. The state also intends to send Stockton a written notice of the forthcoming audit, Lee said via email.

Controller Malia M. Cohen serves as the state’s chief fiscal officer. Her office is tasked with maintaining “accountability and disbursement of the state’s financial resources,” managing the bulk of California’s government accounting and transactions. The agency is also responsible for distributing state and federal money to local governments and ensuring those governments accurately report their finances.

In Monday’s news release, Lee said the state’s audit will dig into five instances of alleged wrongdoing:

Unauthorized commitments of city money
Unapproved changes to Stockton’s yearly budget
Wrongdoing involving contracts
Errors in paying city staff and the breakdown of financial checks and balances
Unethical hiring practices.

Three of the the five issues stem from decisions made by former interim City Manager Steve Colangelo, according to the release. Colangelo didn’t respond to a request for comment about the potential audit.

If the Controller’s Office does open an investigation into Stockton, it won’t be the first time.

In 2013, just after the city filed for bankruptcy, the agency found “significant weaknesses with the City’s accounting and administrative controls system,” and “that the potential for waste, fraud, and abuse of public resources is extremely high due to numerous deficiencies.” The handling of the inquiry drew ire from city officials, including the city manager at the time.

Lee first asked the Controller’s Office to investigate the alleged misspending and unethical hiring in a letter to county and state officials last month, in which he compared the city to “a bank with the back door left open and no one watching it.”

The vice mayor announced the letter one day after a heated argument on the City Council dais — sparked by Councilmember Brando Villapudua’s calling of Lee’s scrutiny of Colangelo an attempt to “slander” the former official — ended in a unanimous vote to send information about possible misconduct by Colangelo to county and state authorities for potential criminal investigation.

At the same meeting, councilmembers narrowly approved a new investigation into a performance at Adventist Health Arena put on by the comedy game show Wild ’N Out in which Lee participated. Lee was a regular cast member on the show.

Mayor Christina Fugazi and Councilmember Michele Padilla will carry out that investigation, as the sole members of an ad-hoc committee created by Fugazi.

Unauthorized financial commitments

Lee called on the Controller’s Office last month to investigate a pledge Colangelo made to the nonprofit Service First of Northern California to provide public funds to support its bid for about $8.4 million in state health funds. The nonprofit needed about $840,000 to back its request.

Lee argued that Colangelo’s promise — made in a letter to the state on the official letterhead of the city manager’s office — far exceeded his authority, as the city manager is allowed to spend only up to $100,000 without City Council approval.

Meanwhile, Fugazi — whom Colangelo included in emails discussing the funding with Service First — maintained that because the letter didn’t state an amount promised, it only expressed general support for Service First’s project. When the state learned that Colangelo may not have had authority to promise the money, it gave the nonprofit an ultimatum: Find new funding or lose the $8.4 million.

Last month, the City Council voted to provide a portion of what Colangelo initially promised, if the nonprofit cobbled together the rest.

Meanwhile, a proposal before the San Joaquin County Board of Supervisors for the county to provide part of the money failed.

Unapproved budget changes

In his letter requesting the audit, Lee told state officials that Stockton’s 2025-26 budget included “the dissolution of one department and creation of another without Council approval, as well as unapproved transfers of funds between departments.”

“These actions circumvented proper governance processes, compromised transparency, and may have resulted in the misallocation of public funds,” he said.

Lee didn’t say in the letter which departments he was referring to. But earlier this year, he called for an investigation into Stockton’s new Office of Public Transparency, Information and Communication, which was formed with money from the city manager’s office formerly used for the Office of Performance and Data Analytics, according to OPTIC chief and city spokesperson Tony Mannor. OPTIC’s creation wasn’t spelled out in the budget the City Council passed in June.

Improper procurement and contracting activities

Lee called on state officials to investigate Colangelo for reallocating money formerly used to employ a diversity, equity and inclusion expert in the city manager’s office toward hiring a professional consultant for himself, among other alleged expenses. The consultant, Lathrop City Manager Steven Salvatore, was hired for $11,000 each month.

In his letter, Lee also told officials that “multiple contracts and employment appointments have been made without competitive review or justification.” The letter didn’t specify which contracts and appointments Lee was referring to.

Payroll errors and financial control breakdowns

Though the vice mayor’s letter doesn’t spell it out, this issue may stretch back to problems with a new city payroll system that resulted in more than 5,000 mistakes affecting more than 1,300 underpaid employees.

Amid questions about the issue from the City Council’s Audit Committee, which Lee chairs, Colangelo fired the city’s interim CFO and assistant CFO shortly after being hired at the beginning of this year.

Improper hiring practices

In his letter to the Controller’s Office and other officials, Lee told state officials that “several positions were created and filled without open recruitment, often by individuals with personal ties to the former Interim City Manager, and awarded at the top of the pay range against staff recommendations.”

By phone Tuesday, Lee told Stocktonia he was referring to Mannor and the newly hired OPTIC staff. City Human Resources Director Rosemary Rivas previously explained to Stocktonia that while classified roles require open recruitment, unclassified positions that make up departments like OPTIC could be filled without public posting. Classified employees are those who work for hourly pay, while unclassified employees are salaried.

Neither Fugazi nor newly appointed City Manager Johnny Ford returned requests for comment about a potential state audit. Ford, who was hired by the council last month, also didn’t respond to questions about whether he’d received confirmation of the audit or about how he’d facilitate investigators’ work as the city’s new chief executive.

When reached for comment Monday, some councilmembers expressed support for a state investigation.

“I welcome the audit,” Councilmember Mario Enriquez said in a statement to Stocktonia. “An independent review will help restore trust in how our public dollars are managed.”

“I think everybody wants answers,” Councilmember Michael Blower said in turn. “And if that’s the way to get them, I suppose (I support it).”

Neither Enriquez nor Blower knew the Controller’s Office had agreed to an audit before Lee’s news release, they said.

In contrast, Councilmember Villapudua said he was skeptical of Lee’s handling of the matter.

“(I) wanted to express my interest in where the Vice Mayor is heading with this investigation. This is a concern,” he said in a statement. “I’m also curious if he will be addressing the potential misconduct related to his role in ‘Wild’n’out.”

Councilmembers Padilla and Mariela Ponce did not respond to Stocktonia’s requests for comment.