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Some big cities in California still struggling under mountain of debt

By February 26, 2020January 12th, 2021No Comments

Watchdog group gives Irvine its highest fiscal grade in nation, while LA, Long Beach, Anaheim and Riverside branded as ‘sinkholes’

First, some good news about the public purse:

Irvine continues its streak as the healthiest large city in America when examined through the lens of long-term fiscal health. The debt burden on taxpayers in many other big California cities has lightened over the past year. And no matter how grim things get, no big California burg is dripping the kind of red ink that oozes from New York City.

The not-so-good news: Twelve of California’s 15 large cities are still in the red, and for many of them, things have gotten worse, not better.

This is according to the fourth annual State of the Cities report from Chicago-based watchdog group Truth in Accounting, “a nonprofit, nonpartisan organization composed of business, community and academic leaders interested in improving government financial reporting.”

The group says it seeks to “present data free of political distortions,” thus empowering citizens with understandable, reliable and transparent government financial information.

There’s good news on the transparency front this year, according to Sheila Weinberg, CEO of Truth in Accounting.

New rules from the Governmental Accounting Standards Board finally require agencies to include the cost of retiree health care promises on their balance sheets as of 2018, “so people can actually go to the annual financial reports and see pretty much what’s really going on,” Weinberg said.

Because most taxpayers probably aren’t going to do that, though, Truth in Accounting does it for them.

Overall, the amount of debt city taxpayers nationwide are saddled with shrank a bit, from $330 billion in 2017 to $323.2 billion in 2018, TIA found. Most of that debt comes from unfunded promises to retirees, such as pension and health care costs, and averaged $7,040 per taxpayer.

The slight improvement is more a function of when fiscal years end — some in the summer, some in the fall — than with any concerted efforts to pay down debt, Weinberg said. The stock market’s surge simply improved the bottom lines for some, she said.

Irvine City Hall (Tomoya Shimura, Orange County Register/SCNG)

Sunshine cities

Irvine seized first place for the third year in a row “and deserves recognition for maintaining a strong financial condition,” the report says.

Simply put, money in eclipsed money out. Irvine has $626 million available in assets to pay $245.5 million worth of bills, resulting in a $380 million surplus. TIA divides that surplus by the number of taxpayers in the city, for a per-taxpayer surplus of $4,100.

“Unlike most cities, Irvine’s city government has enough resources available to pay all of its bills, including public employees’ retirement benefits. This means that Irvine’s elected officials have truly balanced their budgets,” the report says.

But while Irvine is still the star, the economic forces at work nationwide are also at work there. Its per-taxpayer surplus has been shrinking over the years it has claimed the mantle, from $5,200 to $4,400 to $4,100.

California’s other “sunshine,” or surplus, cities are Fresno and Stockton. Nationwide, the District of Columbia, Charlotte, Plano, Lincoln, Aurora, Arlington, Tampa, Raleigh and Tulsa are on the list.

“Cities with a Taxpayer Surplus have demonstrated political leadership that values honesty, sustainability and financial responsibility,” Weinberg said in a prepared statement. “We need more city and state governments to use good accounting practices to truly balance their budgets.”

In a prepared statement, Irvine Mayor Christina Shea said the city is proud to receive this distinction for the third consecutive year, and that the ranking confirms that the council and staff remain committed to ensuring resident tax dollars are wisely managed.

Sinkhole cities

The overwhelming majority of big cities, though, owe more than they have. These are dubbed “sinkholes” by TIA.

Elected officials in these cities haven’t included the true costs of government in their budget calculations, TIA said. They’ve made repeated financial decisions that left taxpayers in debt and pushed those costs out to future generations.

Oakland had the worst per-taxpayer burden in California, at $18,600, followed by San Francisco, at $17,000. Still, that’s worlds better than New York City, where each taxpayer would have to fork over $63,100 to pay off the Big Apple’s obligations. Chicago taxpayers would have to pay $37,100.

Turns out that many sinkhole cities in California have reduced the burden on their residents over the past year.

Sinkholes whose situations improved include Anaheim, which saw its per-taxpayer burden shrink from $7,200 to $6,200; Long Beach, $1,300 to $500; Los Angeles, $6,000 to $4,000; Riverside, $3,700 to $3,300; San Francisco, $22,600 to $17,000; Oakland, $21,000 to $18,600; San Jose, $10,200 to $9,400; San Diego, $5,000 to $4,500; and Chula Vista, $3,000 to $2,300.

In Los Angeles, conditions improved because of the city’s $2 billion net income and the shift of $979 million from restricted assets to unrestricted assets, TIA found.

Anaheim refinanced and paid off a portion of its bonds from the expansion of the Anaheim Resort in the 1990s, said spokesman Mike Lyster.

Sinkholes whose situations worsened include Santa Ana, where the per-taxpayer burden grew from $5,100 to $5,400; Sacramento, $4,000 to $4,600; and Bakersfield, $1,500 to $1,600.

Old vs. new

Since these figures largely reflect what cities owe their workers for pension and retiree health benefits that are guaranteed, but not funded, the heaviest burden tends to be a function of municipal age, at least in California.

Older cities with their own police and fire departments are saddled with more unfunded debt — public safety pensions are the most expensive — than newer cities like Irvine, which has its own police force but contracts out for fire protection and many other services. That means the newer “contract cities” carry little to none of the pension and retiree health care burden their elder compatriots shoulder.

This is not just a numbers game, Weinberg stressed — it’s about the integrity of representative democracy itself.

“California keeps talking about how it’s running a surplus — but it has these big retiree benefits building up on the credit card and it’s not even making the minimum payments,” Weinberg said. “Yeah, you can run a ‘surplus’ if you don’t pay your bills.”

Officials are making decisions based on incomplete information, she said. Taxpayers should demand that they flesh the picture out.

State Sen. John Moorlach, R-Costa Mesa, who has been a certified public accountant, conducted a similar examination of California’s cities recently. Some of the smaller ones had worse burdens than the larger ones, he found.

By  | | Orange County Register