These Southern California towns are at high risk of financial distress, auditor says – Daily News
The “high risk” designation – equal to a municipal scarlet letter – implies that these towns are “at high risk of waste, fraud, abuse or mismanagement, or have major challenges related to their economy, efficiency or effectiveness. According to the State of California auditor.
- On the red light watch list this year with Anaheim are Southern California cities, Compton, San Gabriel, Torrance, Montebello and West Covina. Only 12 cities in the whole state are considered high risk.
- 196 other cities are coded yellow for reasonable risk, as well as Los Angeles, Long Beach, Fullerton, Riverside and San Bernardino.
- And 215 cities are coded low risk, including Whittier, Temecula, Chino Hills, Santa Clarita, Aliso Viejo, Laguna Woods, and Rancho Mirage.
Friends of evaluation over time far beyond instant perspectives, where one-year stimulus funds are expected to fill many pandemic-induced holes in city budgets. Instead, the auditor collects and analyzes key financial knowledge of cities to measure their financial stability over time and arrives at these simple designations, coded by a brake light.
Does the city have enough money to cover surprising bills or shortfalls, equivalent to what was observed during the pandemic?
How much of their long-term debt – pension obligations, retiree benefits, bond repayments – compared to their income?
Are metropolitan revenues increasing or decreasing over time?
“We are confident that our assessment will help struggling cities cope with looming challenges,” State Auditor Elaine M. Howle, Chartered Accountant, said on the website that graphically illustrates the designations.
The League of California Cities, which represents them in Sacramento, disputes the auditor’s method. “The dashboard does not provide the context or the analysis necessary to make the information useful,” said spokesperson Jill Oviatt.
While the league “fully supports transparency and the sharing of relevant and meaningful data,” the state auditor’s dashboard is succinct, she said. It uses city audited financial statements, which are often a year late, and therefore does not project current situations.
Audited financial statements, nonetheless, are considered the most reliable window to authorities’ funds, as annual budgets are essentially estimates that stay in motion until the end of the fiscal year.
Public security pensions
Generally speaking, older towns that have their own police and fire departments face the best difficulties.
This is because public security pensions are the most expensive retirement benefits these cities should afford. Retirement formulas were softened when the stock market was roaring 20 years ago, and elected officials were told that good returns on investments would cover high prices. Unfortunately, this was not the case.
Anaheim, ranked eighth worst in the state, has seen its annual contribution to California’s public employee retirement system jump by more than 44% from 2019 to 2022, according to CalPERS knowledge. In West Covina, it has increased by more than 41%. In Torrance, 40%. All in an effort to bridge the gap between what is currently owed to staff for retirement benefits and what is really being put aside.
The cities say they are committed.
“We welcome and share the report’s interest in the fiscal health of California cities,” Anaheim spokesman Mike Lyster said via email. “Anaheim is becoming the biggest problem for our jurisdictions after the one-year-plus shutdown of our theme parks, conference centers and recreational venues. We are in the early stages of financial recovery and, in the long term, we have a vibrant outlook with billions of deliberate funding around our stadium, the Honda Center and in and through theme parks. Revenues from financial recovery and future funding will help us serve our residents and meet our obligations for years to come.
“Beyond the economic recovery, we continue to tackle fiscal issues,” he said. “We are emerging from the pandemic budget crisis with the same mindset of managing labor and operating costs and controlling spending. After the 2012 reforms, we also continue to make progress on pension obligations, with around 70% of our pension obligations now funded. “
The listener’s rating rang Torrance in almost every class and called it the fourth worst in the state.
The metropolis is forecasting a surplus of $ 8.5 million this year and a small deficit for the next year, due to a $ 24 million lift from the American Rescue Plan Act. City officials, however, are betting big on passing a 3/4 cent gross sales tax measure as a feasible solution to their ongoing financial problems. The measure would generate $ 26.7 million every year, but it’s a prolonged shot as voters have already rejected the same proposal as in March 2020.
“This would have a direct impact on the areas covered by the state auditor’s report, as the proposal foresees spending $ 6 million on fiscal sustainability,” said city manager Aram Chapryan.
Cuts are planned in Torrance even when the measure passes, although to a much lesser degree than if it fails, so that the city can begin to replenish its depleted reserves.
Los Angeles County’s tiny metropolis, San Gabriel, known for its historical mission, landed because the second worst within the state. City spokesperson Jonathan Fu issued a press release calling the auditor’s rating “well-intentioned” but “unrepresentative of the city’s financial situation.” The metropolis implemented a financial recovery plan in 2018 which included new accountability requirements and internal controls, as claimed.
“Despite the continued financial impact of COVID-19, we are forecasting higher than expected revenues for our current fiscal year, which will help strengthen our financial health,” the assertion states. “This would mark the fourth year that our revenues have exceeded our expenses, which is critical to our recovery and our long-term financial viability. “
West Covina barely improved from last year’s rating, dropping from ninth worst to twelfth worst. It was below a level to be labeled “moderate risk” as an alternative.
The auditor’s office previously said the city was at high risk for bankruptcy in a December 2020 audit. He had used his reserves to support himself for years, draining his $ 10 million wet day fund over a four-year interval. The report sparked internal criticism that had been ongoing from May 2021.
City Councilor Tony Wu said he was shocked the city hadn’t moved further in the rankings, saying he believed there had been marked improvements. Current finances indicate that the city’s reserves increased by about $ 8 million two years ago.
“I think we would be around 120th, not 12th,” he said. “But it’s a step by step, which means we are headed in the right direction.”
Montebello ranked seventh in the state and was criticized by the state auditor’s office in 2018 for suffering from structural deficits for “much of the past decade.” City manager René Bobadilla did not return a request for comment. The metropolis broke its streak of multi-year deficits in 2020 with a balanced budget and is plan for a surplus by the end of the fiscal year in 2022.
The saving grace of the metropolis came from an increase in sales tax awarded in 2020 which generated $ 7 million this year.
So how is your metropolis doing?
Cities in Southern California coded in yellow with reasonable risk are Gardena, Lynwood, San Fernando, Claremont, Monrovia, Long Beach, Fullerton, Montclair, Los Angeles, Redondo Beach, Downey, Pomona, San Bernardino, Vernon, El Monte, Riverside, Orange, Costa Mesa, Cathedral City, Bell Gardens, Lake Elsinore, Alhambra, Glendale, Carson, Palm Springs, El Segundo, La Habra, Santa Ana, Covina, Arcadia, Pasadena, Indio, Inglewood, Placenta, Huntington Beach, Newport Beach, Santa Monica, Bell, Westminster, Redlands, Brea, Ontario, Coachella, Hemet, Norwalk, Hermosa Beach, Garden Grove, Hawthorne, San Marino, La Verne, Buena Park, Manhattan Beach, Hesperia, Culver City, Rialto, Monterey Park and Commerce.
Inexperienced, low risk coded towns are San Clemente, Rolling Hills Estates, Tustin, Simi Valley, Perris, Colton, Upland, Avalon, Los Alamitos, Azusa, Big Bear Lake, Beverly HIlls, Cypress, South El Monte, Loma Linda , Santa Fe Springs, Whittier, Dana Point, Brentwood, Lancaster, Burbank, Banning, Mission Viejo, Fountain Valley, Yorba Linda, Agoura Hills, Laguna Hills, Signal Hill, La Palma, Calabasas, Beaumont, Moreno Valley, San Jacinto, Seal Beach, Lomita, Campanule, Jurupa Valley, West Hollywood, Corona, Paramount, Laguna Beach, Laguna Niguel, Pico Rivera, Temecula, Fontana, Lakewood, Desert Hot Springs, San Juan Capistrano, Industry, Irvine, La Canada Flintridge, Hawaiian Gardens, Canyon Lac, Malibu, Lawndale, Norco, Temple City, Indian Wells, Cerritos, Palos Verdes Estates, San Dimas, Aliso Viejo, Irwindale, La Puente, Twentynine Palms, Westlake Village, Walnut, Murrieta, Rancho Santa Margarita, La Habra Heights, Chino Hills, Villa Park, Menifee, Rancho Palos V erdes, Palm dale, Diamond Bar, Santa Clarita, Palm Desert, La Mirada, Rancho Cucamonga, Yucca Valley, Rolling Hills, Hidden Hills, Lake Forest, La Quinta, Stanton, Laguna Woods and Rancho Mirage.
Staff author Robert Morales contributed to this report.