The “high risk” designation – equivalent to a municipal scarlet letter – means 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 California State Auditor.
- On the red light watch list this year with Anaheim are the Southern California cities of Compton, San Gabriel, Torrance, Montebello and West Covina. Only 12 cities across the state are considered high risk.
- 196 other cities are coded yellow for moderate risk, including Los Angeles, Long Beach, Fullerton, Riverside, and San Bernardino.
- And 215 cities are coded green for low risk, including Whittier, Temecula, Chino Hills, Santa Clarita, Aliso Viejo, Laguna Woods, and Rancho Mirage.
The analysis scrutinizes time well beyond immediate 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 data from 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 unforeseen expenses or shortfalls, like what was observed during the pandemic?
What is the weight of its long-term debt (pension obligations, pension benefits, bond repayments) compared to its income?
Does the city’s income increase or decrease 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 listener’s approach. “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 scorecard is insufficient, she said. It uses city audited financial statements, which are usually a year late, and therefore does not project current conditions.
Audited financial statements, however, are considered to be the most reliable window into a government’s finances, 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 greatest challenges.
This is because public security pensions are the most expensive retirement benefits these cities have to pay. Retirement formulas were softened when the stock market was roaring 20 years ago, and elected officials were told that great returns on investment would cover the increased costs. Unfortunately, this was not the case.
Anaheim, ranked eighth worst in the state, saw its annual contribution to California’s public employee retirement system jump more than 44% from 2019 to 2022, according to data from CalPERS. 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 employees for retirement benefits and what is actually being set aside.
Cities say they are working on it.
“We welcome and share the report’s interest in the fiscal health of California cities,” Anaheim spokesman Mike Lyster said via email. “Anaheim is going through the biggest challenge of our time after shutting down our theme parks, convention centers and entertainment venues for a year and more. We are in the early stages of economic recovery and, longer term, we have good prospects with billions of investments planned around our stadium, the Honda Center and in and around theme parks. The income from the economic recovery and future investments will help us serve our residents and meet our obligations for years to come.
“Beyond the economic recovery, we continue to address 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 ranking rang Torrance in almost every category and called it the fourth worst in the state.
The city is projecting a surplus of $ 8.5 million this year and a small deficit by the end of next year, thanks to a boost of $ 24 million from the American Rescue Plan Act. City officials, however, are betting big on passing a 3/4 cent sales tax measure as a possible solution to their lingering financial woes. The measure would generate $ 26.7 million every year, but that’s a long time since voters have already rejected a similar proposal as recent as 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 expected in Torrance even if the measure passes, but to a much lesser degree than if unsuccessful, so that the city can begin to replenish its depleted reserves.
The small town of San Gabriel in Los Angeles County, known for its historical mission, landed as the second worst in the state. City spokesperson Jonathan Fu provided a statement calling the auditor’s ranking “well-meaning” but “unrepresentative of the city’s financial situation.” The city implemented a financial recovery plan in 2018 that included new accountability standards and internal controls, the statement said.
“Despite the continued financial impact of COVID-19, we expect higher revenues than expected for our current fiscal year, which will help strengthen our financial health,” the statement said. “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 has improved slightly from last year’s standings, dropping from ninth worst to 12th worst. He was missing less than one point to qualify as “moderate risk”.
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 rainy days fund by $ 10 million over a four-year period. The report prompted internal reviews that were ongoing from May 2021.
City Councilor Tony Wu said he was surprised the city has not moved up the rankings, saying he believes there have been marked improvements. A recent budget indicated that the city’s reserves have increased by about $ 8 million over the past two years.
“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 among the worst 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 city 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 city’s saving grace came from an increase in sales tax adopted in 2020 which generated $ 7 million this year.
So how’s your city doing?
The cities in Southern California coded in yellow, moderate 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.
Cities coded in green, low risk, 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, Noyer, Murrieta, Rancho Santa Margarita, La Habra Heights , Chino Hills, Villa Park, Menifee, Rancho Palos Verdes, P almdale, Di amond 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.
Editor-in-chief Robert Morales contributed to this report.