State lawmakers have largely looked the other way, but perhaps they will take notice now that California’s well-respected State Auditor Elaine Howle released a report this month detailing the financial situation in the state’s 471 cities. More than half of them are in at least a moderately risky situation, with 18 of them at high risk for financial distress.
That’s particularly disturbing given that a boisterous economy has kept stock-market returns high enough to gloss over growing liabilities. If recession hits — and former Gov. Jerry Brown would always remind us that it always occurs eventually — some cities could face insolvency. That would create pressure on the state’s general-fund budget and for tax increases, which is the last thing highly taxed California needs in an economic downturn.
Benefits for retiring public employees, of course, are the main stress on municipal budgets. “Howle said that 337 out of 471 cities have not saved enough money to pay for future retiree health benefits,” the Associated Press reported. “Nearly half of the cities are not saving enough money to pay pension benefits in five years. She also said she was alarmed to see some cities borrowing money to pay for pension obligations.” We recently opined against the pension-obligation-bond trend, which allows cities to borrow money to help meet current obligations.
Several Southern California cities — Compton, San Fernando, San Gabriel, Maywood, Monrovia, Vernon, West Covina and La Habra — rank among the 18 at high risk. Most of them are relatively small, but 425,000-population Oakland and 110,000-population Richmond in the San Francisco Bay Area are on that list. The plight of larger cities makes the problem harder for the state to ignore. Perhaps it’s time for California lawmakers to pay as much attention to this problem as they pay toward trivialities such as banning shampoo bottles offered by hotels.
The state auditor deserves much credit for putting together this thorough and important information, which can be accessed at https://www.auditor.ca.gov/. The site includes an interactive state map, which makes it easy to click on one’s home city and see a risk ranking for a variety of categories including liquidity, debt, financial reserves, revenue trends and retirement obligations. The auditor even called out Compton for its lack of financial transparency.
The state hasn’t done much to deal with this crisis, but at least it’s providing good data that will, as Howle told reporters, “trigger discussions and decision-making that better prepares cities to be able to respond without cutting services.” The League of California Cities spokesperson told CalMatters that it’s a “data dump that’s void of context and analysis.” That’s an inappropriately defensive response that downplays the seriousness of the problem — one that even many of the league’s member cities have been warning about for some time.
How many more warning flags do state lawmakers need? California officials should address retirement-obligation costs now, while the economy still is humming, rather than wait until after a crash precipitates a full-blown crisis.
©2019 The Orange County Register (Santa Ana, Calif.). Distributed by Tribune Content Agency, LLC.
