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California’s financially distressed local governments can learn from top performers – Orange County Register

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Years after our country emerged from the Great Recession, several Southern California cities have failed to prepare for the next downturn.

In October, California State Auditor Elaine Howle published fiscal health scores for 471 California cities. She found that many were ill-prepared to cover rising pension and other post-employment benefit expenses: a condition that would worsen if a new recession depresses tax revenues and decimates pension fund assets.

The state auditor assigned Compton the lowest score due to its lack of financial disclosure. The most recent audited financial statement on the city’s website is for the fiscal year that ended June 30, 2013. A 2014 audit was published but later retracted after the independent certified public accounting firm withdrew its opinion. Unfortunately, had Compton been able to produce more recent audited financials its score would likely still have been relatively low. Unaudited data that the city provides to the state controller shows  Compton has a negative general fund balance, which is roughly analogous to an overdraft on an individual’s checking account.

Several other cities in Los Angeles County ranked in the “high-risk” category because they’re “facing significant financial challenges.” These included (in rank order), San Fernando, San Gabriel, Maywood, Monrovia, Vernon, West Covina, and La Habra — with Victorville ranking just outside that high-risk category. Cities elsewhere in Southern California at risk of distress included Riverside, Fullerton and Santa Paula, which were among the 23 cities in the worst shape.

Some of these cities have previously received unwanted attention related to their poor fiscal management. Maywood, for example, was the subject of a 2016 audit report that cited the city council’s inadequate oversight on city operations and ongoing general fund deficits. Vernon has been previously singled out for having more public employees than residents. Victorville’s defaulted airport authority bonds became the subject of a Securities and Exchange Commission (SEC) complaint, but, more recently, the city caught up on missed interest and principal payments.

Many other Southern California cities performed relatively well. Larger Southern California cities in the upper half of the auditor’s ranking included Santa Clarita, Palmdale, Irvine, Fontana, Moreno Valley, and Oceanside. These cities tend to employ best practices, such as funding infrastructure through the budget rather than borrowing via bonds, writing and abiding by strong financial reserve and rainy-day policies, and encouraging businesses to relocate and remain in their communities.

The highest-ranking Southern California city in the state auditor’s survey was Lake Forest, with the fifth-best score overall. This midsized Orange County municipality has a strong general fund balance and minimal liabilities. Lake Forest also limits its other post-employment benefits by capping retiree health insurance subsidies at $115 per month. This contrasts with many other cities that pay the full health care premium, even for retirees who are receiving $100,000 or more in annual pension benefits.

The state auditor’s survey provides a huge service for California’s local governments and taxpayers, but there are many opportunities for improvement. Taxpayers and governments would benefit if the report’s coverage was extended to other types of local governments, including health care districts and fire protection districts — several of which are under severe fiscal distress and face high pension costs.


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Jeff Stearman

Jeff has experienced much success in his many years as a Realtor, consistently ranking in the Top 1% of Realtors nationally as well as the Top Agent locally. Jeff also has an MBA and Graduate Realtor Institute (GRI) designation and is Certified Short Sale Specialist and Distressed Property Negotiator and Expert. Jeff has a firm grasp on today’s real estate market and is an expert in all areas of residential real estate, including: traditional sales, residential income properties, vacation properties, luxury homes, as well as distressed properties. Additionally, with his background in mortgage & financial consulting, Jeff can help you understand the numbers side of real estate and offer valuable advice on the different types of home loans and financing options that you could take advantage of. His clients say: "If you want something done, ask a busy Realtor.” The Stearman Group has successfully sold over 3,000 homes because they carefully work with their clients to create successful solutions. They strive to solve your individual housing needs-one client at a time. His team gives only the Best Personalized Service to each of their clients every single time.

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