Last year, representatives from several cities across the state testified before the California Public Employees Retirement System (CalPERS) Finance and Administration Committee, sharing their financial plights (see MOORLACH UPDATE — What Pension Crisis? — September 27, 2017).
What was the response from CalPERS? They blamed the cities for creating their own problems (see MOORLACH UPDATE — CalPERS Exit Strategies — November 18, 2017). This is partially correct. Most of them followed CalPERS’ lead and voted for retroactive defined benefit pension plan formula increases. No doubt, they should have been more fiscally responsible despite the unrelenting pressure from public employee unions to pursue gold-plated benefits, no matter the cost.
But, CalPERS should never have advocated for better retirement formulas after the stock market rise in the late 1990s. And, CalPERS should never have kept its investment return assumption so high over such a long period of time. And, CalPERS should not have been governed by a Board that is dominated by public employee union representatives without significant financial expertise. And, I could go on.
California’s 482 incorporated cities now find themselves in precarious financial positions, as it relates to funding their pension plans. Many are fine, according to their audited financial statements, as presented in their Comprehensive Annual Financial Reports (CAFRs).
What do these CAFRs tell us? And, what simple metric can be used to find the range of the financial status as to positive and negative? I usually divide the unrestricted net position (UNP) for governmental activities by the city’s population (see MOORLACH UPDATE — Better Shape — February 1, 2018 ). So what does that provide? Well, some 218 cities are in the positive portion of the curve, the rest are not. And, the numbers are likely to get worse with the June 30, 2018 CAFRs, as retiree medical liabilities will have to be included on the balance sheets.
Gathering this data was not an easy task and is still ongoing. It took a large team and we tried our best to assure quality control. But, my first release did not go as well as planned, but I’m glad for it.
I tried to start from the bottom last week, but a good friend, Tehama County Supervisor Bob Williams, made a valid inquiry about a city in his county that I maybe needed to correct. He was correct. My sincerest apologies to the city of Tehama for the error. But, I’m the only State Senator that is analyzing the cities, with limited staffing and a great group of volunteer interns. All the same, I believe we have scrubbed the analysis enough to start releasing the list a portion at a time. So, I’ll try to release 50 per UPDATE going forward.
Why the project? Well, I carried some eight public employee pension reform measures last year alone. And did one city come to testify in support? No. And, are they now crying about their predicament? Yes. See www.sacbee.com/news/politics-government/the-state-worker/article198062129.html.
Why am I parsing out the data? Because 482 lines of data are too long for an UPDATE and if any of the data is incorrect, we can modify as we go along. Someone will let me know and I’m hoping that I do not receive another e-mail like the one I received from Supervisor Bob Williams. If I do, I will confidently provide the city representative with a link to their CAFR on their website (or the hard copy, if we had to request it), allowing them to do the same calculation. There are still three cities that have not yet provided us with their CAFRs, after numerous polite requests. So much for transparency. I’ll release their names soon, but do not expect any of them, hopefully, to appear at the bottom of the list.
So, below are the first revised city standings, starting with the bottom 32. What do we find? The city of Vernon is an outlier, as it only has 209 people within its industrial borders. But, the unrestricted net position is still outrageous. A city like this should be well above zero. But, it ranks as number 482, based on its 2017 CAFR. At least its CAFR is current. Note how many do not have the current CAFR available on their websites (at least half). Once they are provided, their rankings may change. But, it is February and the June 30, 2017 CAFRs should technically be up and available by now. Expect California’s in April.
Some other thoughts. The city and county of San Francisco ranked near the bottom when I did a similar study of all 58 counties with their 2010 CAFRs (for my 2012 State of the County Chairman’s Address – MOORLACH UPDATE — State of the County — January 20, 2012).
If California were a city, it would place between Richmond (480) (MOORLACH UPDATE — City of Stanton — March 4, 2013 ) and Oakland (479), making it a bottom dweller.
Plenty has already been written about the city of Isleton (see Daily Journal Considers Municipal Bankruptcy september 29, 2009 and MOORLACH UPDATE — Quasquicentennial — December 24, 2013).
This grouping represents one out of every five Californians residing in incorporated cities. It’s time to get serious about pension reform.
|Rank||City||Population||UNP||UNP Per||Year of|
|473||Santa Fe Springs||18,291||($49,235)||($2,692)||2016|
|464||Del Rey Oaks||1,681||($3,590)||($2,136)||2014|
|463||South Lake Tahoe||21,024||($43,322)||($2,061)||2016|
|458||South San Francisco||65,451||($120,120)||($1,835)||2016|
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