MOORLACH UPDATE — City CAFR Rankings, Vol. 10 — February 27, 2018

Well, here we are, the 50 California cities with the best per capita unrestricted net positions. It is the first piece below.

This was a fun exercise. So, I’ll be doing it every six months, as Comprehensive Annual Financial Reports (CAFRs) seem to dribble in at their own pace. Note that for one small city below, Doris, the most current CAFR is from 2013! Get ready for more fun in August.

The three cities from Orange County include two from my District, Irvine (#41) and Tustin (#34), but the winner is Cypress (#33), which was in my Supervisorial District and its Chamber of Commerce recognized me, a former Cypress resident, as their 2014 Man of the Year (see MOORLACH UPDATE — Man of the Year — April 11, 2014). Congratulations!

There’s so much drilling that can be done. For instance, city number 482, Vernon, should consider merging with city number 1, City of Industry. It’s too bad that they are not adjacent.

Five years ago, I did a similar analysis of Orange County’s 34 cities, based on their 2010 CAFRs, less unfunded liabilities (see MOORLACH UPDATE — Atwater — October 1, 2012 and MOORLACH UPDATE — Voice of OC — October 10, 2011). The second piece below is an update of the previous list.

Here are the cities that made the biggest moves down the list (movements of three or less spaces are not included):

Villa Park (9 places)

Seal Beach (8)

Stanton (5)
Laguna Niguel (4)
Lake Forest (4)
La Palma (4)

Here are the cities that moved up the list:

Laguna Beach (15)
Irvine (14)
Tustin (6)
Cypress (5)
Yorba Linda (5)

It would be interesting to know the stories behind each city’s repositioning. Comparisons are always difficult. But, it is a measurement from which management can make decisions. This may be a good thesis assignment for someone pursuing a Masters in Public Administration (MPA).

The one big lament I have about Donald Trump being elected President of the United States is that I did not reposition my personal investment portfolio in order to allocate more into equities. The stock market has gone up like a rocket since November of 2016. I guess he is making American great again.

The LA Times Business section had this to say about Orange County:

LOOKING UP, UP, UP: Thanks to a churning U.S. economy, experts have upgraded their already shining assessment of the Southland–and particularly Orange County. It referred to E. Scott Reckard’s piece, titled “County’s Shining Payroll Picture Gets Brighter Still — Jobs: Humming national economy helped create more employment than foreseen.”

Unfortunately, the date of the issue was April 23, 1999. Four months later, with a dramatically amended SB 400 coming to the Floor at the end of session, voted on in the lateness of night, without serious analysis, the California Legislature approved one of the most horrific fiscal missteps in state history. It would be signed by Governor Davis, to his personal regret (see http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/?789). It allowed for public employee defined benefit pension formula upgrades retroactive to the date of hire. And, it was promoted by a public employee union dominated CalPERS board, relying on internal actuaries and their overly optimistic forecasts.

Shortly thereafter, the investment markets would provide three straight years of negative returns, something not seen in modern history.

In the third piece below, I want to remind Californians that high municipal debts, rising interest rates, and a volatile stock market are warning signs. The cities at the bottom of my list need to wake up and get serious, and soon. For when the next downturn arrives, they will be unable to borrow from lending institutions or from the municipal bond market. It will not be pretty. It’s provided in the third piece below in the electronic version of The Sacramento Bee, including their promo from “The Take.”

Rank City Population UNP UNP Per Year of
(Thousands) Capita CAFR
50 San Pablo 31,053 $41,967 $1,351 2017
49 Montague 1,441 $2,058 $1,428 2017
48 Hawaiian Gardens 14,753 $21,723 $1,472 2016
47 Portola 2,127 $3,150 $1,481 2016
46 Ripon 15,132 $22,515 $1,488 2017
45 Monte Sereno 3,501 $5,223 $1,492 2016
44 Ross 2,543 $3,917 $1,540 2017
43 Los Altos Hills 8,634 $13,378 $1,549 2017
42 Solvang 5,593 $8,799 $1,573 2016
41 Irvine 267,086 $433,617 $1,624 2017
40 CarmelbytheSea 3,842 $6,267 $1,631 2014
39 Westlake Village 8,370 $13,921 $1,663 2016
38 Danville 43,355 $72,257 $1,667 2017
37 La Mirada 49,434 $82,798 $1,675 2017
36 Palm Desert 50,740 $87,092 $1,716 2016
35 Agoura Hills 21,018 $36,600 $1,741 2016
34 Tustin 82,372 $144,443 $1,754 2017
33 Cypress 49,655 $89,651 $1,805 2017
32 Morgan Hill 44,145 $80,663 $1,827 2017
31 Point Arena 452 $827 $1,830 2017
30 Malibu 12,742 $23,870 $1,873 2016
29 Avenal 12,491 $24,358 $1,950 2017
28 Dublin 59,686 $120,464 $2,018 2017
27 Lathrop 23,110 $47,769 $2,067 2017
26 Carlsbad 113,725 $249,816 $2,197 2017
25 Half Moon Bay 12,591 $28,173 $2,238 2017
24 San Juan Bautista 1,856 $4,214 $2,270 2017
23 West Hollywood 35,882 $82,141 $2,289 2016
22 Rolling Hills 1,922 $4,595 $2,391 2016
21 Foster City 33,225 $83,096 $2,501 2017
20 Cerritos 50,039 $131,068 $2,619 2017
19 Bradbury 1,107 $3,196 $2,887 2016
18 La Quinta 40,677 $118,125 $2,904 2017
17 Yountville 2,935 $8,659 $2,950 2017
16 Truckee 15,904 $48,246 $3,034 2017
15 Commerce 13,064 $42,452 $3,250 2017
14 Hidden Hills 1,885 $6,569 $3,485 2017
13 Trinidad 369 $1,354 $3,669 2016
12 Shafter 18,868 $73,581 $3,900 2017
11 Rancho Mirage 18,295 $72,676 $3,972 2016
10 Coronado 24,543 $102,264 $4,167 2017
9 Etna 733 $3,511 $4,790 2014
8 Emeryville 11,854 $65,636 $5,537 2017
7 Dorris 966 $5,469 $5,661 2013
6 Beverly Hills 34,646 $250,974 $7,244 2017
5 Colma 1,506 $17,650 $11,720 2016
4 Indian Wells 5,450 $65,151 $11,954 2017
3 Irwindale 1,423 $23,748 $16,689 2016
2 Sand City 384 $11,396 $29,677 2016
1 Industry 440 $67,314 $152,986 2016
Num City Feb. 2018 2010
1 Cypress 33 6
2 Tustin 34 8
3 Irvine 41 17
4 Laguna Beach 55 19
5 Laguna Niguel 56 1
6 Lake Forest 86 2
7 Dana Point 89 4
8 Laguna Woods 100 11
9 La Palma 104 5
10 Aliso Viejo 107 7
11 Yorba Linda 129 16
12 Villa Park 130 3
13 San Clemente 142 12
14 Stanton 150 9
15 Rancho Santa Margarita 156 13
16 Mission Viejo 171 15
17 Laguna Hills 198 14
18 Seal Beach 201 10
19 San Juan Capistrano 223 18
20 Buena Park 302 22
21 La Habra 315 23
22 Los Alamitos 328 21
23 Garden Grove 330 20
24 Westminster 346 24
25 Placentia 349 26
26 Fountain Valley 362 25
27 Orange 367 28
28 Fullerton 386 27
29 Huntington Beach 422 29
30 Santa Ana 423 30
31 Anaheim 426 33
32 Newport Beach 434 32
33 Brea 438 34
34 Costa Mesa 444 31

California Forum

Sen. John Moorlach: A spike in state liability for retiree health care and recent stock market tremors are red flags that the economy isn’t as healthy as we think. Read more.

Welcome to The Take, your opinion-politics newsletter, produced by The Sacramento Bee’s editorial board. Please sign up for it here and tell your friends.

CALIFORNIA FORUM

Two red flags that California’s economy isn’t as healthy as we think

BY JOHN MOORLACH

Special to The Sacramento Bee

http://www.sacbee.com/opinion/california-forum/article202263079.html

Two recent financial tremors should caution California and its municipalities that they had better get their financial houses in order. The first came from Controller Betty Yee in her update on the state’s retiree health care liabilities.

On January 31, she reported “the state’s cost for retiree health and dental benefits” has grown to $92 billion, up from last year’s $77 billion.

This is only the second year she has issued this report, following the standards issued by the Governmental Accounting Standards Board. But it was a $15 billion increase.

Let’s hope this spike is an anomaly and not a trend.

Yet Yee warned the liability “will be unpredictable and will remain a paramount fiscal challenge over the next three decades.”

This $92 billion becomes the second largest number in the state’s list of outstanding liabilities. Even larger, as Gov. Jerry Brown itemized in his January 10 budget proposal for fiscal year 2018-19, is the $176 billion owed for underfunded pensions.

Add in $3.28 billion for several lesser liabilities, such as loans from special funds, and $19.3 billion for University of California retirees’ health care, and the total comes to $290 billion. This means every man, woman and child in California owes $7,300 to pay this balance off.

The Brown budget proposes paying down only $1.5 billion of that. The rest is left to his successors to tackle.

The second tremor came on Feb. 5 with the massive stock market drop, the beginning of the worst week for investors since 2008.

Turbulence and volatility are now the concern. With some indicators showing inflation rising again, the New York Times reported a week and a half later that “nearly all mainstream economists agree that at some point, higher interest rates and inflation hurt stock prices.”

My purpose here is to simply reiterate that the state and its counties and cities need to get their financial cards in a row. Even if the stock market continues moving up, a $290 billion unfunded liability simply isn’t sustainable. And if the market crashes, and stays crashed, then what?

I’ve been here before. In 1994, I warned that Orange County’s cash investment strategy was unsustainable because of “interest rate risk.” I was running, but lost that June, against longtime county Treasurer-Tax Collector Bob Citron, whose Midas touch with investments seemed to be invincible – until it wasn’t.

When Government Fails: The Orange County Bankruptcy,” published in 1998 by Mark Baldassare, president and CEO of the Public Policy Institute of California, recounted what happened. He cited a May 31, 1994 letter I sent to then-Supervisor Tom Riley, warning that the fund had lost $1.2 billion since interest rates started rising in February 1994.

Baldassare explained how I explained Citron’s approach would work “only if there were declining interest rates over several years, which was impossible to predict” – a situation eerily similar to 2018. Riley “dismissed” the warning based on the advice of “financial experts.”

Orange County filed for Chapter 9 bankruptcy protection that December in what then was the largest municipal bankruptcy in American history, with losses totaling $1.6 billion. In addition to Baldassare’s, dozens of books have been written quoting my warnings as a cautionary tale for today’s fiscal stewards.

What people do with their own money is their business. What government officials do with the people’s money is everybody’s business.

Elected officials need to encourage an emphasis on building cash reserves, cutting fluff and focusing on debt management, before their debts define who manages their municipalities.

SEN. JOHN MOORLACH, R-COSTA MESA, REPRESENTS THE 37TH DISTRICT IN THE CALIFORNIA SENATE; MOORLACH.

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