CVIndependent

Tue07142020

Last updateMon, 20 Apr 2020 1pm

11 Dec 2019

At Risk: The State Auditor Shines a Light on Cities' Financial Shortcomings—and Some Local Cities Face Trouble

Written by 
A screen shot of the new dashboard offered by the California State Auditor’s Office. A screen shot of the new dashboard offered by the California State Auditor’s Office.

The California State Auditor’s Office recently launched a new tool, available to anyone with an internet connection: an online dashboard that aggregates, compares and ranks the financial stability of more than 470 California cities, based on detailed and publicly available information.

“For the first time, Californians will be able to go online and see a fiscal-health ranking for more than 470 cities based across the state,” State Auditor Elaine Howle proclaimed in a news release announcing the launch. “This new transparent interface for the public, state and local policymakers, and other interested parties, is intended to identify cities that could be facing significant fiscal challenges.”

The most compelling feature of this new dashboard is the interactive map of California. To uncover relevant financial details, any user can run their cursor over the geographic area correlating to any one of the 470 cities whose financial data is included. When the cursor hovers over a given city, a box opens to show the name of the city and its rankings in the 11 different indicator categories: overall risk, liquidity, debt burden, general-fund reserves, revenue trends, pension obligations, pension funding, pension costs, future pension costs, OPEB (other post-employment benefits) obligations and OPEB funding. It quickly reveals information that, until now, was difficult to obtain.

The data, however, is a little outdated: The city evaluations and rankings are based on 2016-2017 fiscal-year numbers, the most-recent complete data set available for all the cities represented.

“We are in the process of getting the 2017-18 information, so we’ll be able to provide that information on our dashboard as well,” said Margarita Fernandez, chief of public affairs for the California State Auditor, in a recent phone interview. “The (dashboard) tool is now established, so we’ll be able to put up the information for 2017-18 as soon as it comes in. Eventually, you’ll be able to look at it yourself and see trending information like, ‘Here’s how they were doing in 2016-17, and now here they are in 2017-18, etc.,’ and whether things are improving, or they’re not improving.”

Despite Fernandez’s attempt to explain the older data, some city representatives see this as a serious defect in the state auditor’s effort at transparency.

“These numbers are two to three years old, and I think that our financial state today reflects that,” said Brooke Beare, the city of Indio’s director of communications and marketing, during a recent phone call.

The nine Coachella Valley cities are, in the category of overall risk, ranked as follows:

  • Palm Springs: No. 46 (moderate risk level)
  • Cathedral City: No. 105 (moderate)
  • Indio: No. 118 (moderate)
  • Coachella: No. 121 (moderate)
  • Desert Hot Springs: No. 308 (low)
  • La Quinta: No. 434 (low)
  • Palm Desert: No. 444 (low)
  • Rancho Mirage: No. 454 (low)
  • Indian Wells: No.  466 (low)

The good news is that none of the nine Coachella Valley cities were ranked in the “high risk” category. The bad news is the three worst-ranked—Palm Springs, Cathedral City and Indio—all were rated as “high risk” in four of the 11 indicator categories studied by the state auditor. It was on this basis that the Independent reached out to representatives of each of those three cities.

As of our deadline, only Indio representatives—Beare, and Assistant City Manager and Finance Director Rob Rockwell—responded. A city of Palm Springs finance executive did reply to an email requesting a phone interview, and asked that the Independent deliver its questions via email. The Independent complied, but received no response to those questions.

Rockwell, Indio’s finance director, applauded the state auditor’s dashboard.

“I think the reporting itself is good, and I appreciate it. I think it’s useful,” he said. “I don’t think it necessarily tells the whole financial story, but I think there are bits and pieces that will allow organizations or municipalities like Indio to go back and do some double-checking on some things, which is exactly what we did in Indio.”

He discussed various actions taken in the last two years by the Indio City Council. “Two of the four areas where Indio was considered ‘high-risk’ were pension funding set-aside, and OPEB (other post-employment benefits) set-aside,” Rockwell said. “In regards to the pension funding, just this year, the Indio City Council committed $1 million to setting up a pension trust … and that money is set aside and can only be used for pension obligations. So the issue of us not having money set aside has already been addressed.

“In regard to that OPEB funding set-aside, in February of 2014, the city created another … trust that in this case is basically for retiree medical costs. We’ve been committing money to that on an annual basis, and (as of Sept. 30), it totaled $1.77 million. So, the City Council recognizes the need—but it’s not been a super-high priority, in the sense that the City Council has been focused on capital infrastructure improvements in the city of Indio.”

Given the pension-funding liabilities currently shown on Indio’s balance sheet, the $1 million currently in the pension-funding trust wouldn’t make much of a dent. Rockwell told the Independent that the point of setting up the trust wasn’t to offset the entire debt amount.

“To think that we’re going to put $50-plus million aside (to cover the amount of unfunded liabilities)—that’s a striking number,” he said. “Really, the purpose of this trust is to set up some money so that, if a recession occurs, instead of having to make cuts to services to pay our pension costs, we can reach into this trust and pay our annual pension costs for a year, or maybe two, maybe three, maybe five, and not have to reduce services (to residents) in years where our revenues might be short due to economic impacts.”

Mounting pension obligations are a concern for all of our valley cities. It was a major topic of discussion in this past November’s Palm Springs City Council elections.

“I think that most California cities, including those here in the valley, are having a tough time dealing with these increasing pension costs,” Rockwell said. “I don’t think it’s a surprise that a lot of cities are even having to face some service reductions to fund their pension obligations. I think obviously that the return on investments that were originally expected did not come through. … The obligation is real, and it’s not going away anytime soon. Cities are just having to adjust, and there are various mechanisms to do that. A lot of cities have changed their retirement formulas. Clearly, the Public Employees’ Pension Reform Act (which took effect in 2013; it includes compensation limits and establishes minimum contributions by employees) has changed pension funding. I have to say that for the city of Indio, the number of employees that we’ve hired under PEPRA is occurring at a faster rate than we expected. I don’t know how much that’s going to help the unfunded liability, but I can definitely say that there’s a change taking place.”

To view the State Auditor’s Local Government High-Risk Dashboard, visit www.auditor.ca.gov/bsa/cities_risk_index.

2 comments

  • Comment Link JC Friday, 13 December 2019 10:24 posted by JC

    And yet the Palm Springs City Manager continues to pull down one of the highest salaries of any city manager in the state. He's been in his position for about a decade and a half, but here we are, embarrassingly low on this list, despite tax increases

    Report
  • Comment Link JC Friday, 13 December 2019 10:21 posted by JC

    As a Palm Springs resident, I find it disappointing that our well-staffed city hall cannot find the time to respond to the press with some sort of explanation of why the city ranks lowest in the Coachella Valley on this list and what the city intends to do about it, but I also think it is typical of City Manager Ready's management style to ignore inquiries unless compelled to respond.

    Report

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.