Bay Area’s Biggest Cities Fare Badly in Financial Health Ranking
Commentary
The California Department of Transportation, affectionately known as Caltrans, divides the state up into 12 districts. District 12, Orange County, is a region to itself, with 34 cities. The Bay Area, District 4, includes nine counties that touch San Francisco Bay and holds 101 cities, more than one-fifth of California’s cities. The counties are Alameda, Contra Costa, Marín, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma.
Where do these 101 cities stand financially? What is a good measure to obtain their fiscal temperature? And where can one obtain the information?
The easiest thing to do is to go to the city’s website, look for the Finance Department, and click on its Annual Comprehensive Financial Report (ACFR), also referred to as the annual audited financial statements.
You may be disappointed with some city websites, as current information is not always posted. This could be due to one or more reasons. It took the outside auditors a couple of years to sign off on the city of San Diego’s audit back in 2008, thanks to its pension funding crisis. And its 2003 ACFR was not issued until 2007. Or it could be poor management, as noted in “Elected County Auditor-Controllers Behaving Badly” (Oct. 3). But it explains why we are looking at 2018 and 2019 financial statements in this analysis, as some cities in other areas of the state still have not released their financial statements for 2019!
Once you have found the ACFR, scroll down to the Basic Financial Statements, then to the Statement of Net Position. Go to the bottom of the page and find the “Unrestricted” amount for Governmental Activities, also referred to as the Unrestricted Net Position (UNP). The ACFR may also provide the population of the city. Divide the population into the UNP to obtain the per capita, which is the amount that applies to each resident. This number will provide a range that is useful for comparison purposes.
The chart below provides the rankings for the cities by the Bay using this simple metric. There usually isn’t much movement year over year in the rankings, but it is helpful to check for any significant changes. Let’s discuss some of the cities that moved eight or more places to see what secrets they may hold, if any.
The city of Atherton moved up 17 places by having a successful year, where net revenues after expenditures was some $8 million, helping the UNP to improve by $6.3 million. Burlingame, which moved up nine places, had a similar story, with net revenues of $32.1 million, helping its UNP to increase by $19.3 million.
Newark also had a good year with $17.8 million in net revenues. It also recharacterized $11.9 million out of restricted assets. Together it reduced its unrestricted net deficit (UND) by $26.9 million. Sunnyvale, meanwhile, enjoyed $85.7 million in net revenues, which was offset by increasing its restricted assets by $28.2 million, resulting in reducing its UND by $50 million.
Brisbane almost tripled its UND with a simple accounting adjustment to its Net Investments in Capital Assets of only $5.48 million, but enough for this small city to drop 23 places. Healdsburg dropped eight places in a combination of events, half of it like Brisbane, for an increase in its UND of $9.2 million.
Why all this detail? Because residents of California’s cities should understand where their cities stand and the direction they are moving in. After I released my original report for 2019, while serving in the California State Senate, the residents of Vacaville formed a citizens committee. The Solano County Grand Jury even issued a report on its poor standing (see “Grand Jury report urges city to stay on top of unfunded liabilities,” The Reporter, May 27, 2021). Being in the bottom 10 percentile of California’s 482 cities was distressing for its citizens, as it should be.
San Jose has garnered significant media attention in the last two decades for its unfunded actuarial accrued liabilities for its defined benefit pension and other post-employment benefits. The heart of Silicon Valley is in 94th place.
A city and county that is imploding before our very eyes, San Francisco, is in 98th place. And a city that I fly into often, Oakland, finds the rental car employees telling me not to go to certain locations for fear that a vehicle window will be busted and my luggage will be stolen. It’s in 100th place. It makes one wonder how a city can hire additional public safety officials when it’s so financially strapped?
The year ending June 30, 2019, is also an interesting starting point, as the next fiscal year will find every city impacted by the beginning of Gov. Gavin Newsom’s drastic COVID-19 pandemic lockdown and the Federal government’s disbursement of significant financial assistance to states, counties, cities, and other municipalities.
In closing, if your city is one of the 38 in positive territory, thank your city council members, past and present, for being fiscally astute in their elected roles. If your city is in the bottom 63, then challenge your city council members to step up their game and start moving the city’s ranking up in the standings. Hopefully their answer is not to raise your taxes, but if it is, then you’ll know why. You may want to enlarge your emergency fund reserves, as you’ll be the one paying the price for poor fiscal decisions by your city and its elected officials.
– What were the primary factors that led to Stockton’s financial struggles and how is the city recovering from bankruptcy?
Ued liability (UAAL) in its pension plans, reaching over $3 billion in 2020. This liability has had a significant impact on the city’s financial position, and it is no surprise that San Jose ranks near the bottom of our list. However, the city has been taking steps to address this issue and has made progress in reducing its UAAL in recent years.
Another city that has faced financial challenges is Stockton. In 2012, Stockton became the largest city in the country to file for bankruptcy. The city’s financial struggles were primarily due to a combination of high pension costs, declining revenues, and unsustainable spending. While Stockton has emerged from bankruptcy and has developed a plan to address its financial issues, it is still working to recover and improve its financial standing.
On the other end of the spectrum, we have cities like Palo Alto and Los Altos, which consistently rank among the top in terms of their financial position. These cities have strong tax bases, low debt levels, and healthy reserves. They also benefit from a robust economy and high property values, which contribute to their strong financial position.
In conclusion, understanding the financial health of California’s cities is crucial for residents and policymakers. By analyzing the annual audited financial statements and comparing key metrics such as per capita unrestricted net position, we can gain insights into how well a city is managing its finances. This information can help identify cities that may be at risk of financial instability and guide decision-making to ensure the long-term sustainability of our communities.
Read more: Bay Area City Rankings: Rise and Fall
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