According to a new website run by California State Auditor Elaine Howle and her staff, the dozen most populated cities in California all have significant fiscal problems and will be forced into major adjustments in coming years.

Eleven of the cities – Los Angeles, San Diego, San Jose, San Francisco, Fresno, Sacramento, Long Beach, Bakersfield, Anaheim, Santa Ana and Riverside – face what Howle classified as moderate risk. One – Oakland – was seen as a high risk.

All 12 of the cities face considerable stress from the rising cost of pensions. Several – especially Los Angeles – also have vast unfunded health care obligations for their retirees. 

Howle’s findings were depicted as surprising in a Sacramento Bee analysis, which focused on the health of the state economy and the low unemployment rate. But government finance experts have long warned that California’s cities – which have seen the cost of post-employment benefits roughly triple over the last 30 years – are in a far worse position to deal with pension bills that the state and counties. That’s because total employee compensation takes up a much bigger chunk of city budgets.

Howle warns cities to prepare for recession

At a news conference introducing the website, Howle said a primary goal was making sure that both local officials and residents of each city would use her office’s analysis to prepare for a possible economic downturn. Even a mild recession is likely to reduce revenue that cities get from sales and hotel taxes and from development permitting.

“If some of these [cities’] costs continue to go up and these cities aren’t prepared for them, they will have to cut services in order to pay pensions, to pay for benefits, to pay for the debts that some of the cities have taken on,” Howle said, according to the Sacramento Bee. She specifically said nearly half the cities will struggle to meet their steadily increasing payments to CalPERS.

Rankings on the website are based on the 2016-17 fiscal year, with a focus on each city’s pension obligations, pension funding, pension costs, anticipated future pension costs, retiree health care expenses, debt burden, liquidity, general fund reserves and revenue trends.

Overall, 18 cities were said to be at high risk overall, 236 at moderate risk and 217 cities at low risk. Compton – which has not produced an audited overview of its finances in five years – was judged to be in the worst shape, followed by Atwater and Blythe. 

The other cities listed at being high-risk: Lindsay, Calexico, San Fernando, El Cerrito, San Gabriel, Maywood, Monrovia, Vernon, Richmond, Ione, Del Ray Oaks, Maryville, West Covina and La Habra.

Among the cities found to be in the best shape: Rancho Cucamonga, Chino Hills, Poway, Indian Wells, Rancho Mirage, La Quinta and Mountain View.

The fact that 2-year-old information was being presented by the auditor as a snapshot of cities’ current fiscal health prompted criticism from the League of California Cities.

“It doesn’t tell the story of now, and so we’re not really clear on how helpful this dashboard is to the public, to the cities or basically anybody,” Jill Oviatt, director of communications and marketing for the league, told the Bee. She likened Howle’s rankings to “a data dump that’s void of context and analysis.”

News that Rancho Santa Fe and other wealthy enclaves with reputations as water hogs will get hit with the maximum 36 percent reductions hasn’t appeared to reduce the anti-elite anger. Now along comes a New York Times story that explicitly frames the issue in Occupy vs. 1 percent terms.

COMPTON, Calif. — Alysia Thomas, a stay-at-home mother in this working-class city, tells her children to skip a bath on days when they do not play outside; that holds down the water bill. Lillian Barrera, a housekeeper who travels 25 miles to clean homes in Beverly Hills, serves dinner to her family on paper plates for much the same reason. In the fourth year of a severe drought, conservation is a fine thing, but in this Southern California community, saving water means saving money.

The challenge of California’s drought is starkly different in Cowan Heights, a lush oasis of wealth and comfort 30 miles east of here. That is where Peter L. Himber, a pediatric neurologist, has decided to stop watering the gently sloping hillside that he spent $100,000 to turn into a green California paradise, seeding it with a carpet of rich native grass and installing a sprinkler system fit for a golf course. But that is also where homeowners like John Sears, a retired food-company executive, bristle with defiance at the prospect of mandatory cuts in water use. …

David L. Feldman, who studies water policy at the University of California, Irvine, said a big risk for state water regulators would be if the public concluded that water-conservation policies were “falling disproportionately on those who are less able to meet those goals.”

But what the NYT story doesn’t capture is that the water issue appears to have more potential to have genuine populist consequences than Occupy, which never became a true mass movement. The more Californians are reminded that rich estates use more water on their lawns every day than do entire apartment buildings, the more irate they’re likely to be. That includes the middle-class families that the Times’ story didn’t cover.

Look for lawmakers with populist streaks to start proposing related legislation any day now.

Katy Grimes: A fourth California city is on the verge of bankruptcy. What a surprise. Yawn.

The news that Compton is about to file for federal bankruptcy protection is not surprising. But news that Santa Monica may also file, is.

Sadly, this is probably just the fourth in a long line of insolvent cities and municipalities preparing to file for bankruptcy.

Don’t say we didn’t warn you about the consequences of gross mismanagement, corruption, legacy building, criminal negligence, and incompetence of public officials.

While some in the media have been blaring the warning bells, most elected lawmakers have been practicing public denial and distancing themselves from culpability.

But heads will roll if pension checks bounce, or aren’t issued, or bond payments aren’t made.

Take Stockton… please.

Ed Mendel at Calpensions writes, “A Stockton bankruptcy proposal does not cut pensions, but the city wants to eliminate $197.5 million in pension bond payments over the next 25 years, a plan opposed by the bond insurer that would be stuck with the tab.

The bankruptcy proposal would end pension bond payments from the troubled city general fund, which pays for most programs and is deep in the red with a $26 million deficit that could balloon if employee lawsuits overturn emergency pay cuts.”

“Stockton issued $125 million worth of pension obligation bonds in 2007 to cover an ‘unfunded liability that was largely created by enhanced retirement benefits in the late 1990s and early 2000s,’” Mendel reported.

“The city proposal said $124 million remains to be paid. With interest, the city is scheduled to spend $239 million paying off the bonds by 2038, about 62.6 percent from the general fund and 17.4 percent from special funds.”

But the clincher is not just what Stockton pays now–“the annual city payment to the California Public Employees Retirement System, listed as $16.8 million, is expected to jump to $22.3 million next year and nearly double to $30.2 million in fiscal 2020-21.”

Read the entire story HERE — Mendel is the best when it comes to understanding pensions, and pension debt. As more California cities file for bankruptcy, it will be very interesting watching how they manage pension debt.

by WAYNE LUSVARDI

To California redevelopment advocates, the policy brings the Midas touch to cities, turning everything into gold for the Golden State. Redevelopment fans point to all the beautiful new malls, restored Old Town business districts, industrial parks and mixed-use developments with trendy condos and apartments as self-evident proof that King Midas has visited them.

To cash-strapped cities, redevelopment has been a purported savior.  Taking it away, as proposed by Gov. Jerry Brown and the state legislature, is perceived as stabbing King Midas’ hand.

But why would so many liberal, Democratic legislators vote to end redevelopment if it truly gave cities the power of the Midas touch?  Because it robs public schools and public services of about $1.7 billion in revenues each year that have to be backfilled with other funds.  Redevelopment is like the lyrics to the Hollies British pop and rock group song “King Midas In Reverse”:

“I’m not the guy to run with ‘cause,
“I’ll throw you off the line
“I’ll break you and destroy you given time”

He’s King Midas with a curse,
He’s King Midas in reverse

All he touches turns to dust
All he touches turns to dust

Reversing Prop. 13

But there is another underside to redevelopment that is rarely, if ever, discussed. Not only does redevelopment rob schools and first-responder services of revenues, it subverts California’s Proposition 13, the tax-limitation measure passed in 1978.  Behind the more than 400 glossy redevelopment agency websites in California marketing the advantages of redevelopment with photos of beautiful new real estate developments is the reality that redevelopment neutralizes Prop 13.  Redevelopment condemns properties with low tax revenues, then up-zones them to achieve a higher property and sales tax base.

Redevelopment proponents say that Prop. 13 is the cause of the expansion of redevelopment in California and the cause of the lack of revenue to balance the state budget. No. It isn’t Prop. 13 itself, but the irrefutable reaction to Prop 13 — the expansion of redevelopment — that has caused a $1.7 billion hole in the state budget.  Otherwise, why would state officials vote to repeal redevelopment?

Banking on Blight

According to a 1999 report, “Banking on Blight,” the City of Long Beach had 54 percent of its land area within designated redevelopment project areas.  The City of Lancaster had 49 percent, Compton 40 percent and Burbank 17 percent.

The percentage of the property value of redevelopment areas of all city properties was 46 percent for Lancaster, 32 percent for Compton, 19 percent for Burbank and 17 percent for Long Beach.  The City of Lancaster had a whopping 27,702 acres — more than 43 square miles — under redevelopment. In the City of Long Beach, 17,153 acres — more than 26 square miles — was so designated.

.

As of June 30, 2010, the net “assets” of the Redevelopment Agency of the City of Lancaster were a whopping $218,101,533 in the red! That’s what they owed. (Inside the link, download the June 30, 2010 document. The number is on page 6.) That happened even as the The Lancaster School District was closing old school facilities amid declining attendance and trying to plug a $12 million budget deficit as of March 2010.  As the song says, “All he touches turns to dust.”

The City of Compton has a $25 million general-fund budget deficit out of a total $58 billion budget and no reserves, as of 2011. The Compton School District has been facing budget shortfalls since the 1990’s, despite forming its redevelopment agency in 1967. Again, “All he touches turns to dust.”

The City of Burbank has a balanced budget as of 2011, but this is mainly due to an economic base in the entertainment and media industry, a regional airport and lack of reliance on new auto sales, which fluctuate. “All he touches turns to dust.”

The City of Long Beach is facing an $18.5 million budget deficit and rotating fire station closures.  The Long Beach School District is facing $60 million in budget cuts.  “All he touches turns to dust.”

It’s clear that the latent or covert function of redevelopment in California is to undo the property tax reassessment protections of Prop 13.

The remainder of the lyrics to “King Midas in Reverse” put it well:

It’s plain to see it’s hopeless
Going on the way we are
So even though I’d lose you
You’d be better off by far

He’s not the man to hold your trust
Everything he touches turns to dust
In his hands
Nothing he can do is right
He’d even like to sleep at night
But he can’t

All he touches turns to dust
All he touches turns to dust
All he touches turns to dust
All he touches turns to dust

I wish someone would find me
And help me gain control
Before I lose my reason
And my soul

Here’s a YouTube of the song: