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CalMatters/Anne Wernikoff

CA State Auditor warns California cities about living beyond their means and wasting housing fund opportunities

It is no secret that California cities and counties have been living above their means for a long time. In particular, their unfunded pension obligations have continued to compound at an unsustainable rate, while their revenues fail to keep up. They solution has been to issue bonds (more debt) to pay for their growing obligations. Anyone who's ever gotten behind on their credit card payments know this does not end well.

In a recent report, the California State Auditor, Elaine Howle, has issued a scathing opinion on this topic that should be of interest and concern to every locally elected official in the state. Among other things, the report, which evaluated 471 California cities, found that noted that nearly 40 percent were classified as “high risk."

In an article in the Los Angeles Daily News, Howle was quoted as saying, “We assessed risk by performing various financial comparisons and calculations that could indicate the potential for fiscal distress, and we analyzed things such as a city’s cash position or liquidity, debt burden, fiscal reserves, revenue trends, and ability to pay for employee retirement benefits."

The full analysis from that Report can be found here on the State Auditor's Website.

The Daily News article goes on to say that

Robert Fellner, of Transparent California, applauded the state auditor’s new website, saying,

“The elected officials in these distressed cities are not going to be able to claim ignorance when things blow up a few years down the road,” Fellner said. “They should be proactive now that the state is officially shining a light on this.” If a recession hits, some cities will have to raise taxes and cut services, Fellner said. “By the time it becomes clear that it’s a problem, it’s too late to have dealt with it responsibly."

In a special note of warning, which all Marin County cities should take careful note of, the article said that "The rising costs of pensions and other post-employment benefits, in particular, seemed to put dozens of cities’ financial futures in danger. More than 130 cities were struggling to set aside the money necessary to meet pension obligations, according to the auditor. The number of public employees collecting pensions exceeding $100,000 in California jumped from 1,841 people in 2005 to more than 26,000 in 2018, according to an analysis of CalPERS data by the Southern California News Group.

"Howle called it “concerning” that many cities are now floating bonds to pay for pensions. “They are taking on debt to pay some of their pension benefits and that’s not a good place for anybody to be,” she said."

Worse still, while bemoaning the state's affordable housing "crisis," the Auditor confirmed that the legislative quagmire created by our state's government has resulted in overly burdensome funding processing and the state letting "$2.7 billion in bond resources expire without spending the funding on low-income housing."