Irvine, California, has the best city finances in the U.S., according to the 4th annual "Financial State of the Cities” report published by the nonprofit educational organization, Truth in Accounting (TIA).
California cities following Irvine in the top 20 are Fresno ranking fourth, Stockton sixth, Long Beach 15th, and Bakersfield 20th.
Irvine, with a $380.4 million surplus, remains at the top of TIA’s ranking for the third year and “deserves recognition for maintaining a strong financial condition,” TIA states. Irvine’s money available to pay bills improved by more than $3 million from the previous fiscal year, the report found.
“Future economic downturns, however, could adversely affect future tax revenues and the value of assets being held in retirement plans, which could diminish the city’s surplus,” the report adds.
Twelve of the largest cities in the U.S. counted surpluses in 2019, while 63 cities don’t have enough to pay their bills, according to the analysis.
The 188-page report provides the most comprehensive analysis of city finances nationwide using previous years as comparisons and by surveying the fiscal health of the 75 largest municipalities by analyzing 2018 data derived from audited Comprehensive Annual Financial Reports on file. TIA grades cities and states according to how they balanced their respective budgets, whether or not officials include the true costs of the government in their budgets, among other measures.
No cities received an A, 12 received B’s, 27 received C’s, 32 received D’s, and four cities received failing grades. A city government receives a “C,” or passing grade, if it “comes close to meeting its balanced budget requirement,” which is reflected in having a small taxpayer burden. TIA divides the amount of money needed to pay bills by the number of city taxpayers to calculate the taxpayer burden.
An “A” or “B” grade is given to governments that have met their balanced budget requirements and have a taxpayer surplus. “D” and “F” grades apply to governments that “have not truly balanced their budgets” and have significant taxpayer burdens.
According to the Government Accounting Standards Board (GASB), laws requiring balanced budgets prevent the current generation of taxpayers from shifting the burden of paying for current-year services to future-year taxpayers. By definition, if a city has a balanced budget requirement, then spending should be equal to or less than revenue, TIA explains.
Fresno received a B grade, ranking 4th, and moved up the ranking from the previous year, holding a taxpayer surplus of $3,200.
“Because the majority of Fresno’s excess money is held by the city’s pension plans, it cannot be used for government operations or returned to the taxpayers,” the report notes. “Currently, the city’s pension plans are overfunded, but future economic conditions could adversely affect the value of pension plans’ assets.”
Stockton also received a B, holding a $2,600 surplus for each taxpayer as a result of its officials “truly balancing their budgets.”
Long Beach, which ranked 15th, earned a C, TIA notes, because its officials “have made repeated financial decisions that have left the city with a debt burden of $71.6 million. That burden equates to $500 for every city taxpayer.”
Bakersfield, ranking 20th, also earned a C grade. The city has a debt burden of $196.9 million, equating to $1,600 for every city taxpayer.
“Bakersfield’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years,” the report states. “Of the $1.5 billion in retirement benefits promised, the city has not funded $437.5 million in pension and $78.4 million in retiree health care benefits.”
Of the 19 cities that did not publish their annual financial reports publicly within the 180 deadline stipulated by law, four were in California. San Francisco took 268 days, Chula Vista and Los Angeles took 215 days, and Fresno took 201 days.
California cities falling outside of the top 20 most fiscally sound cities include Chula Vista 27, Riverside 30, Los Angeles 35, San Diego 37, Sacramento 38, and Santa Ana 43.
California cities in the worst fiscal trouble, are San Jose 55th, San Francisco 67th, and Oakland, ranking 70th.
Oakland, the California city in the worst financial shape according to the report, earned a D grade for having a debt burden of $2.6 billion, equating to $18,600 for every city taxpayer. Of the $6.4 billion in retirement benefits promised, the report notes, $1.9 billion in pension and $949.3 million in retiree health care benefits remain unfunded.
TIA says Oakland and other cities have become more transparent because the GASB now requires governments to disclose pension (GASB 68) and other post-employment (GASB 75) benefits on their balance sheets.