Irvine Named Country’s Best-Managed City Financially, but Questions Linger About the Process

January 27, 2021 Updated: February 2, 2021

Commentary

Financially speaking, Irvine is the best-managed large city in the United States, according a Truth in Accounting ranking of the country’s metropolises.

The table below shows the 15 California cities listed by the organization and how they compared to the United States’ largest 75 regions for which data was available when Truth in Accounting completed its analysis. (Newark and Jersey City, both in New Jersey, didn’t have year-end 2019 data available at the time of the study.) The data analyzed in the report is as of year-end 2019, when businesses and consumers were generally doing very well.

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Also included in the table is an analysis of the total debt and other obligations each taxpayer would have to pay to cover all the currently outstanding debt and non-funded pension and post-retirement healthcare benefits.

As part of a Jan. 26 report that accompanied its analysis, Trust in Accounting noted that many cities use tricks to get around their balanced-budget rules.

Every city on the list has a law that it must balance its annual inflows and outflows.

Unfortunately, cities often count new debt obligations or increases in debt as a source of inflows. This and other accounting tricks allow city leaders to be imprudent and wasteful while still legally keeping the mandate not to have projected outflows exceed projected inflows when they make their budget analyses.

Other accounting strategies often employed by city leaders include pushing spending into the next fiscal year, not paying for future pension and post-retirement health care benefits as they are incurred, and inflating revenue assumptions.

And even though the stock and bond markets likely helped investment returns in cities’ pension and other accounts funding long-term obligations, city costs have likely skyrocketed at the same time sales tax revenue has likely plummeted as a result pandemic-induced, government-imposed shutdowns of local businesses.

This will have hurt the finances of many municipalities.

In addition to Irvine, California’s Stockton and Fresno also made the top 10 list.

Stockton is much stronger financially than it otherwise would be had its retirees and employees not given up their health care benefits as part of that city’s recent bankruptcy process. Long Beach tax payers would only have had to pay $100 each to retire all of its city obligations at the end of 2019, while Los Angeles taxpayers would have to have paid $4,000 each.

Orange County’s Santa Ana and Anaheim had total obligations respectively equivalent to $5,400 and $6,200 per taxpayer. San Diego, which has gone through bankruptcy already, still owed $4,700 per taxpayer at the end of 2019.

Of course, not all debt is created equal.

Debt to improve city services that will likely increase sales tax revenue or allow for higher density housing, which increases property taxes, is an investment in the future. However, when cities increase current expenses and future obligations without paying for them, they can get into a situation where they will be forced into bankruptcy or forced to severely cut city services.

Tim Shaler is a professional investor and economist based in Southern California. He is a regular columnist for The Epoch Times, where he exclusively provides some of his original economic analysis.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.