Fiscal Transparency in Orange County Cities Provided by Annual Rankings

The Civic Center building in Irvine, Calif., on October 12, 2020. John Fredricks/The Epoch Times

Commentary

The good news is that Orange County’s 34 cities are usually punctual in preparing and releasing their annual comprehensive financial reports. This is the first of nine areas in the state of California to have its rankings ready for the year ending June 30, 2024.

There were 21 cities that finished their audit work by the end of the year. Another 10 were completed by March 31. San Juan Capistrano concluded on April 4, La Habra on April 11, and Laguna Beach on April 24. This is a recurring pattern as these three cities were the last to report in the previous year, with Laguna Beach being the final Orange County city two out of the last three years.

So, let’s start by discussing the city of Laguna Beach, which was last year’s top city. This year, it had revenues in excess of expenditures of $11.6 million. It moved $25.9 million into restricted assets and increased its net investment in capital improvements by $19.2 million for a new community and recreation center and a new fire station. This explains the $33.5 million reduction in its unrestricted net position, causing it to drop three places.

As you can see from the graph provided below, the big upward movement story is about the city of Irvine. Its unrestricted net position grew by $292.6 million (52 percent). Revenues in excess of expenditures of $129.7 million explain a large portion of the story. This was partially offset by moving $96 million into restricted assets. But this was not the main cause for it to move up three places and move into first place.

The big mystery is that the net investment in capital assets was reduced by $256.2 million in the net position section, with no similar movement in the capital assets and long-term liabilities sections of its statement of net position, also called its balance sheet. No explanation for this quarter-billion drop was provided in the notes and disclosures.

A discussion with Josh Brooks, deputy director of administrative services for the city of Irvine, found that the annual comprehensive financial report for June 30, 2023, was in error. It should have had the net investment in capital assets reduced for the $333.67 million in lease revenue bonds, the debt raised for the concrete plant acquisition.

What does this mean? It means that the city of Irvine should have probably been in second place in the rankings for 2023, bumping both Tustin and Cypress down one position. But I base the rankings on the issued annual comprehensive financial reports and rely on thorough reviews by the auditing firms. And having been in the profession and having encountered a similar situation with the County of Orange’s external independent auditors when I served on the Board of Supervisors, I know these things can happen.

The city with the biggest amount of movement was Garden Grove. It dropped ten places due to a number of factors. First, it repositioned $155.5 million into restricted assets, with $152.2 million of it going towards public safety. The annual comprehensive financial report refers to a new 103,000-square-foot public safety facility for the Garden Grove Police Department, a new four-level parking structure, and a redesigned Civic Center Park. Second, $67.3 million went into increasing the net investment in capital assets. Third, there were revenues in excess of expenditures of $16.8 million. Combined, the city’s unrestricted net deficit grew by $205.9 million. The increase in long-term debt was $134.1 million, and the pension liability rose by $14.6 million.

Coming in second place for movement was the city of Brea, home of the “Big Game” and its centennial. This former bottom dweller has been moving up over recent years but dropped four places this time. Having expenditures in excess of revenues explains $21.4 million of the $37.4 million increase in its unrestricted net deficit. It also increased its restricted assets, but only by $9.5 million, and increased its net investment in capital assets by $6.5 million.

The city of Placentia, which has had its fiscal struggles over the years, as well as creative financial solutions, dropped three places. Its expenditures in excess of revenues were $4.4 million; it moved $3.4 million into restricted assets and increased its net investment in capital assets by $11 million, explaining the $18.8 million increase in its unrestricted net deficit.

The city of Santa Ana stayed in last place, but dug its hole deeper by 10 percent, increasing its unrestricted net deficit by $49.8 million, making it the second largest deficit increase after Garden Grove’s $205.9 million. Brea, with $37.4 million, fell in third place in this category.

With Brea, Placentia, and Garden Grove dropping, it allowed Westminster, Huntington Beach, La Habra, and Fullerton to move up three places by doing nothing but maintaining their unrestricted net deficits at similar levels to those of 2023.

The city of Buena Park moved up three places by reducing its unrestricted net deficit by one-sixth, $6.4 million. Revenues in excess of expenditures of $16.6 million were the big driver. The difference was funds directed to restricted assets, $3 million, and the net investment in capital assets, $7.2 million.

The remaining 26 cities moved two or fewer positions. Although they did not move up, Mission Viejo and Newport Beach improved their unrestricted net positions by 34 and 39 percent, respectively. Newport Beach continues its upward climb, thanks to developing a long-term financial plan that should be emulated by every city.

The ultimate goal is to move the city’s unrestricted net position to zero or better. There are 21 cities that are there; let’s hope the other 13 cities move closer to the goal during the current fiscal year.

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