Los Angeles County’s Cities Staying Financially Stable, With a Few Exceptions

An aerial view of vehicles driving near downtown in Los Angeles, California, on April 4, 2022. (Mario Tama/Getty Images)

Commentary

The city of Compton wins the laggard award for Los Angeles County’s 88 cities in releasing its June 30, 2021, annual comprehensive financial report (ACFR). It was completed by its auditing firm on May 8 and presented to its city council on June 4 of this year.

The customary completion date by the outside independent auditors is Dec. 31 of the same year. Of the county’s 88 cities, 38 were able to meet this 2021 target. All but two of the remaining cities released their ACFRs in 2022. The city of Huntington Park provided theirs in 2023 (see “How Alleged Corruption Can Stun a City,” December 8, 2023).

Compton’s release in the year 2024 makes it more than two years late. The leadership of this city should be thankful there are no penalties for being delinquent. It’s too bad taxpayers aren’t given similar signs of grace. Real estate tax deadlines are immovable and being even a day late will cost a homeowner 10 percent of the installment due. Take this as a reminder to pay this one of many taxes no later than April 10 and Dec. 10.

The year 2021 was a busy one for Compton (see “Voter Fraud Convictions Challenge Narrative of Secure Elections,” from Jan. 13, and “Compton Councilman Charged With Election Fraud After Winning by 1 Vote,” from Aug. 13, 2021). But it gets uglier, as the state auditor ranked the city the worst for the fiscal year 2019-2020 (see “California Auditor Ranks Anaheim at High Risk of Financial Distress, Mayor Disputes,” from Sept. 1, 2001).

One would think that a city with a tarnished history would do its best to improve its image—and the best way to start is by improving the transparency of the city’s finances. But being in 81st place in the chart below shows it has some significant fiscal goals to achieve.

There are four cities that dropped in the rankings by double-digits and four that moved up nine or more positions. Let’s see what we can learn from them, as each has a different story, starting with the city of Lynwood. It increased its unrestricted net deficit by $77.4 million, dropping it 21 positions, and $51.6 million of it was intentional. Many cities will restrict funds for specific projects, which increases this category on the statement of net position (balance sheet) and decreases unrestricted net assets. The city’s pension liabilities also increased by $8 million, with these two explaining the bulk of the activities.

The city of Santa Monica dropped another 14 places. We discussed this city when reviewing the 2020 rankings (see “Fiscal Rankings for Los Angeles County’s 88 Cities Finally Available, for 2020,” from Dec. 12, 2023), where it dropped 15 places. Its unrestricted net deficit grew by another $87 million. Self-insurance claim liabilities increased by $34.6 million. Defined benefit pension liabilities increased by $11.5 million. It also increased its restricted assets by $10.4 million. But having expenditures in excess of revenues of $67 million didn’t help.

Another city that has been in the news for mismanagement and outright fraud is Bell. In 2021 it dropped 13 places. It did so by increasing the net investment in capital assets by $30 million, without any explanation within the ACFR, thus resulting in the $25.8 million increase in its unrestricted net deficit.

Hawaiian Gardens is a unique city that is very dependent on its card club for revenues. It dropped 11 places. Its revenues from the card club decreased from the prior year by $4.7 million, resulting in expenditures in excess of revenues of $5.4 million, and a reduction in its unrestricted net assets of $5.2 million. Such is the joy of relying on one major revenue source.

The city of Commerce dropped eight places after its expenditures exceeded its revenues by $5.8 million, causing its unrestricted net assets to drop by $2.2 million.

On the other side of the rankings, Long Beach moved up nine places, by decreasing its unrestricted net deficit by $178 million. Revenues in excess of expenditures of $231 million is the story, beating the 2020 amount by $192 million. Reducing spending on public safety by $77.6 million may have been a huge factor. Other big movers were an increase in grants for COVID for $61 million and from other sources of $90.9 million.

The city of Avalon, on the tourist destination island of Catalina, moved up ten places by reducing its unrestricted net deficit by $1.8 million. One-third came from revenues in excess of expenditures, thanks to transient occupancy taxes increasing by $1.5 million.

The city of Lancaster made a big move, improving by 12 positions, seeing an unrestricted net deficit of $80.7 million go to a positive unrestricted net assets of $16.7 million. This $97.4 million jump is mostly attributable to reducing restricted capital projects by $65.1 million and enjoying revenues in excess of expenditures of $22 million.

The other 80 cities moved less than eight places, with a little more than three-quarters (68) moving three or less places. The goal is to maintain its position, especially when the city is in the upper rankings, or move up, which 60 cities did. When two-thirds improve their status, it’s a good year. Let’s hope it’s not just from federal funding for COVID and will be the beginning of a trend.

With the completion of its 2021 ACFR, Compton should be on its way to completing its 2022 audit soon. For this year, Compton is not alone. Perhaps it can post its financial statement before the city of Rolling Hills and avoid being near the bottom of the rankings two years in a row.

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