Residents of Los Angeles County Should Check Their Cities’ Fiscal Status Ahead of Predicted Recession

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Commentary

No one has a precise crystal ball, but they do have access to information that may provide insights into what is on the economic horizon. Respected economists are predicting a recession for 2023. Although the severity is not clear, one should anticipate a downturn.

When it comes to analyzing companies to acquire, the “Oracle of Omaha,” Warren Buffett, looks at the balance sheet. Strong assets and minimal liabilities make for a worthwhile acquisition.

Until recently, the balance sheets of your city have been close to fraudulent. The Government Accounting Standards Board (GASB) has only recently required municipalities to include the unfunded liabilities from their defined benefit pension plans and retiree medical promises, also known as Other Post-Employment Benefits (OPEB).

In 2015, GASB required the inclusion of defined benefit pension plan liabilities. It was a shock to many balance sheets around the state and nation. In 2018, GASB required the unfunded liabilities for OPEBs to be reported on the balance sheets. This was a dramatic hit for those municipalities that agreed to give their employees lifetime benefits. The Los Angeles Unified School District added some $19 billion in debt to its liability section. Ouch.

Most employers in the private sector do not provide defined benefit pension plans or lifetime medical benefits. Most private sector companies cannot guarantee they will be around for the remainder of their retired employee’s lifetimes to provide these benefits. However, governments assume they will continue in perpetuity, and if they fall short on funds, they simply increase taxes on you, their constituents.

So, assessing the fiscal strength of your city and how it can hold up in a recession is important to know. The last thing your pocketbook needs is another surprise. As if inflation and a declining stock market haven’t taken enough of a toll.

Annual Reports

Most cities have a June 30 fiscal year end and provide their Annual Comprehensive Financial Reports (ACFRs) online. The financial statements should tell you what you need to know.

In 2017, 39 of the cities in Los Angeles County had positive unrestricted net assets for their governmental activities. This changed in 2018 when the GASB OPEB requirement kicked in.

A positive unrestricted net assets balance means a city has more assets than debt. A negative number means the opposite.

Obtaining the annual audited financial statements for some of Los Angeles County’s 88 cities has been like pulling teeth. In contrast, Orange County’s 34 cities have been timely in issuing their ACFRs.

Fiscal strength has a bearing on police response times, regular schedules for road repairs, and efficient handling of building permit issuances. How is your city faring in promptness and transparency?

The city of Artesia recently issued its audited financial statements. The auditors dated their report August 15, 2022. The only small problem is that the audit was for the year ending June 30, 2019, which should have been completed and issued around December 2019, three years ago!

So where is the ACFR for Artesia for the years ending 2020 and 2021?

The city of Huntington Park still has not released its ACFR for 2020. Why? Inquiries have not been answered.

It’s hard to get straight answers for why the timely issuance of audited financial statements is ignored in such a blatant manner. Is it the accounting software? Is it a lack of auditing firms? Is it inadequately trained professional staff at these cities? Is it a complacent attitude? Is it key staff members out on extended leave? Is it just dereliction of duty? Or don’t their constituents even care? I did not receive a response, when asking via email, from Artesia’s new finance director.

A man walk past a mural of Martin Luther King, Jr. outside City Hall in Compton, Calif., on Aug. 21, 2015. Mark Ralston/AFP via Getty Images

It took a stern scolding from the California State Auditor to get the city of Compton to move off the dime. But they still don’t have their 2014–2017 audited financial statements available on their website. This city decided to combine all five years into their 2018 report. Very novel. It is so unique that a representative of its auditing firm did not wish to discuss the reasoning with me. So now one must only speculate as to what this city’s unrestricted net deficit was for 2017.

I believe those who have a major investment in their city, either in the purchase of a home or in high rental costs, should know how their city is doing from a fiscal standpoint and how it compares to other neighboring cities. Their property taxes, paid directly or indirectly, should require quick access online to this information.

The finances of a city have a direct bearing on its residents and the necessary services it must provide. Being prompt and transparent, with good communication, is what the residents of every city deserve. And with a recession on the horizon, they’ll want to know why their services are being reduced. As stakeholders, the residents of Artesia and Huntington Park should ask their elected city council members to explain the inexcusable tardiness of the fiscal status of their cities. And they should ask what will be done to weather the upcoming economic downturn.

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