Correspondence - #52 - Laserfiche WebLink

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According to the city's latest Statement of Net Position June 30, 2022 which was present previously, our city has an Unrestricted Net Position deficit balance from Governmental Activities of $468,389,289 ($468M for ease of conversation). This $468M is the amount that our city's liabilities exceed its assets adjusted for exclusion of investment in capital assets and also restricted assets. Overall, the city has a positive Net Position from Governmental Activities of $685.1M but that figure includes net capital assets and restricted assets. The city cannot use restricted assets to cover general liabilities due to external restrictions on use of funds and so it seems prudent to exclude such assets when determining operating debt. Additionally, since the city is not really able to sell most of its capital assets (such as rights of way, street trees, infrastructure such as streets and sewer projects) it would also seem appropriate to exclude the net capital assets (net means that included in this figure is the city's debt on that the capital assets0. After you exclude net positions that are not applicable to covering general debts, we are at a deficit of $468M. This is approx $1518 of debt per resident of our city. Let that sink in please ... If each resident of our city were asked to pay up for a one time assessment so the city could have assets that equal our liabilities, we each (including our kids) would be writing a check to the city for $1518. This $1518 would not be used to provide additional services to our residents such as fixing streets, improving parks, or increasing public safety but instead would just get us on sound footing. That $1518 would be every resident regardless of their ability to pay including those who are already struggling to find housing, feed their families, and meet general every day needs. So, when we focus on current Revenue covering our Spending, which seems to be true right now, this is just one part of the picture ... the bigger picture shows we are in debt. Now a lot of our fellow cities are also in debt though too but that should not make us feel any better IMO. As of 6/30/21(1 have not looked at the 6/30/22 financials for each city), there are 17 cities in Orange County that actually have per capita surpluses meaning their unrestricted net position from government activities is positive. For example, residents of Cypress each have approx $1800 of surplus, Irvine approx $1400 surplus, Tustin $1300. These are cities whose residents are not in debt just because of where they live. These are cities that can choose to make investments in services and capital. The other 17 cities are in debt. Santa Ana is 31 out of 34 on that list... Brea, Anaheim, and Costa Mesa all have higher per capital deficits than Santa Ana but just imagine if we had a goal to erode that deficit year by year and ultimately be one of the cities that has a surplus. When we say we want to be a top city in the county, we need to have our financial status reflect that also. The city made progress in reducing its deficit during the FYE June 30, 2022 which is great to see but that likely was due to a favorable stock/bond market impacting the pension obligations which we may find that flipping in future years due to the more recent markets especially when combined with a looming/lingering recession and inflationary pressures. Our city needs to make progress in reducing its deficit balance of our unrestricted net position. The vast majority of our city's deficit appears to be generated by our pension obligations and retiree benefits (OPEB plan). We have committed to pay benefits, including pension, to our city workers that we have not funded. We do not have the cash on hand to pay these obligations currently. We have committed to this yet we will be using future revenue to pay for these obligations. We need to start making progress, in a meaningful and large way, in reducing our deficit net position otherwise we are committing to spending future revenue and further burdening our residents now and into the future. I suggest that our council do the following: 1. Direct staff to provide further detail on our deficit balance in the unrestricted net position for governmental activities. Essentially, educate our residents and other leaders about the current financial position of the city. Our focus is usually on our Revenue and Spending, which is appropriate on a year by year basis, but the future is just as important and to be truly thriving city, the long term needs to be addressed also. 2. Direct staff to come up with a plan to reduce the deficit balance into a neutral position or even a surplus over time. Nothing will happen overnight but if nothing is done presently, we will be in even more of surprise in the future. A start is needed and that start needs to be done now. 5