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California State Auditor Removes Fiscal Accountability Dashboard

California State Auditor Removes Fiscal Accountability Dashboard

A detour sign next to the California state capitol building in Sacramento, Calif., on Aug. 28, 2023. (John Fredricks/The Epoch Times)

John Moorlach

John Moorlach

11/20/2023

Updated: 12/21/2023

Commentary
California’s fiscal accountability dashboard for cities, which was implemented in 2019 and identified local governments with financial problems, was taken down last month. Why?
First, some background.
The County of Orange in Southern California incurred an infamous fiscal calamity in the closing month of 1994 that resulted in nearly $1.7 billion in investment losses. It was so significant, it made international news. A dozen years later, the county was still dealing with the aftereffects, including large annual bond payments resulting from reimbursing agencies that unwisely participated in the investment scheme that caused the fiscal implosion.
In 2006, I was elected to serve on the Orange County Board of Supervisors and had the privilege of serving as the chairman during two very tumultuous years, 2008 and 2012.
The legendary liquidity crisis that became a huge component of the Great Recession spurred the need for the County of Orange to lay off some 1,000 employees during my first time at the helm.
Things had not improved dramatically at the time of my second opportunity to serve in this critical role. The economy had moved forward slowly, causing Sacramento to spend through its reserves. The Legislature passed legislation in 2011, Senate Bill 89, that diverted a significant annual cash flow stream of $73.5 million from the county to the state. Thanks to Assembly Bill 109, then-Gov. Jerry Brown realigned a large number of state prisoners by transferring them down to the 58 county jail systems, adding to the county’s fiscal strain.
Since negotiations with major collective bargaining units would also occur in 2012, I needed to communicate that this once perceived “wealthy” county was no longer in the best fiscal condition. Consequently, I reviewed the annual audited financial statements for the fiscal year ending on June 30, 2010, from the other 57 counties in California. All of them were available, except for delinquent Modoc County, indicating that there are laggards in the critical duty of timely reporting.
I decided to divide the unrestricted net position for governmental activities from the statement of net position (balance sheet) and divide it by that county’s population. This provided a simple metric for comparing different counties. And it gave a range, finding the County of Orange in 46th place. Thus, proving its weak financial position.
It was a gauge that notified everyone in the county’s management and trenches to watch the finances and work on fiscal solutions that would improve its standing among its fellow counties.
During my two terms, major reforms impacting the county’s defined benefit pension plan and its retiree medical plan were pursued in collaboration with the bargaining units. I’m proud to say that according to this simple tool, Orange County is now in 24th place in 2022, in the top half, having moved up 22 places.
As most of us know, it’s not about what revenues you take in, it’s what you spend. It also includes what promises are made that will come due in the future, like granting generous defined benefit pension and retiree medical plans not found in the private sector.
These commitments were accomplished in the shadows due to the failure of the Government Accounting Standards Board (GASB) to require the reporting of liabilities created by defined benefit pension plans until 2015 and other post-employment benefit (OPEB) arrangements in 2018. Most local elected officials probably didn’t even know the true condition of their agencies until these unfunded actuarial accrued liabilities had to be added to their balance sheets.
As a state senator, I wanted to communicate the status of California amongst its peers, as well as that of the state’s counties, cities, and school districts for the year 2017 using the same simple metric. It would then show the dramatic impact the implementation of the GASB OPEB pronouncement would have in 2018 and moving forward. My doing so may have prompted the California State Auditor to pursue a similar strategy.
Marc Joffe, writing for the Cato Institute, recently reported that in 2019, “the California State Auditor implemented a new platform to identify underperforming local governments. The office collected their audited financial statements, extracted key statistics, and calculated ten financial metrics for each entity. Finally, the auditor calculated a composite financial health score for each government, choosing from among the lowest scoring for full audits.”
This “dashboard” focused on cities and only those that were releasing their annual comprehensive financial reports (ACFRs) in a timely manner, resulting in about 50 cities being excluded.
The California State Capitol building in Sacramento, Calif., on Aug. 28, 2023. (John Fredricks/The Epoch Times)

The California State Capitol building in Sacramento, Calif., on Aug. 28, 2023. (John Fredricks/The Epoch Times)

You can imagine how controversial it must have been for the State Auditor to be transparent, as the bottom ranked cities must certainly have complained. So, it may not come as a surprise that the State Auditor took the dashboard down in October. The supposed reason? To devote more staff time toward completing the state’s ACFR, which is prepared by various state auditing departments for 36 of the nation’s states.
Now, the only entity that is providing rankings of California’s cities is The Epoch Times. The California Policy Center will soon be an additional repository for these rankings under their Center for Public Accountability.
The big issue facing The Epoch Times is the lack of timeliness by governmental entities. A ranking is not published until every municipality in the various categories has released its financial reports. For example, the state of Nevada has yet to issue its ACFR for the year ending on June 30, 2022. The state of California is expected to release its ACFR for the same period in April of next year. That’s nearly two years after the completion of the fiscal year and an absence that has caused this critical management tool to miss budget cycles.
California needs a fiscal accountability dashboard. Unfortunately, it is the poster child for poor fiscal stewardship. It makes one wonder why the Golden State’s Governor goes around the country and world bragging about California. He may find that a timely financial statement may do the bragging for him. Or not.
In the meantime, The Epoch Times is providing the necessary service of providing municipal fiscal transparency for the residents of California.
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John Moorlach

John Moorlach

Author

John Moorlach is the director of the California Policy Center's Center for Public Accountability. He has served as a California State Senator and Orange County Supervisor and Treasurer-Tax Collector. In 1994, he predicted the County's bankruptcy and participated in restoring and reforming the sixth most populated county in the nation.

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