Citing Vernon’s ongoing budget deficit, debt obligation, pension contributions, unemployment rate, and property values, a recent report ranked Vernon as one of the state’s most distressed cities.
“While city utilities were profitable, they are heavily encumbered by debt,” Policy Analyst Marc Joffe writes in his report “California City And County Fiscal Strength Index – 2017 Update” published by the California Policy Center.
According to Joffe, the report’s findings are “based on empirical research that associates local government fiscal distress with weak revenue performance, high debt burdens and low or negative general fund balances.”
Using 2015 audits, the study assigned fiscal scores to every California city. The scores were based on the ratio of a city’s general fund balance to its expenditures, ratio of long-term obligations to government wide revenues, ratio of pension contributions to revenues, local unemployment rate and change in property values.
Of the 511 cities and counties analyzed, over 60 percent scored 90 or higher. Eight cities, including Vernon had scores below 50.
“If there’s another recession these cities are more vulnerable to bankruptcy than other cities,” Joffe told EGP.
Vernon reported revenues of $249 million in 2015, much of which is generated from the city-owned Vernon Gas and Electric utility. However, the city’s general fund was in the red by nearly $16 million, primarily = due to pension contributions and bond obligations.
Joffe compares a city’s general fund to a person’s checkbook, explaining a negative general fund balance is like an overdraft. He called such funding shortfalls a “prescription” for future problems that could lead to sudden cuts in services.
Vernon’s “debt is amazing considering how small the city is,” Joffe told EGP. “The key thing [for Vernon] is reducing debt and improving the general fund balance.”
Vernon’s City Administrator Carlos Fandino, however, says the report provides a “faulty assessment” of the city’s continued financial viability, business grown, employment strength and other key financial measurements.
“Vernon is far from being regarded as financially troubled, as our city’s annual audited financial statements will attest,” Fandino wrote in a statement to EGP.
But Joffe points to the $383 million in outstanding debts Vernon owed as of mid 2015, in addition to the over $5 million paid in pension contributions that year.
“The long-term obligation and pension contribution ratios provide insight into the government’s debt burden,” Joffe writes.
“The less debt relative to revenue, the better off you are,” he explained.
According to Fandino, Vernon faces the same fiscal challenges many other cities face with pension and retiree health obligations.
“Vernon has taken affirmative steps to address its responsibility to its retirees through the establishment of a trust,” he said.
Joffe suggested the city transfer more of its surplus monies from its enterprise accounts into its general fund, however, it was those types of transfers that led to Moody’s Investor Services last October downgrading Vernon’s bond rating to the lowest investment grade, citing the city’s reliance on general fund transfers.
Joffe tells EGP Vernon’s compensation classes are too high, and should not differ from other non-industrial municipalities.
Vernon has 271 city employees, but only an estimated 210 residents who call the city home. In another report, Joffe noted that employees are paid, on average, $107,838 per year, with several employees making more than $300,000 a year plus benefits.
“I’m not sure the services they provide to residents are any different than services provided in other cities,” Joffe told EGP. “A cop is a cop.”
On April 11, Vernon residents will vote on Measure Q, which if passed would increase the city’s utility users tax to generate more revenues to fund police, fire, and other public services,. The city says the tax will put an end to the city’s reliance on fund transfers.
“We know the passage of Measure Q will further improve Vernon’s standing with the State of California and better our city’s financial position on Wall Street,” Fandino argues in support of the measure.
Fandino noted that Vernon experienced $121.9 million in building activity in 2016, compared to $76 million in 2015.
“For a city the size of Vernon, that’s far from a picture of distress.”
Joffe told EGP the same study has been conducted nationwide in the country’s largest cities.
“We gather information and publish it,” he said. “The numbers don’t lie.”