First place for finance
Irvine City News asked Orange County’s favorite economist to comment on the report: “For Irvine to attain a No. 1 ranking in a national survey of the fiscal health of cities is a cause for celebration,” said professor Jim Doti, Chapman University’s visionary president from 1991 to 2016. Doti holds the Donald Bren Distinguished Chair of Business and Economics at the university in Orange.
“A ranking like this reflects strong leadership and visionary planning,” says Doti, who also hosts the annual Economic Forecast Conference at Chapman’s A. Gary Anderson Center for Economic Research. “The fact that the survey includes the extent of underfunded pensions makes Irvine’s ranking even more significant.”
“I was at first worried that Irvine’s high ranking might be due to rapid housing appreciation – a measure that receives a 10 percent weight in the ranking. But few cities have had more housing appreciation than San Francisco, and it was ranked well below Irvine at No. 33.”
Irvine was followed in the national rankings by Fontana, which came in second with a score of 99. In third place was Moreno Valley (97), followed by Huntington Beach, Santa Ana, Glendale and Boston.
In last place were New York and Chicago, which only scored 25. Each of these cities carries the burden of having very small general fund balances and very high debt obligations.
It’s not necessary for a city to have a near-perfect score to be regarded as a good fiscal steward, according to the report. Scores higher than 70 “could reasonably be interpreted as a level of fiscal health sufficient to justify a triple A credit rating.”
So why does Irvine rank at the top of the nation’s cities in the survey?
“Rising revenues have resulted in a series of budget surpluses that have bulked up Irvine’s reserves,” said Marc Joffe in The Fiscal Times story.
“In 2015, the city reported over $700 million of cash and investments on its balance sheet, more than enough to fund two years of government spending,” said Joffe, who is also the director of policy research at the California Policy Center, based in Orange County.
“Irvine is also unique among large American cities in that it has no outstanding bond obligations” he said. “All municipal borrowing in Irvine is done by special districts, which levy supplemental taxes to service their debt.”
The study by The Fiscal Times was based primarily on data from 2015 financial reports, including Comprehensive Annual Financial Reports.
A full 40 percent of the rating is based on the ratio of a city’s general fund balance to its expenditures.
Another 30 percent of the final score goes to how much a city owes and how much it can pay (excluding its pension obligations).
The remaining 30 percent is broken down in 10 percent increments: the ratio of pension contributions to total government revenues, changes in the local unemployment rate, and changes in property values.
To score 100 points, a city’s general fund balance would need to be at least 32 percent of expenses; its long-term debt-to-revenue must be no more than 40 percent, excluding pensions; and pension contributions can be no more than 5 percent of revenue. Also, unemployment had to be stable or declining and home prices had to grow at least 3 percent.
Irvine City News asked the report’s author to weigh in on how economic growth, including new jobs, homes and office buildings, impacts fiscal health.
“From a fiscal standpoint, growth is generally good,” Joffe responded.” New developments that generate revenue in excess of municipal service costs (which they generally do) should be welcomed.”
Irvine City News also asked Joffe if at some point a healthy reserve like Irvine’s would be better used in the community, either through infrastructure improvement or other services, or by being returned to the tax payers. “I interviewed a couple of folks at the city and asked the ‘how much savings is too much’ question,” Joffe replied. “I am going to write about that on California Policy Center’s blog later this week. Clearly, there is some amount of cash accumulation that should be considered excessive. At some point, rather than horde cash, a public agency should return the money to taxpayers through tax cuts or tax holidays. It is not clear to me that Irvine has reached that point yet.”
Growth Drives Fiscal Health
The Fiscal Times first-place ranking was so exciting that Irvine City News staffers dove into the main source for the statistics: the city of Irvine’s California Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2016. First, the city and its staff should be congratulated not only on the financial achievements of the city, but also on how well they are reported.
Irvine has won the prestigious Certificate of Achievement for Excellence in Financial Reporting for 37 consecutive years. The award is given by the Government Finance Officers Association (GFOA) of the United States and Canada for a “CAFR that goes beyond the minimum requirement of GAAP and demonstrates the spirit of transparency and full disclosure that ensures users of the financial statements have the information they need to assess the city’s financial health.”
And indeed the city of Irvine’s report does make for fascinating reading. Well, perhaps that’s overstating it. But here are some intriguing highlights about how economic growth helps support the city’s good works and financial fitness.
“General fund revenues are forecasted to increase at a moderate pace, aided by increases in population, real estate and other economic activity.”
“Property tax growth reflects both new development and increasing property values in Irvine. In fiscal year 2014-15, the city’s assessed property value grew 9.6 percent to $60.9 billion. In June, the Orange County Assessor reported Irvine’s assessed property valuation will increase another 8.1 percent for fiscal year 2016-17, leading the county with an assessed value of $65.6 billion.
“Sales tax is the city’s largest general fund revenue source with revenues of $65.6 million, an increase of 12 percent over the prior fiscal year, followed by property tax revenues of $55.2 million. The healthy local economy also had a positive impact on tourism and business travel, driving hotel taxes up 14 percent over the prior year.”
The clear conclusion is that economic growth is good for Irvine’s fiscal fitness. The city’s leaders and its citizenry must address the consequences of that growth (including traffic congestion), but that doesn’t change the economic benefits of growth itself.
To learn more about the city’s finances: