Sunday, August 21, 2011

Adventures in Financing: Orange County Cities Slide Toward Insolvency

On the same day that the Sacramento Bee reports that the city of Vallejo is officially emerging from bankruptcy protection, with many of the same problems it had leading up to 2008, the Orange County Register offers a grim report on the finances of many towns behind the Orange Curtain. Despite Orange County's reputation for conservative politics and fabulous wealth, the problems in these cities are ones that Vallejo should find distressingly familiar.

After auditing the finances of every city in the county, as well as state-level data on pension obligations, Register investigators were able to discern the following:
  • In the 2009-10 fiscal year, the most recent for which audited data are available, 23 Orange County cities overspent their general fund revenues.
  • When Vallejo went broke, a critical reason was the fact that it was spending 80% of its general fund on police and fire services. The cities of Santa Ana, Garden Grove, Westminster, and Stanton are all over 70% on this measure.
  • You may have heard about Costa Mesa's effort to outsource much of its city workforce; the city has also eliminated its helicopter patrols. Even worse, Stanton has shuttered its police station entirely, hoping to re-open with a volunteer staff at some point. Also slashing $5 million from its police and fire budget was the city of Anaheim.
  • Cities in Orange County are facing a total of $4.1 billion in unfunded pension liabilities, while the county government has another $4.65 billion in such liabilities. These shortfalls are growing at an annual rate of 7.75%. Leading the way is Anaheim, with $787 million in unfunded pension debt, followed by Santa Ana with $626 million.
  • Between 2008 and 2010, tax revenues for these cities tumbled 12%, leading many of them to dip into their reserves rather than cut services. Some cities, like Garden Grove, have nothing left. The cities of Laguna and Newport Beach, you might recall, did themselves no favors by sweetening their lifeguard pensions after the recession was underway.
We don't have much to add to the Register's report, except to note that it only underscores how much trouble California cities are in. Given mounting debts and potentially terrible problems funding their pensions, as well as the trememdous political difficulties of outsourcing public jobs, many of these towns may soon be facing the decision Vallejo confronted back in 2008. And given how widespread the problems are, California taxpayers should grab their wallets and hold on for dear life.


  1. RobAug 23, 2011 01:23 PM
    Minor nit: Stanton long ago (I believe as a consequence of the 1994 county bankruptcy) lost its police force, and contracts with the county sheriff for police service, as does nearby Sunset Beach and Rossmoor.
  2. GSLAug 23, 2011 01:36 PM
    Ah. Thanks for correcting. Not as familiar with that particular corner of OC.
  3. RobAug 23, 2011 01:44 PM
    Actually, I take that back. The Wikipedia page for the city cites a 1988 strike by the then-municipal police force that eventually led to the disbanding of the 32-year-old force, and the eventual transfer to the county sheriff.
  4. GSLAug 23, 2011 01:47 PM
    Nice. Small government FTW.

    It makes sense, of course: Stanton hardly needs its own police force.