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Posted on: December 23, 2020

State Auditor Ranks Palmdale Among Cities with Lowest Risks of Fiscal Distress in California

The most recent comprehensive financial analysis by the California State Auditor (CSA) revealed that the City of Palmdale has one of the lowest risks of fiscal distress in California.

Of the 453 cities that were analyzed, Palmdale came in at the 410th lowest risk, putting it in the top 10 percent of California cities. 

As part of the CSA’s high-risk local government audit program, the Auditor has established a process for determining whether a local government agency is at risk of fiscal distress. The CSA made its findings public on a dashboard that ranks the fiscal health of 453 California cities from highest to lowest risk, using ten key financial indicators. The dashboard is available at https://www.auditor.ca.gov/local_high_risk/dashboard-csa.

A statement by California State Auditor Elaine M. Howle, CPA on their website reads, “We recognize that the citizens and the government rely on us to ensure the effective and efficient administration and management of public funds and programs. It is our job to help make sure that California government stays one step ahead. As the State’s independent external auditor, we provide nonpartisan, accurate, and timely assessments of California government’s financial and operational activities in compliance with generally accepted government auditing standards.”

“Being fiscally sound is something our Council has made as a top priority for Palmdale,” said Palmdale Mayor Steve Hofbauer. “Being ranked in the top 10 percent of fiscally strong cities in the state sends a great message to existing and potential new business who are looking to grow or relocate to Palmdale.”

“Thanks to the prudent leadership of our City Council and the commitment they and our staff have to our residents and taxpayers, we are continuing to bring an outstanding level of services and program to our community even in these challenging times,” said Palmdale City Manager J.J. Murphy. “We will continue to work as good stewards of the public’s money, especially in light of the trust placed in us with the passage of Measure AV. Our commitment to you is that we will continue to be fiscally prudent and transparent in order to deliver the best to our residents, businesses, and visitors.”

For more information, visit https://www.auditor.ca.gov/local_high_risk/dashboard-csa

 

Methodology for Ranking California Cities Based on Fiscal Risk

The California State Auditor (State Auditor) analyzed financial information for California cities to identify cities that may be at risk for fiscal distress. They assessed risk by performing various financial comparisons and calculations that they refer to as financial indicators, as discussed in more detail below. They analyzed the finances related to each city’s governmental and business-type activities, including the general fund or main operating fund. 

Their analysis relied upon information from audited financial statements prepared in accordance with generally accepted accounting principles (GAAP) that they obtained through various sources such as city websites, the Federal Audit Clearinghouse, the Electronic Municipal Market Access website, and the California State Controller’s Office (State Controller). They also analyzed unaudited pension related information from the California Public Employees’ Retirement System (CalPERS) and the State Controller.

 

Financial Indicators

They selected a set of 10 indicators that enabled them to assess each city’s ability to pay its bills in both the short and long term. Specifically, the indicators measure each city’s cash position or liquidity, debt burden, financial reserves, revenue trends, and ability to pay for employee retirement benefits. They used a points-based system to rank and categorize cities as either high, moderate, or low risk for fiscal distress. They weighted the results of the indicators by assigning varying numbers of points to each indicator based on their judgment of each indicator’s relative importance. The table below summarizes the financial indicators and maximum points assigned to each indicator.

 

 

 

Financial Indicators

Points Possible

Palmdale’s Score

1. General Fund Reserves

30

30

2. Debt Burden

15

11.75

3. Liquidity

10

10

4. Revenue Trends

5

3.63

5. Pension Obligations

10

9.76

6. Pension Funding

5

3.70

7. Pension Costs

5

4.17

8. Future Pension Costs

5

3.61

9. OPEB Obligations

10

10

10. OPEB Funding

5

5

Maximum Score Possible

100

91.62

 

For details on methodology, please visit https://www.auditor.ca.gov/local_high_risk/process_methodology#detailmethfinindic

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