In determining a healthy asset-to-liability ratio for cities, the Los Angeles Civil Grand Jury has named Signal Hill in a list of charter cities operating beyond their means.
In its June 2011-2012 final report, the Grand Jury examined the governance, management practices and fiscal health of 22 cities based on those cities’ 2010 financial reports. With the Grand Jury’s prescription of operating on twice as many assets as liabilities, 22 cities did not make the cut, including Signal Hill. Other cities listed with less than a 2:1 ratio were Compton, Culver City, Industry, Inglewood, Pomona and Vernon.
According to the Grand Jury’s calculations, Signal Hill was reported to have only a 1.52:1 ratio. But that isn’t entirely accurate, said Signal Hill City Manager Ken Farfsing. The Grand Jury’s findings are a distortion of the city’s ratio, he said.
“There are two fundamental issues with the Grand Jury’s report. First, the Grand Jury included Redevelopment Agency debt as a city liability. The former RDA is a separate legal entity, and the City is not responsible for RDA debt,” Farfsing said.
The Signal Hill city budget, which pays for expenses such as police, libraries and public works, is separate from the RDA budget. “What happened is the (California) Legislature allowed cities to form separate entities called redevelopment agencies. The debt can’t be commingled between the two,” said Farfsing. “I can’t take revenues from the redevelopment agency and use it to pay for the police department, and I can’t take city money to have it pay for the redevelopment agency.”
The second problem with the Grand Jury’s findings, said Farfsing, is that they did not include the future property tax revenues to pay back the bonds as an asset.
“If the Grand Jury came out and said Signal Hill has a Redevelopment Agency and it has $85 million in debt and then they basically said the assets are the future property taxes, because the bonds will be paid for over a 20-year period… with property taxes, I’d be okay with that because that’s the facts,” said Farfsing.
“But when they lump everything together, that causes me concern because I can’t commingle these assets and liabilities,” he said. The Grand Jury didn’t contact Farfsing for clarification or review of the data the city submitted before publishing their findings.
Recalculating Signal Hill’s 2009-2010 fiscal data the Grand Jury implemented of $106.2 million in total liabilities, but removing the $89.7 million in outstanding RDA debt, the asset-to-liability ratio for the city would be 8.73:1. This figure would put Signal Hill as the most fiscally responsible of the 22 cities. Had this same report used figures from the past two years, the city’s financial condition would be even more improved, Farfsing said.
The City will prepare a response letter including clarifications to be submitted to the Grand Jury by Oct. 1. Also in the findings, the Grand Jury recommends “multi-year budgets for better planning.” Farfsing said his office will present this to city council.
The Los Angeles Civil Grand Jury consists of 23 members whose responsibilities include investigating county government, municipalities and special districts to ensure citizens are served fiscally and efficiently. The Grand Jury is in place to “safeguard citizens’ interests by performing as a ‘watchdog’ over the operations of public agencies within Los Angeles County.” Grand jurors are sworn in for a 12-month period and serve full-time.
Signal Hill is a charter city that operates on a significant amount of “home rule,” guaranteed by the California State Constitution, giving the city control of local affairs, autonomous of the state. The city’s constitution is the city charter, authorized by its citizens’ vote.