Your eyes on California Government

OCT. 11, 2011

By WAYNE LUSVARDI

The municipal funding crisis is accelerating in California.

Fresno — “The Best Little City in the USA” — may be California’s fifth largest city with a population of 510,000. And it may be the Raisin Capital of the United States. But as of October 2, its credit rating has been downgraded by Standard & Poor’s municipal credit rating service by three notches from AA to A.

Worse, it’s been downgraded from AA- to A- on its lease revenue bonds.

Further downgrades are  in the offing.

The city’s general fund budget is technically balanced for 2011. But of concern is the city’s reserve fund, which has been nearly depleted. Deficits have been rolled into long-term debt, leaving the city in a vulnerable situation should tax revenues further decrease.

Fresno has a $200 million general operating fund budget and has dedicated 5 percent, or $10 million, to reserves.  Fresno used $9.5 million of its reserve fund to plug $36 million in negative fund balances, leaving about $26 million to be repaid over time.  In other words, the city has rolled its operating budget deficit into long-term debt.

Fresno has $174 million of pension bonds outstanding that must be funded from its general fund.  Due go general economic decline, Standard & Poor’s outlook on Fresno is negative, indicating a further downgrade is “possible.”

The city budget lists several fiscal problems:

1. Lack of general fund or operating or emergency reserves;
2. Existing negative fund balances;
3. Heavy debt service load;
4. Increasing “compensated absence” (sick time) liability;
5. Increasing “Other Post Employment Benefit” (OPEB) liability (medical insurance for retirees);
6. Underfunded risk in its liability fund;
7. Uncertainty of future redevelopment funding;

Overspending

Fresno’s budget document especially points to overspending in the capital budget on the Shaw-Marks Grade Separation Interchange Project, temporary overspending of HUD Community Development Block Grant funds, and inadequate revenue to cover debt service on parking structures at its Convention Center.

Overspending its Federal Block Grant allocation apparently reflects that the city has chosen to additionally fund from its general operating budget non-profit agencies that do housing rehabilitation and weatherization programs — thus slighting core municipal services and pension obligations. A snapshot of its major budget deficit line items is shown below:

City of Fresno Deficit Funds

Source: City of Fresno 2011-12 Budget

Non-Essential Spending

Most of Fresno’s budget deficits involve non-essential municipal services involved with redevelopment such as its convention center fund, conference center expansion, zoo enterprise fund and parking fund. The city lists an almost $600,000 deficit in its “Zoo Enterprise Fund” and a $14,803,400 deficit in its “Parking Fund.”

In other words, its redevelopment enterprise activities have left the city with deficits that have nothing to do with providing essential municipal services such as police, fire, parks, roads and libraries.  With the Real Estate Bubble long collapsed into a Bust, redevelopment appears to be a loser (not considering sales taxes generated by redevelopment).

Standard and Poor’s stated that fixing Fresno’s budgetary problems will require “collective bargaining cooperation that may not be achievable in the short term.“

Reports of credit downgrades of cities, counties and special governmental districts are starting to mount in the California Municipal Bond Advisory Report.  Soon it will be commonplace news.

Fresno’s dancing raisins are wilting in the sunshine of fiscal reality.

Tags: budget, Fresno, Fresno budget, Parks, Wayne Lusvardi, zoos